Chancellor Angela Merkel’s coalition is divided over a bailout fund for banks proposed by Deutsche Bank AG Chief Executive Officer Josef Ackermann, with parties split on whether taxpayers should shoulder some of the cost.
The German financial industry should pay for the whole fund, Michael Meister, deputy parliamentary head of Merkel’s Christian Democratic Union, said in an interview. The finance spokesman for the Christian Social Union, one of three blocs in her government, countered that banks alone can’t afford it.
“The idea of clobbering banks for a crisis fund that they alone pay into is the buzzword of the moment,” yet it’s a “very shaky proposition,” said Dorothea Schaefer, head of financial markets at the Berlin-based DIW economic institute. “If a major bank should go pear-shaped, the government has to pump money into the system to calm the market.”
The wrangling in Germany over an as-yet undefined pot of money to rescue banks when needed mirrors battles being waged within the Group of 20 nations over the scope of regulations to prevent a repeat of the worst financial crisis in seven decades.
At the World Economic Forum annual meeting in Davos, Switzerland, last week, politicians expressed frustration at the lack of progress on financial reform as bankers pushed for global harmony on new rules.
The dispute in Germany stems from a proposal Ackermann made in November for a risk fund backed by the government. German officials are working on proposals to be presented at a G-20 summit in Canada in June. The coalition has said it will propose a law on executive pay this month, enshrining a plan outlined by Ackermann in December in which Germany’s eight largest banks and three top insurers agreed to impose self-restraint on pay.
While Merkel’s coalition agrees on the need for a broad banking overhaul, they disagree on the form any proposed levy might take and how big the fund should be. Lawmakers from the CDU and their CSU allies will meet in Berlin on February 7-8 to hammer out a joint position.
Also Read
“The banks must bear the costs of protecting against future risk themselves — in full,” said Meister of the CDU.
That stance is at odds with some in the CSU, who say that Ackermann’s call for public funding alongside bank contributions is more realistic. Ackermann “may be not far off the mark,” said Bartholomaeus Kalb, CSU finance spokesman.
“I’m not convinced that a stand-alone private fund would work,” said Kalb. “Public money will always be needed at the end of the day to correct a Lehman-type catastrophe.”
The government in 2008 established the 500 billion-euro ($698 billion) Soffin bank-rescue fund, which has taken over Hypo Real Estate Holding AG and provided emergency loans to Commerzbank AG in exchange for a government stake of 25 per cent.
The third coalition member, the Free Democratic Party, is pushing for a deposit-guarantee fund to be financed by the banks in addition to the crisis fund Ackermann has proposed.
“Let’s see if we can keep the pot from boiling over again into conflict in the coalition once we roll up our sleeves and get down to the detail,” the FDP’s finance spokesman, Frank Schaeffler, said. “We want banks individually to deposit risk insurance with Soffin on top of a general crisis-prevention fund. That’s not going to be popular and we’re going to have to stick to our guns to get our voice heard.”
The German fund may serve as a model, Ackermann suggested in Davos at a January 29 panel discussion after a meeting of banking-industry executives.
“On the psychological and political side, we agreed that we should become proactive in helping to put in place maybe insurance funds on a national or European level or even a larger level,” Ackermann said, without providing details.