July 22, 2017

In Germany, Little Appetite to Change Troubled Banks

Is it Italy, Spain or perhaps Greece? No. That description is of Germany’s banking sector.

While the country’s economy is often held up as a model, German banks are among Europe’s most troubled. They required a bailout bigger than the one American banks received, and many are still struggling to recover.

But there is remarkably little discussion about fundamentally changing the structure of the German banking system. On the contrary, Europe’s economic leaders criticize Germany for slowing progress toward unifying the Continent’s patchwork system of bank regulation, an effort seen as crucial to restoring faith in the euro zone and averting future globe-threatening crises. Ailing German banks are also a dead weight on the euro zone economy as it struggles to crawl out of recession.

“Germany was actually hit very hard by the financial crisis,” said Jörg Rocholl, president of the European School of Management and Technology, a business school in Berlin. But the debate about the future of banking in Germany is “alarmingly nonintense,” Mr. Rocholl said.

Banks in Germany invested in seemingly every bad asset that came their way, including American subprime assets and Greek bonds. “There is no sense of pride that Germans were especially thorough or prudent,” said Sven Giegold, a German who is a member of the Economic and Monetary Affairs Committee in the European Parliament.

Some 646 billion euros, or about $860 billion, was spent or set aside to rescue German banks from 2008 through September 2012, according to European Commission figures. That is the second-highest bailout in Europe after Britain and more than the $700 billion authorized for the Troubled Asset Relief Program in the United States, of which $428 billion has been spent, according to the Congressional Budget Office.

In one recent example of German banking dysfunction, German authorities indicted Bernie Ecclestone, the chief executive of the Formula One auto racing series, in connection with a $44 million bribe said to have been paid to the former chief risk officer of BayernLB, a so-called landesbank owned jointly by the state of Bavaria and community savings banks.

Mr. Ecclestone, accused of making the payoff in 2006 so that the bank would sell its stake in Formula One to his favored buyer, has said he did nothing illegal.

The landesbanks, typically owned by state governments and local institutions, have a long history of corruption and mismanagement. BayernLB already required a 10 billion euro bailout from state taxpayers, and several other of its former top managers were under investigation for insider trading. Six former top managers of HSH Nordbank, a landesbank in Hamburg, are on trial for charges that include fraud and illegally concealing the bank’s true financial state, including losses on loans to the depressed shipping industry.

“Germany’s banking industry has improved its capitalization significantly and is now better off than before the crisis,” said Christopher Pleister, chairman of the German Financial Market Stabilization Agency. He said Germany’s bank restructuring law included strong protections for taxpayers and rigorous oversight. Mr. Pleister said it should be the model for the rest of Europe.

Yet there is little appetite for change in Germany because the banking system is so deeply intertwined with its politics, serving as a rich source of patronage and financing for local projects.

The landesbanks and the country’s roughly 400 local savings banks, known as sparkassen, are controlled by state and municipal politicians. All told, about 45 percent of the German banking industry is in government hands. That is not counting a 25 percent stake in Commerzbank, the country’s second-largest commercial bank, acquired by the federal government in the course of a bailout.

Article source: http://www.nytimes.com/2013/08/10/business/global/in-germany-little-appetite-to-change-troubled-banking-system.html?partner=rss&emc=rss