Structural Change in the German Banking System? (German Edition)

Open banking systems do have their risks, though - in this case, cyber risks. I am pleased to note that our low-interest-rate survey shows that institutions are planning to step up investment in this field - but at present many of them are still vulnerable. This is a hugely important topic to me because I feel it is still being neglected. We intend to increasingly probe the extent to which credit institutions can handle cyber attacks. Yet at the same time, supervisors are keen to take account of the competitive environment. The Single Supervisory Mechanism, of which we are a member, today released a consultation on guides concerning the assessment of licence applications - and this explicitly also addresses the question of fintech credit institution licence applications.

I urge banks and fintechs to use the consultation phase constructively. I come now to the cost side and to the challenge of compensating for declining income through greater efficiency. This brings me to my fourth theory: German credit institutions could provide their services more efficiently.

Once again, I would draw your attention to the low-interest-rate survey, whose findings suggest that small and medium-sized German institutions are expecting their cost-income ratio to increase. Unfortunately, this puts German credit institutions at the bottom of the European league. If the cost-income ratio remains poor because of a failure to significantly bring down administrative costs, then more has to be done. I fully support those institutions which are doing just that, but I have to say that there are still many institutions which are not.

And I am talking here about all three pillars of the German banking system, although perhaps not to the same extent in each case. We point out these differences in our conversations with the sector associations, and I hope that what we tell them sinks in, because differences can definitely be a sign that more has to be done in some quarters than in others. Banks and savings banks will have to become even more efficient, and they will have to do so in a new, tougher regulatory environment. What I am getting at here is that the regulatory framework cannot be loosened so as to allow inefficient institutions to kick structural change into the long grass.

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I readily admit that credit institutions incur costs because of regulation and oversight. But a bank or savings bank which cannot survive in an effective regulatory and supervisory environment needs to urgently rethink its business model. It goes without saying that adapting to the new regulatory requirements is a mammoth task, and the uncertainty surrounding the regulatory reforms which have yet to be put in place is clearly a problem.

This is why we are making every effort to complete Basel III without creating excessive burdens. Once that has been done, Basel III should, as far as possible, be implemented in a way that is committed to the Basel rules.

Structural change in the German banking system?

But there is one thing we must ensure: For all the others, I would like to see appropriately gradated rules. Ladies and gentlemen, regulation must not and never will be an instrument of structural policy. That is something which the market players need to decide among themselves. And this brings me to my final theory, which is that mergers and takeovers will not make banks and savings banks immune to structural change. Many commentators believe that fierce competition in the German banking sector 1 makes further consolidation inevitable, and I for one share that view.

The forms which consolidation takes will be determined by customer behaviour and the banks' response to that behaviour. Capacity reduction by existing institutions is likely to play a major part in this. The specific question which we have to ask is therefore, will there be more mergers and, if so, can they alleviate the problems associated with structural change? Again, our low-interest-rate survey provides some interesting insights: And a similar number of institutions think it a plausible proposition that they could be taken over as part of a merger in the next five years.

But I wish to warn against unrealistic expectations: This is because, for a merger to succeed, a number of important conditions have to be fulfilled.

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For example, there have to be sustainable synergies in the business models or in regional coverage. There is no exhaustive list of factors which determine success, nor is there a blueprint for success. German institutions must therefore perform a comprehensive health check in order to detect avoidable problems at an early stage.

Even where mergers are successful, however, new opportunities for value creation do not come about automatically, and customer needs are not automatically better served. Ladies and gentlemen, an animal that tries to resist evolutionary change because it is not congenial risks becoming another animal's dinner. Similarly, technological progress changes value creation in the banking sector.

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There is no escaping this simple truth. It is undeniable that monetary policy and regulation are currently having major side effects on the banking sector, but we cannot allow these side effects to blind us to the uncomfortable fact that it is precisely the new, creative and innovative forces that are destroying existing structures in the banking sector. Every bank and every savings bank must ask itself if it wants to be part of the creative force, part of the new structures, or part of a ruined structure.

I dare to suggest that most of you wish to belong to the first group.

Do you believe that it is possible without taking courageous decisions? Or without unpopular decisions? Creative decisions presuppose creative questions: In Germany's banking landscape, the questions which are being asked are all too often framed in a decades-old mould of thinking. So, to misquote title of a song by German singer Ina Deter, perhaps the country needs new bankers? Essentially, it does, because you will not be able to lead your institutions to a new era with the old thinking.

Banks are becoming service providers with banking licences; account holders and bank customers are becoming "users" who require a broad spectrum of flexible financial services. So, yes, a new world needs new bankers, or at least experienced bankers who have the courage to take innovative decisions. My challenge to the sector is therefore to perform a mental demolition of established institutions wherever necessary and to rebuild them on green-field sites. Today's banks will only be successful tomorrow if they have enough new bankers, or take new decisions.

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Flight into risk isn't the answer One simple escape route out of this malaise, it would appear, is a flight into risk - the search for yield is what I'm talking about here.

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Credit institutions need to be open-minded to new forms of value creation And that brings me to my third theory. Related information More speeches from "Deutsche Bundesbank" Country page: Top Share this page. If you are a seller for this product, would you like to suggest updates through seller support? Read more Read less. Here's how restrictions apply. Be the first to review this item Would you like to tell us about a lower price? Don't have a Kindle? Try the Kindle edition and experience these great reading features: Share your thoughts with other customers.

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