Deutsche Bank AG, Germany’s biggest bank, was asked by the nation’s financial regulator BaFin to simulate a split of its consumer banking and trading businesses, said two people with knowledge of the situation.
The financial watchdog asked Frankfurt-based Deutsche Bank to calculate the impact of implementing proposals from the so-called Liikanen group, said the people, who asked not to be identified because the matter is private. Officials at Deutsche Bank and BaFin declined to comment for this article.
Regulators are toughening rules on banks to prevent a repeat of the taxpayer-led bailouts of 2008. The European Union-commissioned group led by Bank of Finland Governor Erkki Liikanen, in an October report, called for banks to put their trading and deposit-taking activities into separately capitalized units.
“A hard split of the retail unit from the trading activities would strongly increase funding costs of the investment bank,” said Philipp Haessler, an analyst at Equinet AG who recommends the shares. “A soft split like the French system would be bearable, but the best would be to keep the system like now.”
Deutsche Bank fell 1.9 percent to 35.94 euros in Frankfurt trading following the report and amid speculation about its earnings outlook. The shares have risen 9.1 percent this year.
Deutsche Bank has the biggest trading activities compared to its balance sheet in Germany. Newspaper Boersen Zeitung reported earlier today that BaFin asked two banks to simulate a split, citing unidentified people.
French Finance Minister Pierre Moscovici introduced a bill in December designed to force that country’s largest banks to fence off proprietary trading activities in dedicated units. The rules would also forbid banks from holding stakes in hedge funds and limit high-frequency trading and commodity speculation.
The changes are milder than those proposed by the EU and U.K., as the government seeks to preserve a universal model that combines consumer lending with corporate and investment banking.
In Germany, the debate over banking rules has intensified as the country prepares for national elections in September. Chancellor Angela Merkel’s ruling coalition, facing opposition criticism that it hasn’t done enough to rein in bankers and protect taxpayers, asked the government before a Jan. 20 election in Lower Saxony to look into Liikanen’s proposals. Finance Minister Wolfgang Schaeuble so far hasn’t voiced a final opinion on the group’s report.
Liikanen’s suggestion is “a good approach but one that also has its limits,” Elke Koenig, BaFin’s president, said in a copy of a speech in Frankfurt today. “A structural division alone isn’t enough to rid the world of systemic risks. We would win little security if we pushed evasive actions into the weakly-regulated or unregulated market.”
International oversight of the so-called shadow banking sector, that carries out business similar to that of normal lenders without being subject to the same rules, is necessary to yield results from planned regulation, Koenig said.
Peer Steinbrueck, the Social Democratic candidate for chancellor, is calling for a split of investment banking from consumer lending to protect taxpayers and depositors.
Bankers say adopting the Liikanen proposals on splitting up banks would increase costs for consumers and companies and hurt the economy.
“An artificial split would put a huge burden on society and harm clients,” Deutsche Bank Co-Chief Executive Officer Anshu Jain said at an event in Koenigstein, Germany, yesterday. “This would solve a problem that doesn’t exist.”