Interview with Henriette Peucker, Deputy Chief Executive of the Association of German Banks, published in the German daily financial paper Börsen-Zeitung on 11 January 2022
The Deputy Chief Executive of the Association of German Banks in an interview on the current situation, the future and regulation
Henriette Peucker, Deputy Chief Executive of the Association of German Banks, believes that German banks are prepared for the approaching economic downturn. She says that they are well capitalised, regularly adjust their risk provisioning strategies and have taken an “appropriately pessimistic view of 2023”.
Ms Peucker, what is happening with the management structure of the association? When will Chief Executive Christian Ossig return to work?
I’m afraid I have no news on that. We all wish him well, and hope that he makes a full recovery very soon.
Is the association still able to carry out its mandate?
Yes, of course. We reorganised the management team before Christian Ossig went on leave due to his accident. Since then, we have been sharing management tasks between the four of us, which works very well. Cooperation between the association’s management team and our members continues to be as effective as ever.
Are you the acting representative for the association with respect to politics?
I am responsible for the topics of politics and innovation. Innovation covers the payments market, the digital euro, banking technology and security. Representing the association with regard to these topics and generally in the political arena is indeed my responsibility.
And do you sometimes share that responsibility with President Christian Sewing?
Yes, I also support our president. He’s very active within the association, and we keep in very close contact. He’s a strong president, which is good for our banks.
How are Germany’s banks doing in light of the coming recession?
I’d like to start by saying that there is a lot of evidence that the recession – when it arrives – might be less severe for Germany than previously expected. But either way: The German banks are strong, stable and resilient. They are in good shape. The European banks’ capital ratios have practically doubled since the financial crisis, and that is also true for banks in Germany. Of course, the banks are keeping an eye on their customers’ economic situations and will adjust their risk provisions as necessary. We are more worried about the economy’s long-term competitive capabilities in light of higher energy prices and the huge investment that will be required for the upcoming transition.
Do you expect to see a significant increase in the number of companies filing for bankruptcy?
We do expect to see more bankruptcies in 2023, but not a wave of them. And, of course, we are starting from a very low bankruptcy rate. As for the banks: their risk systems are good. From what I can see, the banks are acting very carefully and responsibly. The fact that supervisory authorities are now even more aware of risks than the institutions themselves was to be expected.
How are the banks coping with rising interest rates?
They are coping well, on the whole. But I of course can’t speak for individual banks.
Will net interest incomes continue to rise?
Right now, we are indeed seeing positive developments in net interest incomes for European banks. The period of negative interest rates was an exception: in a normal interest rate environment, it’s possible to achieve higher interest margins. Rising interest rates are therefore likely to have a positive effect on earnings in the medium term. However, negative economic trends combined with rising interest rates may reduce demand for credit over the short term, meaning that it is quite difficult to make reliable predictions at this point in time.
What issues are you currently discussing with supervisory authorities?
We discuss lots of issues with supervisory bodies, but at the moment we consider the countercyclical capital buffer to be the most controversial. In the current situation, the buffer is acting in a pro-cyclical manner, which is why we believe it is not an appropriate measure at present, as it may make loans more difficult to come by and more expensive. In addition, we believe it is important to highlight the effect that regulation has on financing conditions and competitiveness. Ever since the crisis, the banks have positioned themselves to be part of the solution.
What would you like to see happen?
For the Federal Financial Supervisory Authority (BaFin) to lower the buffer to zero.
To what extent do the banks believe the economy will slow down in 2023?
Strangely enough, the banks are somewhat more sceptical than the German government in that regard. The government is predicting that Germany’s GDP will shrink by 0.4%. Economists working for banks, however, are predicting a drop of up to 1%.
What conclusion do you draw from that?
It means that the banks are definitely taking the potential economic risks seriously and are preparing accordingly.
There is a compromise for the banking package currently tabled in Brussels, which includes, among other things, a proposal for implementing capital adequacy rules under Basel III, which have long been a contentious issue. What do you think about the compromise?
The compromise proposed by the European Commission and the Council of Ministers is a step in the right direction. The banking package should be passed as soon as possible.
Are you worried that the package will be revisited before it is passed?
We have heard that there is some interest in reworking the package and adding to the macroprudential buffers. That is a concern. The competitive capabilities of European banks should not be burdened by a further tightening of regulations. Plus, it is important that the banks are able to plan in advance, and that they have enough time to implement the required technical measures.
What do you make of the requirements for the securitisation market?
There is still a need for action regarding securitisations in the banking package. If no changes are made to the Commission proposal currently on the table, it will likely hamper the securitisation market. The output floor would only further tighten securitisation regulations, which are already very conservative. Above all, we are advocating for the regulations to be streamlined.
Do you think that would revitalise the securitisation market?
I have to admit that in this case, it’s not just about regulation; there’s also the fact that demand on the market could be better. We worked together with the French Banking Federation and others on a joint position. The goal was to make it clear that the securitisation market, in addition to the creation of a deep, unified European capital market, will play a major role in financing the transition.
Why is that?
We are in the middle of a digital transition, in addition to the green transition. Both require significant amounts of money. So much that neither the state nor the banks are capable of providing it alone. So, we are campaigning for three things: first, financing for these transitions – including in the form of a strong, liquid EU capital market – has to be given a higher priority. Second, the banking package cannot make loans more expensive than is necessary. And third, a securitisation market is important, one that makes it possible to make room for new business on bank balance sheets.
What do you think is necessary with regard to requirements for green and sustainable financing?
Instead of simply focusing on dark green activities, politics must focus on financing the transition. Medium-sized businesses, in particular, are facing tremendous financial challenges. We cannot lose them to the transition. That’s why we need clear, workable and internationally agreed regulations.
You have mentioned the green transition. What is the core responsibility of the banks in in relation to this transition?
Our job is to support the economy as it moves towards a sustainable system. That means we provide advice, financing and support for businesses, making banks part of the solution.
Let’s take a moment to talk about the Financing for the Future Act [Zukunftsfinanzierungsgesetz] that the German government is planning to introduce.
We expect the proposal to come at the beginning of the year. Our previous interactions with the Ministry were constructive and we believe that the proposals are good in the context of what is possible just at the national level. We are confident that it will be a productive initiative.
Do you view any of the elements as being particularly important?
One point that we have high hopes for is, in addition to modernising the German Stock Corporation Act, the reform of GTC laws. At the moment, legal requirements for general terms and conditions are always interpreted by German courts with consumers in mind. And that’s the case even if the transaction is between professional market participants. An exception for agreements made between professionals would be a sensible measure that would significantly strengthen Germany’s position as a legal and financial hub.
Another issue that you are currently discussing with the German government is the bank levy. Why is that?
The issue is the older funds, that is funds from the national levy paid by German banks before the European banking levy was introduced. We want to see these unused funds go towards relieving German banks. For example, there is the option of using the funds collected as part of the German bank levy to offset the European levy. The funds this would free up would significantly increase the amount that banks have available to support businesses, in particular as they transition towards climate neutral practices and improve their digital competitiveness. We hope that the German Ministry of Finance will keep this in mind and make an appropriate decision in 2023.
Speaking of 2023: what is your forecast for the new year?
Our President, Christian Sewing, recently said that this was the most challenging time he had ever lived through – not the worst, but the most challenging, the most complicated. There are so many issues – war, supply chains, energy – happening all at once, and they must be integrated with one another.
And what position are the banks in at the start of this complicated year?
The banks are well capitalised and regularly adjust their risk provisions. And they have taken on a – let me put it this way – appropriately pessimistic view of 2023. I am therefore confident that no one is going to be naïve when it comes to the potential risks.
