Germany’s entire banking industry has joined forces to resist any compulsory recapitalisation of banks, urging Berlin to resist European moves to impose higher capital requirements across the board.
In a furious letter to Wolfgang Schäuble, German finance minister, the country’s five banking associations are demanding that any risk assessment of European banks should be based on the current concept of capital requirements, and should not anticipate the Basel-III rules that are only supposed to come into effect from 2019.
“It cannot be in the interests of stabilising the financial markets to fabricate an imaginary weakness of the European banking industry through the artificial tightening of capital requirements,” according to the letter, a copy of which has been seen by the Financial Times.
Details of the initiative emerged after Josef Ackermann, chief executive of Deutsche Bank, the largest German bank, issued a blunt warning on the European Union’s plans to recapitalise lenders, saying he would rather sell off valuable pieces of his institution rather than accept state funds.
The plan for bank recapitalisation has been seized by the 17 eurozone governments as a key part of a package intended to stem the financial crisis in the common currency area. The European Commission published its own proposals on Wednesday for a common European plan.
The whole plan, to be tabled at a European Union summit on October 23, will also include measures to reduce the outstanding debt burden on Greece, where the crisis began, and to increase the financial firepower of the €440bn European financial stability facility, set up last year as a rescue fund, to prevent contagion affecting other eurozone members.
The German banks have been among the most outspoken in denouncing the plan, in a backlash across the entire European banking industry. The letter to Mr Schäuble, which was also sent to Jens Weidmann, president of the Bundesbank, and BaFin, the German financial regulator, said the European Banking Authority should not apply stress tests “that overshoot the mark in the current tense situation”. That would amount to a “self-fulfilling prophecy” which would only deepen the financial crisis.
In a speech to clients in Berlin, Mr Ackermann warned that it would be impossible for many banks to raise capital from the markets in the current climate. He said Deutsche Bank would “do everything” in its power to avoid a forced recapitalisation.
Mr Ackermann warned, however, that this might mean “greatly reducing the balance sheet, and possibly even separating from activities that are very much in the strategic interest of the bank.”
There was no immediate response from the German finance ministry, although officials said the government was keen to agree on a common European strategy of bank recapitalisation, rather than allowing every country to impose its own solution as happened in 2008 after the collapse of Lehman Brothers.
In a separate interview with Bild, the mass circulation newspaper, Mr Weidmann said most banks were in a better position than in 2008 but confidence had been damaged by the sovereign debt crisis. Banks should increase their capital from their own resources, he said, but “in the final analysis” it might be necessary to apply pressure to them.