A society that combines social stability and economic growth
In his welcome, DSGV President Fahrenschon stressed that there has rarely been a time where the world faced such big economic imbalances and structural problems. The European economic and monetary union is under pressure, while the United States seems tempted by isolationism and the emerging countries continue to suffer from the fluctuations of global capital flows. The central question for organisations such as the G20 is thus undoubtedly how they can create a sustainable growth model that combines social stability and economic dynamism. Open borders, strong and equal trade relations between countries and continents as well as constructive international cooperation are the only way a world of equal opportunities can be created. In this respect, the business model of local banks guarantees an economic diversity that contributes to social stability and economic growth. All over the world, local banks help people to improve their situation.
They give people access to finance, they help them to save and by granting credit in a responsible way, they create a positive economic cycle in their region. This, Fahrenschon said, is what the German savings banks have been doing for more than 200 years. Local savings and local credits have created a virtuous economic cycle in every German region. Together, the German savings banks serve 50 million people out of a total population of 80 million. They provide 40% of the loans to German businesses and manage €686 billion of household deposits. Savings banks are present everywhere in Germany. They support cultural and social initiatives and give a return to local communities. Fahrenschon expressed the hope that the business model of local banks would be strengthened by a better regulation, more concretely by a "small and simple banking box" for local business models with a low risk profile. A diversity of economic structures requires a diversity of financial structures, he concluded.
Credit supply, financial inclusion and proportionate regulation: the mantra of savings and retail banks laid out by WSBI President Heinrich Haasis
In the opening speech for the conference, WSBI President Heinrich Haasis outlined the three pillars of the German presidency of the G20: economic stability; a better future and taking responsibility. One of the most important challenges that the German G20 presidency will have to tackle, he declared, is the growing distrust of the population with regards to globalisation and multilateral relations. It is easier to listen to the sirens of protectionism, of splendid isolation. People are building more and more walls, in the real world but also in their heads, he continued.
What can local banks such as the WSBI member institutions do about this? Well, these locally anchored institutions serve 1.3 billion people and support the local economy mainly through a steady flow of credit barely affected by economic downturns. This flow of bank credit will never be overtaken by capital market financing, Haasis added. Indeed, market instruments are far too expensive, unreliable and complicated for especially the smaller segment of the SME market. The same local banks are also at the forefront of financial inclusion and financial education. By offering basic and more sophisticated financial services and products to all segments of the population, they create the basis for economic independence. Local banks can help create growth that comes from the basis. Their specific business model guarantees a close collaboration with the local economic fabric and at the same time allows this local economic fabric to create and maintain commercial relationships with the rest of the world. This is how the benefits of globalisation are brought to the local level. To make sure that local banks can continue to do what they do best, a proportionate regulation is needed that takes into account the specificities of local banks. It cannot be, Haasis stressed, that local banks have to spend most of their time, effort and financial resources in complying with regulation, instead of taking care of their customers. We need regulation, local banks ask for regulation, but this regulation should be adapted to their specific situation.
German Federal Minister of Finance: too many charges for small and savings banks
In a much appreciated speech, German Federal Minister of Finance Wolfgang Schäuble said that internationally active banks need rules that have been agreed upon by international organisations. Banks and regulators should never forget the lessons from the financial crisis, he said. Local banks and savings banks should be able to function however with rules that are adapted to their specific business model and should not bear the full regulatory burden, for example in the field of reporting. He pleaded in favour of taking more into account the credit supply to SMEs in the calculation of the leverage ratio. Schäuble elaborated on the review of the financial regulation that the new U.S. administration is considering and said that the first contacts between the EU and the U.S. counterparts are under way. The G20 is an essential instrument for collaboration between developed and emerging countries and is essential for global cooperation, he concluded.
Regulation should be international because financial institutions are – Andreas Dombret
Andreas Dombret, German central bank board member tackled head first the complaint of local banks that they seem to bear the brunt of the regulatory burden. He stressed that as a result of the financial crisis, the decision was taken to address all problems of a complex financial system without borders where crises can jump from one country to another. He agreed, however, that it should be possible to adapt international standards to lower risk business model of savings and smaller local banks Regulation is indeed there to protect the economy of excessive risks. Higher risks require more severe regulation and vice versa, he continued. That is why local banks can opt to calculate their capital requirements according to an internal or a standard method. International banks, on the contrary, need to comply with additional requirements. Typical savings banks also have to report much less data to the ECB than international banks. Andreas Dombret admitted, however, that the crisis has led to a growing complexity of regulation, and this complexity hits the smaller banks harder. As an example, he mentioned the reporting requirements for quoted banks, that should simply not apply to smaller banks that are not quoted. However, he concluded, proportionality does not mean no rules. All kinds of banking institutions carry a certain amount of risk. To create a global playing field that is really level, regulators and supervisors should focus on the risks that the various institutions bring to the global financial system. In Europe, Dombret pleaded for a thorough reflection on the idea of a "small banking box".
SME financing as a key driver for a sustainable economy
"Which organisation should represent SMEs?" asked Dr. Jürgen Heraeus, Chairman of the B20, right from the start of the first panel. Professor Inderst of the University of Frankfurt declared the challenges are manifold: bank versus market financing, new entrants such as fintechs and other startups that have special requirements. Participants agreed that it is difficult to regulate such a diverse sector as the SME segment of the economy. There was, however, a consensus on the fact that SMEs are a factor that can prevent cyclicality. Another consensus reached was on the enormous influence of digitisation on the SMEs and the banks that finance them, leading Alejandro Henke of Banco de la Nacion in Argentina to predict that "one day, banks might lend in bitcoin". Matthew Gamser of the Global SME Forum at IFC thought that the wave of globalisation is a factor that offers unparalleled opportunities to SMEs all over the world.
Better regulation – Best for a resilient economy
In the second panel, representatives of the regulatory and the banking community discussed the implementation of regulation and supervision. DSGV's Schackmann-Fallis made a vibrant plea for a proportionate regulation and said that local banks should be excluded from the Basel rules. Gerhard Hofmann, representative of the European cooperative banks agreed with this and said that the European Union should make a cost/benefit analysis of the regulatory framework that banks currently have to comply with. Banks are already the most regulated economic sector in the world. There should be a "same risk, same rules"-approach, said Schackmann-Fallis and fintechs and other newcomers should be regulated in the same way as banks are. He pleaded for an introduction of a "small and simple banking box" for local banks and savings banks.
Creating a beneficial environment for financial inclusion: the role of governments and industry
The third and final panel discussed the important question of how all citizens can be included in the financial system. Despite the tremendous efforts that have been made in countries all over the world, such as India to mention just one, much remains to be done. Sustainable solutions are needed that offer a cheap, efficient and usable set of products to all users, with a bank branch access but also a mobile access. A call for concrete collaboration between governments, regulators and banks was launched by WSBI's Managing Director Chris De Noose. Alfred Hannig of AFI, the Alliance for Financial Inclusion agreed to this and said that digitisation creates an enormous challenge for the regulators, since new areas such as cybersecurity, data protection and privacy laws enter the regulatory equation. Only a collaboration between the industry and the regulators can lead to a workable solution. In his closing remarks, DSGV President Georg Fahrenschon concluded that the conference had made it clear that in order to come to more stability in the financial markets it is clear that there should exist a plurality of business models.