Dombret Sees Risk of Brexit Talks Race to Bottom

TL;DR

Dombret discusses Brexit's regulatory challenges and bank mergers in Europe.

Transcript

Talk to me about regulation and Brexit. If Brexit happens, if it's a hard and messy Brexit, are you concerned that there will be regulation that will be so vastly different here in the UK compared to the rest of Europe? We surely don't know yet. Uh but I can tell you that it would not be a route we would like to take to have a race to the bottom. W... Read More

Key Insights

• Andreas Dombret emphasizes the importance of maintaining strict regulatory standards post-Brexit to avoid a 'race to the bottom' in financial regulations between the UK and Europe.
• The Bundesbank, along with other European institutions, is committed to upholding a single rule book and ensuring consistent supervision across Europe, preventing regulatory arbitrage.
• The timeline for implementing Basel 3 reforms is expected to conclude in 2017, with a focus on quality over speed in the regulatory process.
• European banking mergers are viewed as a potential solution to low earnings power, but must be approached carefully to avoid creating weaker institutions from weak banks.
• Dombret does not advocate for promoting Frankfurt over other European financial centers post-Brexit, emphasizing that decisions should be made by the private sector based on various factors.
• Cross-border mergers within the single supervisory mechanism will not be treated differently from domestic mergers, maintaining consistency in regulatory oversight.
• The fragmentation of the transatlantic financial system is a concern, with capital flows being hindered and M&A activity stagnating due to regulatory complexities.
• Germany will not offer regulatory discounts to attract banks post-Brexit, insisting on full operational presence and management within the country for any relocating institutions.

Questions & Answers

Q: What is Andreas Dombret's stance on regulatory standards post-Brexit?

Andreas Dombret stresses the importance of maintaining strict regulatory standards post-Brexit to avoid a 'race to the bottom' in financial regulations. He emphasizes that it is crucial for Europe to adhere to a single rule book and ensure consistent supervision to prevent regulatory arbitrage, thereby maintaining stability and fairness in the financial system.

Q: How does the Bundesbank plan to address potential regulatory divergence after Brexit?

The Bundesbank plans to address potential regulatory divergence by committing to the single rule book and ensuring consistent supervision across Europe. Dombret highlights that the Bundesbank, along with other European institutions, will work to prevent regulatory arbitrage and will not allow the reforms achieved so far to be watered down, maintaining a unified regulatory approach.

Q: What is the expected timeline for completing Basel 3 reforms?

The expected timeline for completing Basel 3 reforms is the year 2017. Andreas Dombret mentions that although there is no rush, quality should be prioritized over speed. He expresses his conviction that the remaining steps of the Basel 3 reforms will be finalized within the year, ensuring a robust regulatory framework.

Q: What is the perspective on European banking mergers?

European banking mergers are viewed as a potential solution to the problem of low earnings power among banks. However, Dombret emphasizes that mergers should be approached carefully to avoid creating weaker institutions from weak banks. He suggests that complementary banks with synergies merging could lead to higher earnings, but these decisions should be made by the private sector.

Q: How does Dombret view the promotion of Frankfurt as a financial center post-Brexit?

Dombret does not advocate for promoting Frankfurt over other European financial centers post-Brexit. He emphasizes that it is a private sector decision where banks choose to relocate, based on various factors such as management comfort and historical presence. He highlights that Frankfurt offers certain advantages but insists that the decision should not be influenced by regulatory promotion.

Q: Will cross-border mergers be treated differently from domestic mergers?

Cross-border mergers will not be treated differently from domestic mergers within the single supervisory mechanism. Dombret assures that the same regulatory oversight and standards will apply to both, ensuring consistency and fairness in the treatment of mergers, regardless of whether they are cross-border or domestic.

Q: What concerns are raised about the transatlantic financial system?

Concerns are raised about the fragmentation of the transatlantic financial system, with capital flows being hindered and M&A activity stagnating due to regulatory complexities. Dombret notes that the system is becoming more fragmented and balkanized, which poses challenges to financial integration and efficiency across the Atlantic.

Q: What is Germany's stance on attracting banks post-Brexit?

Germany's stance on attracting banks post-Brexit is firm, as it will not offer regulatory discounts to attract banks. Dombret insists that any banks relocating to Germany must have a full operational presence and management within the country. Germany will maintain strong and clear regulation and supervision, ensuring that relocating institutions comply fully with local regulatory requirements.

Summary & Key Takeaways

• Andreas Dombret discusses the potential regulatory challenges posed by Brexit, emphasizing the need to maintain strict standards to prevent a 'race to the bottom' in financial regulations. He highlights the importance of a single rule book and consistent supervision across Europe to avoid regulatory arbitrage.

• The timeline for implementing the remaining Basel 3 reforms is expected to conclude in 2017, with a focus on ensuring quality over speed in the regulatory process. Dombret also addresses the issue of European banking mergers as a solution to low earnings power, emphasizing the need for careful consideration.

• Dombret does not advocate for promoting Frankfurt over other European financial centers post-Brexit, stressing that such decisions should be made by the private sector. Germany will not offer regulatory discounts to attract banks, insisting on full operational presence and management within the country for any relocating institutions.