Banking Association on the results of the G7 meeting of finance ministers and the Financial Stability Forum (FSF) recommendations

14 April 2008 - The Association of German Banks welcomes the FSF recommendations for enhancing the resilience of financial markets and the action plan based on these that was adopted by the G7 finance ministers. “Work is on the right track. I believe that particularly the G7’s efforts not to aggravate the currently still difficult market situation by taking excessive ad hoc measures are appropriate”, said Manfred Weber, the Association’s Chief Executive Officer, in Berlin.

Mr Weber said that there were evidently a number of reasons for the financial crisis. These included the unusually high level of liquidity in the financial markets in recent years, as well as undesirable developments in market participants’ risk management and weaknesses in the regulatory framework for financial business. “This is why only the right ‘policy mix’ of self-regulatory initiatives and – wherever market participants are unable to set the required standards themselves – new legislation will ultimately be successful”, Mr Weber stressed.

Mr Weber especially welcomed recommendations for enhancing transparency in the securitisation markets, optimising rating systems and reviewing accounting standards. In addition, the call for swift, worldwide implementation of Basel II could not but be supported, he said. That went, above all, for the US and the long transitional periods allowed there so far. Particularly in the field of capital rules, the proposals were excessive, however. “Generally raising capital ratios won’t solve the problem. Risk-independent capital buffers are much too crude an instrument and ultimately make access to loans more expensive. They fail to strengthen risk sensitivity with regard to the transactions where it would be necessary to do so”, Mr Weber added critically. These issues would have to be discussed now in depth in the upcoming implementation phase. The list of proposals was long and the timetable ambitious. A close dialogue between market participants and policy-making institutions was essential if the present programme were to ultimately lead to action that strengthened stability, while taking account of market requirements at the same time.

In the process, the consistency of individual measures should be kept firmly in sight. “Even with a host of new, detailed rules, we won’t manage to completely rule out all risks. What we therefore also have to do is prevent any over-regulation. The overall impact of transparency, disclosure and new capital requirements must remain balanced”, Mr Weber said.