FRANKFURT (Reuters) - An overload of global regulation threatens to stifle Europe’s banking system and constrain economic growth, Deutsche Bank AG DBKGn.DE Co-Chief Executive Anshu Jain warned on Tuesday.
“Over the past five years, the banking industry has reformed itself, and been reformed, at an unprecedented pace. But now, in Europe, there’s a risk the pendulum may swing too far,” Jain told an audience at Frankfurt University’s Centre for Financial Studies.
“If all the measures before us were implemented as proposed, they would practically spell the end of over 100 years of universal banking in Europe,” Jain said.
Universal banks are lenders with diversified business models which often combine retail banking, investment banking and wealth and asset management activities. Having a diverse set of business activities helps banks withstand market disruptions, Jain added.
“I am not questioning the importance or needs for governments to regulate banks or other large businesses,” said Jain, who has been co-chief executive for just over a year. But the cumulative impact of new rules may cripple the ability of banks to provide loans to the real economy, he said.
In the aftermath of the 2009 G20 summit in Pittsburgh, which helped inspire a comprehensive re-regulation of the banking sector, the supply of loans to the economy suffered in Germany.
Lending to German businesses by foreign banks fell by 30 percent in the two years following the 2008-2009 financial crisis, Jain said.
Banks are once again facing a raft of new rules. In Europe alone, the largest banks face extra capital requirements for systemically important financial institutions, bank levies, as well as proposals to limit leverage and plans to separate investment banking from deposit-taking activities.
Just one of these pieces of regulation, a new German law that requires separating trading activities from deposit-taking, would raise the cost of funding for businesses and governments, Jain said.
“Its too early to predict the exact impact of the (law). much depends on detailed interpretation by the regulator between now and 2016,” Jain said.
This comes on top of other rules, such as the Volcker rule to curtail proprietary trading activity, and regulatory proposals to force foreign banks to hold extra capital in the United States.
Having a system of robust universal banks in Europe is vital for the economy, the India-born executive said.
“A globally diversified balance sheet means less risk concentration. This means we can provide more credit for business. That’s crucial in Europe where 70 percent of credit creation is provided by banks,” Jain added.
Deutsche Bank has been able to accumulate liquidity reserves of almost a quarter of a trillion euros, a cushion which makes it easier to survive in a crisis, Jain said.
Editing by David Holmes