Bundesbank director renews concerns about shadow banking sector
In an exclusive interview with Euromoney, a member of the Bundesbank executive board says shadow banking is the greatest concern to regulators, who still do not fully understand its impact on the financial system
Andreas Dombret, one of six members of the Bundesbank’s executive board, has reinforced the perception that the so-called shadow banking system is at the forefront of European regulators’ concerns in an interview with Euromoney.
He says that what he prefers to call “non-bank banking” is the greatest challenge facing regulators today. “There is also an obvious interlinking of the banking system and non-bank banking, including hedge funds,” he says. “We want to understand where those risks are, how concentrated they are and how correlated they are.”
|Andreas Dombret, Bundesbank
In a wide-ranging interview on the margins of Euromoney’s Germany conference in Berlin last week, Dombret also expressed his hopes that a new focus on macro-prudential regulation will enable supervisory authorities to lean against speculative bubbles and systemic risk.
“The supervision of individual institutions is important and needs to be done in a rigorous way,” says Dombret. “But one of the important lessons from the crisis is that the sum of all of the individual risks is less than the systemic risk, the threat to the integrity of the system overall.”
Dombret acknowledges the mistakes made before the financial crisis by the German banking industry and its regulators, and that over-capacity remains a problem, but that the three-pillar system of finance has largely proved its worth.
“We made mistakes in Germany and not every part of the banking system has been a source of pride, far from it,” he says. “We suffered our fair share of the crisis, perhaps more than our fair share. But the diversity of the banking system provided some stability.”
He also calls for regulators to refocus on the issue of accounting standards, saying “progress has been stalled”.
Dombret has taken a path few have travelled. After a career spanning Deutsche Bank, JPMorgan, Rothschild and latterly Bank of America, he joined the six-member executive board of the Bundesbank in 2010. Dombret is the first person from the private sector to reach such a high position in Germany’s central bank since Karl Klasen resigned from the top job at Deutsche Bank to assume the presidency of the Buba in 1970.
Klasen called his decision to take a huge salary cut and quit the boards of 10 leading German companies “the crown of my career”. The Bundesbank still has a certain mystique. As the biggest shareholder of the European Central Bank it is primus inter pares in the Eurosystem. But the Bundesbank’s adamantine attachment to monetary orthodoxy in a neo-Keynesian age has sometimes made it seem detached and aloof.
Dombret, however, is a thoroughly modern central banker. Robert Solow’s famous observation that his is a calling made up of squid, “that emit ink and move away”, could not be further than the truth. He is frank and open.