German Chancellor Angela Merkel's governing coalition is urging the European Union (EU) to loosen rules for the savings banks and cooperatives that dominate the nation's banking industry, as the bloc reshapes capital market regulation.
The German parliament will take up a resolution on Thursday calling on the EU to spare local lenders in member states from the full brunt of the 28-nation group's banking rules, according to the draft text obtained by Bloomberg.
The EU's plans to give companies easier access to capital markets shouldn't end up making it harder for banks to lend in the process, according to the paper by the three parliamentary leaders of Merkel's governing coalition.
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"Access to financing from banks shouldn't get harder because of the capital market union," German lawmakers Volker Kauder, Gerda Hasselfeldt, and Thomas Oppermann wrote in the report. "We must also think about improvements of bank financing for small companies. Credit supply for small and medium companies from small banks can be helped if the regulatory regime is adapted for them, leaves enough freedom, and the proportionality of regulation is observed."
EU financial services chief Jonathan Hill has developed policy outlines to promote asset-backed securities and to lower thresholds for cross-border investments in small companies as part of a plan to stimulate capital markets and make enterprises less reliant on bank loans.
Credit cooperatives and small savings banks, mostly owned by municipalities with connections to lawmakers at every level of German politics, are the backbone of Germany's banking industry. Their combined deposits exceed those of commercial banks led by Deutsche Bank AG and Commerzbank AG.
The country has clashed with the EU on multiple occasions over banking rules that it claims don't suit this part of its banking industry. While the European Commission supports the institutions' role as funders of small businesses, it recoils at the competitive advantages they hold over their commercial-sector peers.
The Commission has insisted that capital rules agreed on by the world's leaders after the 2008 financial crash apply to all of the EU's 8,300 banks, rejecting pleas for special treatment for some. Germany failed in efforts to obtain a full exemption for savings banks and cooperatives from contributing to a planned euro-area crisis fund.
Still, the EU in 2013 did grant a key request by lowering capital charges on small business loans compared with international norms. Hill has said he will pursue a policy of "differentiation" when introducing new banking standards to shield small banks from the full force of the measures.
Unclog Flows
"The intensity of regulation should fit the risk profile of the company concerned," the text of the German resolution reads. "Part of that should be that the special capital requirements for SME loans are kept intact."
The resolution warns that promoting new instruments shouldn't be the only means to unclog the credit flow to European companies. Instruments popular in Germany, such as Schuldschein loans and covered bonds, and the standard bank loan that remains the mainstay of German corporate funding, shouldn't be sidelined by the measures, according to the document.
While the German parties support Hill's plan to revive the market for high-quality securitizations, they reject an EU push to harmonize accounting rules to make investments more transparent for investors, according to the document.
German accounting rules for small and medium-sized companies are "proven" and shouldn't be replaced by a mandatory introduction of rules like the International Financial Reporting Standards, the document says.
Like its counterpart in the U.S., the European asset-backed securities market came close to extinction in the financial panic of 2008, which was fueled in part by banks taking heavy losses on securitized U.S. subprime-mortgages, and it has been slow to recover.
–With assistance from Jim Brunsden in Brussels.
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