In Frankfurt, the European Central Bank has a complex, often antagonistic relationship to the banking peers of its host country, who for most of the post-war period called the fiscal shots in Europe's largest economy.
But with the ECB's rise as the fiscal heavyweight in the 19-country euro zone, German financial regulators and Bundesbank policymakers are increasingly chafing at ECB methods and philosophy that are not as conservative as they would like.
The latest point of contention is over whether the ECB or Germany's federal financial market regulators are the supreme authorities with responsibility to oversee commercial banks in Europe's largest economy, Handelsblatt has learned.
The ECB last year took over responsibility for supervising 120 of the largest banks in the euro currency bloc – a step that many hailed as the biggest move towards European integration since the introduction of the euro currency.
Since last November, the ECB has directed a teams of banking supervisors who go into commercial banks, open up and inspect their books. National regulators -- which used to dictate the terms of supervision -- are now merely on hand to cooperate with ECB supervisors, and no longer take the lead.
That newfound power never did sit well with bankers in Europe's largest economy, where many of the thousands of smaller banks across the country in particular fought tooth and nail to remain supervised by German regulators rather than the new pan-European teams. It was a battle the Germans won to a large extent – just 20 banks in Germany are now directly supervised by the ECB, though the ECB does have the right to intervene in the regulation of smaller banks if it sees a crisis in the making.
Now Germany is trying to further roll back some of the ECB's power. The German Finance Ministry wants to give the country's own banking regulator, the German Federal Financial Supervisory Authority, or BaFin, the power to issue its own regulations on how banks manage risks and what areas of the bank can be outsourced.
The regulatory patchwork quilt, which was a major factor in the development of the financial crisis, would become set in stone. Sabine Lautenschläger, ECB Executive Board member, former BaFin regulator
At the moment, BaFin merely publishes guidance – via newsletters – on the minimum requirements for risk management. Under the government's new plans, which will be discussed by the finance committee of Germany's parliament today, this guidance would become legally binding for German banks.
Documents seen by Handelsblatt show the European Central Bank is furious about the proposed legislation, complaining it undermines its own regulatory powers and increases the risk of once again fragmenting supervision across the continent. The whole point of having a common supervisor for Europe, the ECB argues, is that every bank in the euro zone should be governed by the same rules.
"We are extremely critical of the proposed regulatory powers in the areas of risk management and outsourcing," the ECB's executive board member Sabine Lautenschläger, a former BaFin regulator who was also vice president of the Bundesbank before moving over to the ECB, wrote in a note to German policymakers.
"The regulatory patchwork quilt, which was a major factor in the development of the financial crisis, would become set in stone," Ms. Lautenschläger added.
BaFin disagrees with Ms. Lautenschläger's argument. It argues that even under the new system, national regulators should maintain some powers to set rules for the banks under their watch.
"The power to issue legal regulations is also needed in the new European regulatory system, in which the ECB provides oversight of the banks," wrote Raimund Röseler, a board member of BaFin who leads banking supervision.
Mr. Röseler argued the step was needed for the guidelines issued by BaFin to have any sway at all over the banks. The current newsletters "cannot be used directly as a basis for administrative acts or for the imposition of fines."
Besides, the ECB is not being left out of the process entirely, Mr. Röseler argued. It can contribute suggestions as part of a public consultation on any planned regulations.
That's hardly enough for the ECB. Such a system would mean BaFin having the final say on such regulations, and not the Frankfurt-based central bank that is now purportedly in charge.
Once the uniform European supervisory mechanism is in place, wrote Ms. Lautenschläger, national laws should facilitate the ECB's actions – not the other way around. The ECB's jurisdiction is not being sufficiently taken into account, she argued.
And thus, one more battle between Germany and the ECB has been joined.
Frank Drost is a Handelsblatt correspondent based in Berlin, primarily covering financial supervision and banks. Christopher Cermak is an editor with the Handelsblatt Global Edition in Berlin. To contact the author: [email protected]