Germany: Merkel cabinet adopts tougher bank rules

The German government has drafted new banking rules aimed at reining in financial market excesses. The plan includes separating different bank activities, tougher penalties for executives and new liquidation rules.

The sweeping new rules were adopted by Chancellor Angela Merkel's conservative-led coalition government on Wednesday and are aimed at preventing the spread of financial trouble within the German banking system, as well as to curb excessive risk-taking in the banks.

Under the draft law, banks running high-risk trading operations valuing either 20 percent of their balance sheets or 100 billion euros ($135 billion) in value will be required to transfer those assets into legally and financially separate units. The aim was to shield customer deposits from the banks' riskier activities, including proprietary and high-frequency trading, the government said.

Moreover, bank executives who engage in reckless investment behavior threatening bank liquidity could face steep financial penalties or up to five years in prison.

The new legislation also requires banks to submit plans for restructuring and liquidation in case of financial trouble in an effort to shield the taxpayer from bailing out banks presumed too big to fail.

The proposed rules are said to primarily affect Deutsche Bank, Commerzbank and Landesbank Baden Württemberg, which are Germany's biggest lenders, running large trading operations.

The draft bill will need to be approved by the lower house of parliament, the Bundesrat, where Germany's opposition parties have a majority. Opposition leaders said they would reject the draft as it wasn't going far enough to curb systemic risk in the banking sector.

uhe/dr (Reuters, dpa)

Source: DW (05/02/2013): http://www.dw.de/merkel-cabinet-adopts-tougher-bank-rules/a-16578327