Theurer: German banks competitive despite Basel III differences
Bundesbank Executive Board member Michael Theurer affirmed the competitiveness of the German banking sector. He dismissed concerns that Basel III implementation differences with the US would create a disadvantage for European banks.
Basel III: Not an undercutting race
Bundesbank Executive Board member Michael Theurer addressed concerns about Basel III finalization, noting the EU's resolute implementation through CRR III and BRUBEG.
This includes an output floor that will gradually increase from 50% to 72.5% by 2030, limiting banks' ability to reduce risk-weighted assets using internal models.
In the US, recent Federal Reserve proposals suggest withdrawing some 'gold plating' and lowering the leverage ratio requirement for global systemically important banks (G-SIBs).
Theurer emphasized that these adjustments are not expected to reduce overall capital requirements for US G-SIBs below the Basel framework, preventing an 'undercutting race.'
He highlighted that US G-SIBs currently tend to have higher Pillar 1 capital requirements, partly due to the Collins floor (a 100% output floor for market and credit risk).
European capital buffers for systemically important institutions are also lower on average than for US G-SIBs.
Competition is local, not global
Bundesbank Executive Board member Michael Theurer clarified that competitiveness is the *result* of competition, not a fixed characteristic.
Competition occurs between specific institutions in specific markets, often nationally for retail and SME business, and internationally for investment banking.
He argued that German and US banks hardly compete directly in deposit and lending.
For instance, 93% of German banks' household lending is domestic, and US big banks' market share in German household and enterprise lending is well below 1%.
Relief for small US banks, which operate locally, does not alter competitive pressures on German institutions.
Direct competition is limited to a few international big banks in specific market segments.
Regulation: A scapegoat, not a barrier
Theurer's speech effectively dismantles the narrative of European banks being systematically disadvantaged by regulation.
He shows limited direct competition with US counterparts and no capital requirement 'undercutting race.'
This nuanced perspective is crucial for a policy debate that moves beyond simplistic blame on regulation.