German Bank Supervisor Theurer: 'Simplification Yes, Deregulation No'

Michael Theurer, a German bank supervisor, has voiced support for simplifying banking regulations while cautioning against deregulation. He believes that while the current rulebook is overly complex and places a disproportionate burden on smaller institutions, the goal should be simplification, not a rollback of necessary oversight.

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Yes. The current rulebook is over-complex and disproportionately burdens small institutions.

Theurer advocates for a specific regulatory regime tailored to small banks, a proposal that has also been supported by Germany's Bundesbank and BaFin. This approach, inspired by models in Switzerland, the UK, and the US, aims to create proportionality in regulation. He noted that the current framework, largely designed for internationally active, systemically important banks, is applied universally, forcing smaller banks with simple business models to undertake significant compliance efforts.

"The current rulebook is over-complex and disproportionately burdens small institutions," Theurer stated, adding that proposals for a small bank regime have already been incorporated into recommendations for the EU Commission. He emphasized that proportionality is a key principle of Basel III that needs better implementation.

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Proportionality is an important principle of Basel III. It is currently not sufficiently fleshed out.

To achieve this simplification, Theurer suggests a potential shift for smaller, less complex banks. Instead of calculating risk-weighted assets, these banks could adhere to a higher leverage ratio. This would mean holding more equity capital to absorb potential losses, but it would drastically reduce the bureaucratic overhead associated with complex risk calculations. This approach, he argues, can lower bureaucracy without compromising financial stability.

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This allows bureaucracy to be radically reduced without compromising stability.