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German Bank Sets Precedent: Sues The ECB
Can you say “precedent-setter”? In a move presaged by objections from politicians and some smaller EU financial institutions, Landeskreditbank Baden-Württemberg (or “L-Bank”, as its friends affectionately call it) is suing the ECB in a bid to avoid falling under the central bank’s direct supervision. L-Bank, a German development bank with some €71 billion in assets, argues that ECB supervision will subject it to onerous bureaucratic procedures and fees (imagine that), which it contends will prevent it from extending credit to local borrowers.
Further, the small lender says that unlike the eurozone’s banking behemoths, its business model is straightforward and given its size, it would not represent a systemic risk even if it were to fail. Here’s more via WSJ:
The lawsuit, filed March 12, is the most radical step by a European bank against ECB supervision, a cornerstone of the eurozone’s integration project. It highlights the headwinds the ECB is facing from some politicians and smaller lenders in Germany, Europe’s biggest economy.
L-Bank said that higher costs tied to ECB supervision would undermine its ability to support local families and businesses. Instead it wants to be supervised by BaFin and the Bundesbank, which L-Bank says would be more appropriate, given its local focus.
L-Bank argues that its business model is simple and clear, while the ECB has been tasked with regulating more complex banks through a structure known as the single supervisory mechanism. Being under ECB scrutiny “goes against the guidelines of the single supervisory mechanism,” L-Bank said.
The ECB is supposed to take direct responsibility for all banks whose assets either exceed €30 billion ($32.35 billion) and/or make up more than 20% of their home country’s gross domestic product. In countries where banks don’t hit that threshold at least three banks will come under ECB oversight unless their assets are below €5 billion, as will any bank that has received help from one of the eurozone’s bailout funds. In addition, the ECB can claim supervisory powers over any bank that has significant operations in at least two countries.
L-Bank is one of 21 German banks under the ECB’s direct watch. It had around €70 billion in assets at the end of 2013, the most recent figures available, and recorded slightly more than €100 million in profit. In 2013, it supplied €7.4 billion in low-cost credit to support local projects, businesses and families.
L-Bank’s concern about ECB supervision resonates with the mood of many German regionally-focused lenders, which frequently argue that the ECB shouldn’t monitor small lenders that don’t pose a systematic risk to Europe’s financial system.
L-Bank’s move also highlights the cost of meeting the regulatory burden, an issue that executives at small German banks have until now only discussed privately. Similar-sized German lenders had to shell out between €5 million and €10 million for external auditors and internal staff to complete the ECB’s asset quality review last year, people familiar with the matter said. Meeting previous BaFin and Bundesbank regulations cost significantly less.
And a bit more from FT:
“Supervision under the terms of the SSM [Single Supervisory Mechanism] is associated with significant bureaucracy and costs. These costs impact on the funding available for providing, for example, low-interest loans for housing development, support for new business start-ups, and finance for [small businesses],” the bank added.
The ECB is required to fund its supervisory activities by levying fees on the banks in the countries that participate in its supervisory framework.
For 2014 and 2015, about 85 per cent of these fees are expected to be borne by the 123 large banks under direct ECB supervision. The remaining 15 per cent are set to be paid by the 3,500 or so other banks in the eurozone. Beyond its fees, complying with the ECB’s reporting requirements can also cause banks significant outlay.
Banks who believe they should not come under the central bank’s direct supervision are allowed to file a request for review and as of now, three have gone that route. Here’s the ECB:
The Administrative Board began its activities in September 2014. So far, it has received three requests for review concerning the ECB decisions on significance that were notified to significant supervised entities in September 2014. The significant supervised entities argued, on different grounds, that they should not be considered significant and therefore asked the Administrative Board to review the ECB’s assessment.
And if you are a small lender who believes you have been wrongfully subsumed under the central bank’s sometimes not-so-watchful eye, here are the folks to whom you will be sending your appeal:
And here is the process the ECB will undertake in the course of deciding that you are wrong:
* * *
It looks like full integration of the currency bloc's financial institutions may turn out to be as contentious a process as attempting to fully integrate its political systems although, on the bright side for banks, it's all smooth sailing once you scrape up enough money to complete your AQR because as we showed last October, even if you fail, you don't really have to do anything.
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Ah, life is good to be a giant corporation who captured the regulatory process. What better way to get rid of those pesky competitors than to regulate them right out of business? "Free markets"... Lol, they never existed.
Good for them. If they win, they can keep all the bail-in(s) they can seize and not have to split it with the ECB.
Good cop, bad cop theater for the plebs. All banks suck equally. One set of bankers doesn't care any less than the other.
You might want to consider a little further. Once upon a time when there were truly local banks, those banks operated in a responsible manner which kept them in business over the long term and provided local loans for businesses and homeowners. The banks operated on a margin of a few percent between what they paid for savings accounts and CDs and what they charged as interest for loans. They were the lifeblood of the local economies - which, indeed, is their place in a viable healthy local socio-economic structure. Savings and Loans were an even further very healthy and contributory part of the local structure, often operating on a margin of 2% or even less. These institutions actually had competent (and non-criminal) underwriting capability and loan defaults were extremely low. There are still a few (very very few since most have succumbed to the truly toxic frenzy of buyouts) which are still functioning in this responsible manner. So, from my perspective, it might not be appropriate to say 'ALL' banks suck equally - and might be something where you could advocate (and vote) for congress to roll back the toxic predatory financial structures. Heh ?
If you insist on using a bank, at least use a Credit Union. I would not count on congress or gov to roll back on anything to do with finances or being able to borrow. Where would the money for all their projects come from?
the results of "let them control themselves" is nowhere so obvious like in the financial world.
( Rolls hands ) and so it begins.
ABOUT FUCKING TIME!!!!!
The ECB is NOTHING!
It is the figment of someone's imagination riding high on bankster's hubris who paid politicians to nod and smile.
Ride the fucking banksters out of town. Bring back the national currencies and let the people own their wealth creation.
"L-Bank said that higher costs tied to ECB supervision would undermine its ability to support local families and businesses.Instead it wants to be supervised by BaFin and the Bundesbank, which L-Bank says would be more appropriate, given its local focus."
rofl! as if the ECB cares about "local families and business".
Revolution now
http://www.washingtontimes.com/news/2015/apr/1/kansas-to-allow-concealed...
Kansas doing it right!Looks like JADE HELM 15 will be expanding to Kanses which will now be considered Red & Hostile.
resistance is futile to the new world order!
das Germans have thick skull dey not understand suing EU like suing Argentina in Argentina Germany "ex-country" or "plaintiff" now just German "tax region" in mob state
This might be quite important.
It is my understanding that, to Germans:
1. The Bundesbank is regarded as the central bank that helped produced the post 1945 economic miracle, while at the same time (and often against both local and international political pressure) following measures designed to preserve the internal purchasing power of the DEM; but
2. The ECB is the imposed central bank carrying out all sorts of strange policies to somehow continue the EUR-zone, being responsible for a currency (the EUR) which was forced on German citizens with no referendum.
Maybe AfD could start a movement for a straight vote on whether Germany can have the DEM back.
Watson
Can anyone explain to me if the Bundesbank even exists anymore?!
I was under the impression that the ECB is the Bundesbank these days in Germany.
Further proof the bubble has burst. The deflationary vortex is swallowing everything just as predicted...
http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...
AIG was a business model for govt looting of private enterprises, take it over to "protect the public", then loot the shit out it, then dump it on the public, then deny.
Same management different venue.
Lets hope they get the Mussolini treatment.
BTW AIG trial end coming.
My understanding of AIG was that the holding company operated a bunch of (subsiduary) insurers, all of whom were ring-fenced by the insurance regulators both from the holding company and each other.
The problems did not arise from the insurers, they arose from a division at holdco level (AIG Financial Products) that
wrote apparently reckless amounts of CDS, so that when the crisis hit, holdco might have been worthless.
However, various important folk seem not to have been informed about the ring-fencing, but were given the impression that Joe Sixpack and the family farm were at risk of being suddenly uninsured.
FWIW, I _think_ the AIG insurers would have been fine even if AIGFP sent holdco into C11, and in any event a far _better_ strategy would have been to let the failure take place, but get ready to support the insurers if (somehow) the ringfence was ineffective.
I sure I can't think why those advising those important folk were so keen to avoid a failure at holdco...
Watson
A bit over my head, I admit, but I have a hard time believing that the top brass at AIG didn't understand what was going on. They were basically getting something for nothing, weren't they, buying all those "tranches" which any Main Street bank loan officer could have told them were bound to default, and in return getting high interest rates but not high enough interest rates to justify the risk?
My opinion, FWIW
1. Immediately before the crisis, the 'top brass at AIG' simply didn't know what was going on inside AIGFP. Nothing new in that - the division was offshore to the US (in London), and apparently making money. So no attention paid. For similar examples please see JPM and the 'London Whale' trades;
2. As soon as AIG top brass were aware of the problem they _did_ understand it could bring AIG down - that's why they pleaded for help;
3. What I don't understand is why the 'help' wasn't concentrated on the 'deserving' part (the insurers, (which may well not have needed help anyway)), but was designed to prop up all the CDS business.
I don't actually expect the President, etc., to be in-touch with how AIG was structured with insurance regulators.
But I _do_ expect his advisors to tell him...and it really doesn't look like they did.
Watson
Before the 2008 crisis AIG had $12B in loss claims from that one subsidiary all in 2007 ... The CDS business was built on fraud , the trusts never were organized legally or were funded , the trusts never purchased the notes , they couldn't as they were shells without funding, the REMIC status was therefore non-existant (only later "deemed" to exist by the IRS so as not to bk the FED member banks that sold so many MBS's) ... Backing AIG was just a way to feed money to the FED banks without it appearing like a direct handout.
Not backing AIG would have meant the immediate acknowledgement that the emperor (banks/regulators/SEC/insurers) not only had no clothes but was a raving lunatic...
The "help" they should have received was having the regulators step in and find that the contracts were invalid and relieved them of their responsibilities. In my personal MBS/Trust 82% of the loans examined were found to fail underwriting standards.
You may well be right about what was going on inside AIGFP, but my point is simply that the _only_ thing .gov should have been concerned with was protecting the insurers of the Mom and Pop stores, etc.
If (as you allege) AIGFP was not merely reckless in the amount of CDS written compared to any reasonable allocation of AIG equity, but went further and failed to construct the trusts properly, then those issues should have been left to the Courts to decide as to who was were owed money by AIG (largely banks and hedge funds).
If the trusts were not constructed properly then, as you say, maybe those bank and hedge fund claims would fail.
I just don't see why US taxpayers should have put up _anything_ (capital or bank lines) to support what appears to have been, at least, wild behaviour by those running AIGFP, with insufficient oversight by those at the top of AIG.
I don't even care if, ultimately, taxpayers make a profit on the situation (which I doubt, because the opportunity and guarantee costs are never calulated properly).
There is plenty for the US government to do - frankly if it really wants to spend a lot of money it could start by fixing roads and bridges, not making life easier for Wall Street.
Watson
WAY over my head. I guess that, from my experience, all I can say is that it is next to impossible for anyone outside an organization to figure out who understood what when inside the organization. So perhaps I should back up to believing that those in Congress and the White House who gutted (can't remember the name, the law passed during FDR's administration which broke the banks' activities apart) made an enormous mistake. Also, perhaps, when Congress and the White House "attacked redlining", that ended up being a mistake.
"I have a hard time believing that the top brass at AIG didn't understand what was going on".
I am a senior executive at a large multinational. There are, most of the time, major issues where the C-level executives have no idea what is going on.
Final arguments begin April 22nd. I thought about going to DC to watch.
They should put it on C-SPAN.
I can't imagine why anyone would want to give up their nationality, which is what happens when you give up your national currency.
I'd like to see things like MEFO Bills coming back into use. https://en.wikipedia.org/wiki/Mefo_bills.
Perhaps even Oeffa Bills https://en.wikipedia.org/wiki/Oeffa_bills
Guys like Gottfried Feder come along, to eliminate Usury-based money, but even Adolf had him eliminated (Night of the Long Knives), since he kept FRB.
https://realcurrencies.wordpress.com/2014/01/21/hitlers-finances-schacht...
I'd like to see a country arrest a Redshield guy, like Germany did:
https://realcurrencies.files.wordpress.com/2014/01/louis.jpg
Here is some useful info on Hjalmar Schlacht:
http://www.fourhourday.org/content/docs/Hjalmar%20Schacht.pdf
HORACE GREELEY HJALMAR SCHACHT (And the Magical Mystery MEFO Bill)
And here is the PDF of his book "The Magic of Money"
http://www.autentopia.se/blogg/wp-content/uploads/2013/09/schacht_the_ma...
And here's a fitting poem from Hjalmar Schlacht's "Confessions":
"Neither violence nor power of the purse
Fashion the universe.
Ethical action, spiritual force
May reshape the world’s course."
Always appreciate your comments Kirk, however one of your links is broken, it should read
And here is the PDF of his book "The Magic of Money"
http://www.autentopia.se/blogg/wp-content/uploads/2013/09/schacht_the_magic_of_money.pdf
archive.org backup https://web.archive.org/web/20150403203112/http://www.autentopia.se/blogg/wp-content/uploads/2013/09/schacht_the_magic_of_money.pdf
That wall looks strong to stop bullets.
I am always amused how banks will sue when they don't like what is dished out to them by the government and will gorge themselves on whatever the government hands out but no such luck for the little man or the small business owner who has to put up with all the crap that is dished out to him by government without any avenue for reversing such treatment.
How about a class action suit against the ECB, Fed, and BIS from about 6 billion people. I think the reasons are obvious and need not be stated.