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Panel II: Strengthening the Rights of Control

In the second panel, Helmut Siekmann, House of Finance/Goethe University Frankfurt, attributed current problems mainly to irresponsible borrowing as well as irresponsible lending. With respect to risk and liability he defended the banking sector: “It is established in a number of regulatory directives, national provisions and laws that government bonds from the EWR are indiscriminately risk free. When banks act accordingly it may be irresponsible but, in doing so, they follow the legislator’s fixing.” According to the Professor of Money, Currency and Central Bank Law, reasons for the current instabilities lie, among other things, in the extremely increased money supply, in the aggregated balance-sheet total as well as in the growing connection of default risk between financial institutions and transactions. Siekmann pleaded for a future re-connection of liability, risk and control. A central point for him in this respect is parliamentary control, control by audit courts as well as a strengthening of the banking supervisory law. “It has to be avoided that public banks and constructions like the EFSF can pile up risks that are capable of ruining a national budget.”

Henrik Enderlein, Hertie School of Governance, drew attention to the connection between state and banks. The correlation between the balance sheets of banks and states has been underestimated, he said.
“To keep banks alive, a bail-out package of nearly 500 billion Euros was tied together. This should help banks to buy government bonds, whereas the state in turn uses these to implicitly guarantee bank balance sheets.” This construction was caused by the fact that German law does not provide for bank insolvencies. Protected by implicit state guarantees big banks have broadened their investment banking activities since the end of 1990s.
According to Enderlein, the relationship between politics and banks needs to be reformed to end the current state of implicit public liability. The Professor for Political Economy mentioned as one possibility a separation of commercial and investment banking, but granted that implementation of this would be difficult.
Enderlein demanded that states should call in conditions for public credits and guarantees to banks – analogous to states – as well as strengthen control mechanisms. The lack of controls contributed considerably to the financial crisis.

ECB as the only Provider of Liquidity

In the last keynote, Jörg Rocholl, European School of Management and Technology, pointed out that the ECB’s deposit facility is being used extensively. As especially banks in countries with debt problems hold many unsecure bonds, the provision of liquidity by the European banking system came to a halt. Therefore banks were forced to approach the ECB to receive urgently needed money – a further reason for the collapse of confidence in the interbank market. Rocholl pleaded for a restructuring of banks on an appropriate scale, even if this measure would be expensive, rather than to continue on the present path.

Whereas participants agreed in the judgment that banks should be held liable and state guarantees should be conditional, opinions about the ways forward turned out to be diverse in the following discussion between panelists and audience. Participants did not put much hope on the decisions of the recent EU summit. These were said to neglect current pressing needs – in the words of Henrik Enderlein: “The house is burning and we decide to prohibit playing with fire.”

Joint event with