Sunday, 14 February 2016
Last updated 1 day ago
Feb 13 2013 | 12:48pm ET
German plans to enforce a strict separation of retail banking and investment operations, including hedge funds, could lead German banks to simply abandon the latter.
Germany's proposed new bank rules would require that both secured and unsecured investment activities be ring-fenced from customer assets. By contrast, France, which is working with Germany on the new rules, plans only to force the separation of unsecured activities from customer assets.
The full impact of the German bill remains unclear, including which activities precisely will be prohibited. But whatever form they take, banks may simply choose to forego proprietary trading, high-frequency trading and hedge funds entirely, Fitch Ratings suggests.
"Only a few banks would end up putting trading activities into separate subsidiaries," Fitch's Michael Dawson-Kropf told Bloomberg News. The rest would simply give up "restricted activities rather than incur the costs of separation, as the affected businesses make relatively small contributions to earnings."
The draft bill, approved by the cabinet last week, would affect between 10 and 12 banks, most notably Deutsche Bank.