CFS survey on the “Impacts of the Wirecard scandal”

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German financial sector sees considerable need for financial regulatory reform in Germany

A survey of financial sector executives conducted by the CFS shows that over 85% of participants see it necessary to reform financial regulation in Germany. 76% of respondents are in favour of expanding the responsibilities of the regulator BaFin to ensure that all financial services fall within its remit.

The stance of the financial sector is less clear on the question of whether banking supervision, which has so far been shared between BaFin and the Bundesbank, should be performed by a single authority. 58% of those surveyed are in favour, while 36% are not keen on the idea.

The case of Wirecard also raises numerous questions about the role of auditors. Up to now, the German Financial Reporting Enforcement Panel (FREP) has supported BaFin in auditing the financial statements of publicly listed companies. Some 58% of the survey participants would welcome a move by BaFin to build up its own auditing capacities, thus becoming less dependent on the Big Four accounting firms.

Finally, a large majority of respondents (around 70%) are convinced that regulation could be made more effective through the use of new technologies (such as artificial intelligence).

“The financial sector is clearly in favour of reforming German financial regulation. The focus should be on expanding competencies and improving human and technological resources,” explains Professor Volker Brühl, Managing Director of the Center for Financial Studies.

“Despite the uproar over the Wirecard case, it is important not to rush into hasty action. Bashing the Finance Ministry and BaFin does not help anyone. The facts of the case are far from clear. Only when all the facts are known can the relevant lessons be applied in a reform package,” Brühl continues.

Hubertus Väth, Managing Director of Frankfurt Main Finance e.V., underlines, “Despite the justified criticism in the Wirecard case, the necessary answer is not less, but more digitalization. This need applies in particular to fraud detection and prevention. The Corona crisis is an enormous accelerator of digitization. The crisis has demonstrated that the state of digitization in the German financial sector, auditing and supervisory authorities is much better than its reputation. In view of Wirecard, this is falling somewhat behind. Now we must use the momentum. From cashless payment transactions to digital promissory notes, from forensic accounting to reporting to the supervisory authorities, in the financial sector, auditing and supervision, there is still considerable digital potential.”

The results are based on a quarterly management survey in the German financial sector.

The Center for Financial Studies (CFS) conducts independent and internationally-oriented research in important areas of Financial and Monetary Economics, ranging from Monetary Policy and Financial Stability, Household Finance and Retail Banking to Corporate Finance and Financial Markets. The CFS is also a contributor to policy debates and policy analyses, building upon relevant findings in its research areas. In providing a platform for research and policy advice, the CFS relies on its international network among academics, the financial industry and central banks in Europe and beyond.

CFS Index recovers significantly

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Financial sector views current situation far more positively than in the previous quarter / Financial institutions report strong growth / Service provider figures still on the decline

The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, rises by 8.1 points to 106.9 points. This means that a positive growth level above the neutral line of 100 points has now been reached again. This is the sharpest rise since the index surveys began in 2007 and it immediately follows the steepest decline on record, which caused the CFS Index to slip below 100 points in the previous quarter. The unexpectedly positive current development reflects growth in revenues, earnings and investment combined with less severe job cuts at the financial institutions in the second quarter. However, the positive mood is dampened by declining revenue, earnings, investment and employment figures among the service providers. As for the current quarter, financial industry expectations as a whole have noticeably improved over the past three months.

“The financial institutions expect their performance to be driven by a V-shaped economic recovery coupled with a modest rate of credit defaults. With such optimism, the industry sees itself as part of the solution, not as an impending risk to financial stability,” comments Professor Andreas Hackethal, Director of the Center for Financial Studies.

Owing to the corona crisis, the future international importance of the Financial Centre Germany was judged to have declined sharply in the second quarter. This value now remains almost unchanged in the third quarter, falling just -0.1 points to the low level of 111.3 points.

“The CFS Index’s positive development is a result of the rapid and decisive political reactions to the Corona crisis. The numerous comprehensive aid measures and loans launched by KfW on behalf of the federal government, among others, are effective,” explains Dr Lutz Raettig, President of Frankfurt Main Finance e.V. “In addition, I expect further positive developments, when the Brexit negotiations are picking up speed again, as an agreement should be reached during the German Presidency of the Council.”

Revenue, earnings, investment and employment figures are positive for financial institutions and declining for service providers in the second quarter / Financial industry is optimistic for the third quarter

Contrary to previous expectations, the surveyed financial institutions report significant growth in their revenues/business volume in the second quarter of 2020, with the corresponding index value rising by 9.5 points to 121.9 points. By contrast, the service providers have now reached a neutral level with a decrease of -8.0 points to 100.5 points. Nevertheless, a far sharper decline was predicted in the previous quarter’s survey. The financial institutions anticipate a slight decline in the third quarter, while the service providers are very optimistic once again.

The earnings of both groups developed in line with their revenues in the second quarter of 2020. The corresponding sub-index for the financial institutions climbs 4.5 points to 107.8 points, which puts it 3.4 points above the previous year’s level. The service providers report a drop in earnings growth of -8.9 points to a now negative growth level of 97.5 points. Though significant, this decline is less dramatic than previously expected. As for the current quarter, the financial institutions expect to maintain their positive level and the service providers expect their phase of negative growth to come to an end.

The growth in investment volume in product and process innovations among the financial institutions also increased in the second quarter, but not to the same extent as the revenue and earnings figures. The corresponding sub-index rises by 1.0 points to 102.8 points and is now 3.3 points below the previous year’s level. The service providers report an extreme decline in investment volume of -13.7 points to a level of 94.4 points. This drop is considerably steeper than the decline in revenues and earnings among the same group. For the current quarter, both sectors rate their situation slightly more positively.

Financial institutions: job cuts continue to ease in the second quarter /
Service providers: first job cuts since 2009

Job cuts at the financial institutions, which have been ongoing for some time, are less severe in the second quarter of 2020 than in the previous quarter. The employee numbers sub-index rises accordingly by 2.3 points to 97.5 points and is just 1.1 points below the previous year’s level. As predicted in the previous quarter, the service providers report job cuts for the first time since 2009. The corresponding sub-index falls by -6.5 points to 99.0 points and is now 13.4 points down on the previous year. Looking to the current quarter, the financial institutions anticipate a slight acceleration in job cuts. Conversely, the service providers expect their employment situation to improve again.

The results are based on a quarterly management survey in the German financial sector.

The Center for Financial Studies (CFS) conducts independent and internationally-oriented research in important areas of Financial and Monetary Economics, ranging from Monetary Policy and Financial Stability, Household Finance and Retail Banking to Corporate Finance and Financial Markets. The CFS is also a contributor to policy debates and policy analyses, building upon relevant findings in its research areas. In providing a platform for research and policy advice, the CFS relies on its international network among academics, the financial industry and central banks in Europe and beyond.

AFME calls for further progress on the future EU-UK relationship for financial services

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With less than six months remaining before the end of the transition period, the Association for Financial Markets in Europe (AFME) urges the EU and UK to make progress on the negotiations and put in place equivalence decisions and  the necessary arrangements to ensure a stable long-term relationship for financial services and minimise potential disruption.

In a paper setting out priorities for the future EU-UK relationship, AFME highlights that continuing uncertainty on Brexit, combined with the adverse macroeconomic situation arising from COVID-19, has the potential to aggravate existing risks at the end of the transition period and significantly increase disruption to clients and markets.

AFME is calling on the EU and UK to:

  • ensure that equivalence determinations are in place well in advance of the end of the transition period;
  • establish arrangements for close supervisory cooperation to ensure effective and efficient oversight of firms and cross-border activities; and
  • establish a formalised framework for regulatory cooperation to build trust and ensure as much transparency and certainty as possible over the processes for the assessment and withdrawal of equivalence.

Find the full paper at: AFME paper: The future EU-UK relationship

The Association for Financial Markets in Europe (AFME) is the voice of all Europe’s wholesale financial markets, providing expertise across a broad range of regulatory and capital markets issues.

 

Photo: TheDigitalArtist/Pixabay

KfW Business Survey 2020: Lending climate – Businesses are well-equipped for the crisis

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In cooperation with 19 trade associations, KfW Group has conducted a business survey on banking behaviour and financing for the 19th time.

The survey was carried out between mid-December 2019 and the end of March 2020, overlapping with the outbreak of the coronavirus pandemic and the containment measures introduced in the second half of March. The survey revealed that the financing situation of enterprises in Germany was good until the outbreak of the coronavirus crisis. Enterprises’ robust self-financing capacity, low interest rates and German banks’ relaxed lending criteria were major contributors.

The most important results are:

  • The financing situation remained good until the outbreak of the coronavirus crisis.
  • The proportion of enterprises reporting difficulties in accessing credit was 13.4%.
  • As before, however, small businesses are still much more likely to face difficulties in accessing credit.
  • The positive development of businesses’ equity ratio and credit rating continued up until the beginning of 2020.
  • Bank loans remain an important source of funding for businesses. Internal funding, however, continues to play by far the most important role in business financing.

Please find a summary at: KfW Business Survey 2020: Access to finance

 

Text: KfW

Photo: ArtCoreStudios/Pixabay

AFME Market Update: Impact of COVID-19 on European Capital Markets

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The Association for Financial Markets in Europe (AFME) has published a new research note on the “Impact of COVID-19 on European Capital Markets: Market Update”.

The purpose of this report is to provide an update on how European capital markets have performed during the COVID-19 outbreak. This report follows a first publication launched in mid-April which assessed the initial impact of COVID-19 on Europe’s capital markets.

Key findings include:

  • Issuance levels of investment grade (IG) bonds have reached record weekly, monthly and quarterly volumes.
  • An ESG recovery.
  • European market liquidity has deteriorated over the last few months.
  • Follow on equity offerings have continued to support the recovery.
  • After two months of a virtually inactive IPO market, the European primary equity market reopened in May with EUR 3.6bn in proceeds from 24 deals.
  • European listed SMEs have also benefited from access to equity capital, predominantly from secondary offerings on Junior exchanges.
  • Record volumes of bank lending.

Please find the full research note at: AFME Market Update: Impact of COVID-19 on European Capital Markets

The Association for Financial Markets in Europe (AFME) is the voice of all Europe’s wholesale financial markets, providing expertise across a broad range of regulatory and capital markets issues.

 

Photo: Fernando Zhiminaicela/Pixabay

The Federal Ministry of Finance’s monthly report: July 2020

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The July edition of the ministry’s monthly report is now online. Each month, the Federal Ministry of Finance publishes extracts from its monthly report in English. These extracts feature current data and information on federal budget trends, tax revenue, debt levels and guarantees, as well as key dates on the fiscal and economic policy agenda. The monthly report also includes interesting articles on topics within the Finance Ministry’s remit, a selection of which are translated into English each month.

Please find the translated abstracts of the Federal Ministry of Finance’s July 2020 monthly report at: https://www.bundesfinanzministerium.de/Content/EN/Standardartikel/Press_Room/Publications/Monthly_Report/Key_Figures/2020-07-federal-budget.html

 

Text and image: © Federal Ministry of Finance

The Executive MBA at Frankfurt School of Finance & Management made it into the global top 50 in The Economist’s ranking

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On 29 June 2020, the current ranking of The Economist magazine was published. The business magazine analysed 70 business schools worldwide, six of them in Germany. This year, Frankfurt School of Finance & Management took part in the ranking for the first time and came 49th.

It is already the eighth ranking in which Frankfurt School of Finance & Management has excelled this year.

“We are very pleased to have made it into the global top 50 in our first participation in The Economist’s ranking,” said Professor Nils Stieglitz, president of Frankfurt School.” This ranking confirms that we offer a high-quality, internationally recognised further qualification for experienced professionals.”

Further information on the ranking can be found here.

The Economist-Ranking is published every two years and evaluates, amongst other things, the quality of teaching and lecturers, career opportunities, networking opportunities and salary development after graduation. The internationally recognised university ranking evaluates Executive MBA programmes of business schools worldwide.

Text and image: © Frankfurt School of Finance and Management

COVID-19 Scenarios and their Socio-Economic Implications by Prof. Alexander Van de Putte (AIFC)

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Z/Yen Group Limited held a private online meeting on 15. July 2020 with representatives of international financial centres from the City of London, Abu Dhabi, Shanghai, Shenzhen, Luxembourg, Tokyo, Hong Kong, Astana, Frankfurt and many more. The main aims were to work closer together and to discuss the impact of COVID-19 on global financial centres, the recovery plans of restarting economies and the future strategic changes in financial centers over the next decade.

Prof. Alexander Van de Putte, Chief Strategy Officer of the Astana International Financial Centre (AIFC), shared some COVID-19 Scenarios and their Socio-Economic Implications until 2022. In his presentation you will find insights into:

– Various Types of Foresight Tools

– The Emergence of Global Pandemic

– Taking Stock of what has happened so far

– The Scenarios and its Socio-Economic Implications

Please find his presentation here: Prof. Alexander Van de Putte (AIFC): Covid-19 Scenarios

The Astana International Financial Centre (AIFC) is a financial hub for Central Asia, the Caucasus, the Eurasian Economic Union (EAEU), the Middle East, West China, Mongolia and Europe.

KPMG ECB Office: Implications of COVID-19 on the European banking sector

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Since March 2020, KPMG‘s ECB Office has published a new newsletter dealing with the impact of COVID-19 on the European banking sector. The insights and materials have been created to help you respond to the challenges of the present, and prepare for the future and the new reality.

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FMF Virtual Food for Thought with José Manuel González-Páramo – Digital Innovation & Data in the Financial Sector

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José Manuel González-Páramo, Chairman of the Supervisory Board of European DataWarehouse and former member of the Executive Board of the European Central Bank and former Executive Board Director, Banco Bilbao Vizcaya Argentaria S.A., spoke about “Digital Innovation and Data in the Financial Sector” at the “Food for Thought” online event of Frankfurt Main Finance on 8 July 2020. In addition, Dr. Christian Thun, CEO European DataWarehouse, gave a brief insight into the monitoring of the impact of COVID-19.

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