German Central Banker Sleeps Better With Limits on Capital Flows

(Bloomberg) -- Go inside the global economy with Stephanie Flanders in her new podcast, Stephanomics. Subscribe via Pocket Cast or iTunes.

Bundesbank board member Joachim Wuermeling is glad Europe has limits on how freely lenders can move funds between countries, the biggest stumbling block bankers say they face on cross-border mergers.

“It helps me sleep better at night,” said Wuermeling, whose responsibilities at the German central bank include supervision and risk control. “It’s very difficult in a crisis to access funds, capital and liquidity outside of the country, and in the end, these are the deposits of German savers and companies.”

German Central Banker Sleeps Better With Limits on Capital Flows

Europe’s banking market fragmented after the 2008 credit crunch as national regulators sought to ensure that banks wouldn’t yank funds from their market, potentially causing turmoil. Trapping cash makes it less attractive for banks to merge with competitors in other countries, seen as a key step in increasing profitability to the beleaguered industry.

Wuermeling showed some sympathy for the other side of the argument: “You have to admit that this is a hindrance for the common market and the capital market union,” he told a conference on Europe in Frankfurt on Friday.

In cases where there is a pan-European banking supervisor and authority for handling failing banks, one should consider “whether there are sufficient grounds for national control that would justify ring fencing,” he said. The European Central Bank took over supervision of the euro area’s largest banks in 2014.

Considering moves away from such national firewalls is one of the issues for the next European Parliament after elections this month, Wuermeling said.

©2019 Bloomberg L.P.