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For my English-speaking followers, I provide a short summary of my recent op-ed in FAZ: "Banking Policy in the Glasshouse" (thread) 1/n
the 1st & 4th largest German bank, which would create a huge bank that would be even more systemically important than the two banks by themselves. I then discuss Banca #Carige and speculate about possible solutions, all likely involving taxpayers' money. 3/n
There is no obvious violation of rules, rather a use of loopholes built into the framework. Legacy non-performing loans (NPLs) make the situation more complicated, and I wouldn't be too optimistic about the evolution of NPLs in light of a looming recession. 4/n
I also raise doubts about banks' higher capital ratios, which may drop quickly in a recession, if risk weights prove to have been overly optimistic. Capital requirements should be raised further, especially for large banks. But this is unrealistic at the moment. 5/n
Germany had less trouble with the new rules because most problems arose before they were introduced. Direct fiscal costs of bank rescues amounted to at least 68 bn € in the crisis. Nevertheless, German banks still suffer, especially from shipping loans & low profitability. 6/n
The latter is due mainly to structural problems, but it's exacerbated by low interest rates. The most acute case is #NordLB. Whatever the solution will be, the German taxpayer will pay high costs, directly through the public owners, or indirectly through publicly owned banks. 7/n
Meanwhile the German government calls for a "national champion" in the German banking sector (it has done so before under Gerhard Schröder in 2004). It is remarkable that the problems at 2 large banks are to be solved by creating an even larger #TBTF bank. Nothing learned? 8/n
Why don't we hear a public outcry on these plans? I am really puzzled by this. In any case, it shows how far we still are from #EndingTBTF. 9/n
Without European Banking Union, the situation would be worse. At least there's now some bail-in (subordinated debt), and at least there now is an earlier revelation of problems at weak banks through the stress tests (but too slow action of SSM). 10/n
So Banking Union is clearly an improvement. The German government emphasizes that further progress with respect to Banking Union should be tied to a clean-up of banks. Instead of pointing only towards other countries, it should also start at home. n/n
