Concern over bank free-for-all

Date: 11/09/1997

By Chris Johnstone

A POST-Amsterdam Treaty tussle has begun over what heads of state intended for the banking sector when they bowed to German pressure for a special declaration favouring its public savings banks.

With the dust long-settled on the summit, European Commission competition officials are now trying to work out how the sector should be treated in the future and if the declaration benefiting German banks should be applied to other member states.

In a bid to clarify the situation, Commissioner Karel van Miert's Directorate-General for competition (DGIV) has sent out a questionnaire to all capitals asking them for details of their national rules governing the banking sector.

“The results of this study will contribute towards operating future competition policy in the banking sector,” Van Miert declared in a recent speech. Results were due by the end of August, but some countries have already warned that their contributions will be late.

The European Banking Federation, the Brussels-based lobby for private banks, points out that member states have been slow to respond to past DGIV demands for details about the sensitive banking sector. In particular, governments dragged their feet when giving answers to a recent probe into state guarantees to banks.

The federation wants Van Miert to take a firm stand now by spelling out that the German declaration does not exclude its public banks from competition scrutiny, and it does not want the principle widened to other EU countries.

The German declaration appeared at first sight to fall in line with Chancellor Helmut Kohl's demands that the country's local and regional savings banks, the spaarkassen and landesbanken, be protected from Brussels competition probes. German savings banks were becoming concerned about the outcome of a probe into whether some of the advantages given to the banks, such as preferentially low interest rates and guarantees against bankruptcy or a shortfall in funds, were more generous than their public and general interest undertakings demanded.

Austria and Luxembourg tagged their own note on to the Treaty of Amsterdam stating that they believed the declaration applied equally to equivalent banks in their countries.

Austrian savings banks have some of the same advantages as their German neighbours and are also key players in the country's economy. Austria's biggest bank, Bank Austria, benefits from a guarantee from the City of Vienna that creditors will be paid if the bank collapses. However, Austria does not have a similar guarantee to the German arrangement obliging towns or regions to provide extra funds to savings banks if they need it.

Luxembourg put down its treaty marker to ensure its flourishing and lucrative banking sector, largely fuelled by deposits coming in from Germany, was not put at any disadvantage compared to its European rivals.

Commission officials expect public banks in other countries to make similar claims to Austria and Luxembourg, with the prospect of immunity for a series of different national rules adding up to a nightmare scenario for the Competition Directorate-General.

“If the declaration applies to Austria and Luxembourg as well then you can be sure that savings banks in Italy, Spain and Portugal will be claiming it is good for them as well,” said a spokesman for the European Banking Federation.

Van Miert has already warned that the treaty declaration will not prevent him from vetting the perks given to public banks to ensure that they are proportional to their non-profit making missions.

With banks becoming increasingly competitive ahead of the arrival of a European single currency, when the traditional protection afforded by specialising in a home currency disappears, Van Miert has underlined that rules enforcing fair competition in the sector must still apply.

Although the post-treaty battle has already started, industry observers are still unable to pin down what benefits Germany's savings banks have actually won from the declaration. Some point out that the declaration in itself has no legal force and competition rules still apply to the sector. However, others believe that by getting his own way in Amsterdam, Kohl has given the Commission a political warning against action in this area.