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Round Table in Berlin

“The lessons did not stick – financial expert Dr. Gerhard Schick at the zeb.Financial Market Roundtable

On the occasion of the 15th anniversary of the bankruptcy filing of the U.S. bank Lehman Brothers, Dr. Gerhard Schick, chairman of the Bürgerbewegung Finanzwende (a German NGO that collaborates with Finance Watch), warned at the zeb.Financial Market Roundtable in Berlin that the banking system is currently in a state of instability comparable to that during the financial crisis. According to him, there have been multiple turbulences of varying magnitude since then. Although there is no immediate danger of individual bank customers losing their money, Schick suggests that the financial markets might once again experience a major shake-up. Such a shake-up would not necessarily result in people losing all the money in their savings accounts, but if the financial crisis were to spill over into the real economy, jobs could quickly be at risk. “After all, the last financial crisis also led to massive economic downturns that heavily affected many people. And therefore, it is frightening how quickly the memory of the 2007/2008 financial crisis has faded,” warned Schick. 

In view of the running court case against the former head of Warburg Bank, the financial expert criticized the close relationship between banks and policy-makers in Hamburg. To him, the question arises: “Is there a spoils system that needs to be cleaned up?” His criticism goes as follows: “There is a loophole in the capital gains tax system” – people can easily steal advantages they are not entitled to. In Schick’s opinion, the Federal Ministry of Finance and the tax authorities of the individual federal states assess the correct implementation of the corresponding laws not frequently enough. According to him, the ones who expose these problems are always “whistleblowers or journalists”. Schick, who used to work in financial policy for the Green party, suggests that more than EUR 30 bn might have been lost. “In the light of these figures, the citizens expect their state to draw consequences,” Schick is convinced. It would be the biggest law enforcement proceedings in the history of Germany. “We are talking 1,700 potential culprits” – to Schick, this is a colossal scandal.

The example of the Credit Suisse rescue corroborates the Schick’s impression that the lessons learned from the financial crisis have been forgotten. “At the time, there were warnings that banks were getting too big, that they were too big too fail. And now, the takeover of Credit Suisse by UBS created a monster bank that is far too big for Switzerland” – the entire country might flounder if this bank got into difficulties, according to Schick. He goes on: “No one knows where the next crisis will emerge or what it will look like. The recent rise in interest rates, for example, was faster and higher than what the Bundesbank had prepared for in its corresponding stress test scenario.” In Schick’s opinion, banks are still too heavily debt-financed. This makes them vulnerable, he concludes. It’s not all doom and gloom, though – the former Green finance policy expert made some positive remarks on the European banking union, which has been in place since 2014: “That’s one of the few things that went well. The national authorities were easily outplayed by the global banks. Therefore, a joint European supervisory infrastructure is a step forward.” However, a proper regulation of the money market funds has not been achieved, so far. The way Schick sees it, they are still allowed to pretend that they are as safe as a savings bank.