08 Dec 2021

Jan Krahnen: “The new federal government’s course will trigger significant adjustments in financial markets”

SAFE Director sees regulatory accents in the coalition agreement that allow for innovation in the financial sector

The new German government will officially take office today. The coalition agreement provides information on the direction of financial market policy in the upcoming legislative period. Jan Pieter Krahnen, Director of the Leibniz Institute for Financial Research SAFE, comments as follows:

“What is remarkable about the coalition agreement is that the new federal government is imposing an overall goal on its political agenda, namely the proactive transformation of our economic system towards a climate-neutral society. In doing so, the coalition wants to focus on setting a long-term framework before imposing regulations on specific industries or areas of life. The so-called traffic light coalition thus adopts the formula: Regulatory policy instead of discretionary individual interventions. The course thus set will trigger considerable adjustments in the financial markets.

The governing coalition announces that it will find European answers to financial market-related questions. This is intended to overcome the blocking of more far-reaching reforms, which Germany has also pursued in recent years, for example in the completion of the banking union, deposit insurance, or the design of sustainable financing policies. The 'red lines of discussion' also contained in the coalition agreement, for example on the structure of the national banking system, point to conflicts in Europe and Germany that still need to be fought out if the completion of the banking union is actually to succeed.

Surprisingly, the central issue of green financial and monetary policy, which is new to many observers today, does not appear in the coalition agreement - at least not in the sense of setting individual guidelines for banks, insurance companies, or investment funds. Concrete reforms are not apparent here, but the general line of a coordinated, transparency-oriented framework is. Instead, the possible role of a strengthened capital market is highlighted.

The thus indirectly formulated goal of becoming a leading location for sustainable financial products by setting a framework is a signpost for the future regulatory architecture. If the new German government maintains this course consistently, there is a chance of uniform, credible market supervision at the European level and comprehensive transparency, which would make a market assessment of sustainable investments possible in the first place. This would also open a door to allow innovation in the financial market to strengthen sustainability in the first place, including the promotion of investor influence.”

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