Frankfurt am Main – the city with a silhouette seen nowhere else in Germany and which, in the eyes of many, highlights Frankfurt’s importance as a centre for the European and German financial sectors. This skyline is home to the second largest financial centre in the EU, after London. Almost 73,000 people work for approximately 220 banks; three-quarters of these banks are subsidiaries or branches of foreign institutions. In addition, the German Bundesbank and the European Central Bank make decisions affecting 300 million people. Frankfurt is also the site of Germany’s largest stock exchange with a trading volume of 2.1 trillion euros.
Alongside the banks, Frankfurt as a financial centre is characterised by insurance companies and asset managers. Next to the banks, insurance companies active in the financial centre are sometimes unjustly overlooked. Around 100 insurance companies with approximately 20,000 employees are located in the financial centre. This is in addition to the approximately 50 internationally active investment companies.
Born in 1966, the author studied law at Philipps University in Marburg and completed his doctorate in law in 1999. From 2005 to 2009, he was secretary of state in Hessen’s Ministry of Justice and from 2009 to 2010 secretary of state in Hessen’s Ministry of Finance. Dr. Thomas Schäfer has been Hessen’s finance minister since August 2010..
The financial centre Frankfurt can be summarised as follows in an international comparison:
• Frankfurt is not solely a financial centre without ties to the real economy. On the contrary, Frankfurt is an integral part of the largest economy in the EU. This gives it access to a huge customer market consisting of medium-sized companies, major corporations and private customers. In light of the focus on this customer market, the financial centre sees itself primarily as a service provider for the real economy.
• Frankfurt is not a financial centre that specialises in a certain segment of the financial industry. Other financial centres – as documented by the Global Financial Centres Index (GFCI) – see their strength as being specialists. In contrast, Frankfurt represents the full spectrum of the financial industry.
The financial centre also enjoys an excellent regulatory environment. Frankfurt is sometimes referred to as the “City of the Euro”, and this is done with a certain degree of pride as the home to the European Central Bank (ECB). Frankfurt covers a comprehensive fiscal, stability and regulatory spectrum with the ECB ; the European Systemic Risk Board (ESRB); the German Bundesbank; the European Insurance and Occupational Pensions Authority (EIOPA); the Federal Financial Supervisory Authority (BaFin); and the Financial Market Stabilisation Agency (FMSA). All this ensures that Frankfurt enjoys an excellent reputation around the world. In the Global Financial Centres Index 11 of March 2012, Frankfurt maintained its fifth place worldwide in the “Government and Regulatory” category.
However, Frankfurt’s attractive and successful position is constantly facing new challenges. The current regulatory changes are already affecting actors in the financial centre. A wave of proposed regulations to help overcome the financial crisis is making its way towards the financial centre and will have to be implemented. While insurance companies are concentrating on implementing Solvency II and managers of investment funds on the directives for managers of alternative investment funds (AIFM Directive for short), banks – always with an eye on the negotiations in Brussels – are working on implementing Basel III. This is in addition to the many regulations covering derivatives and investment consulting, for example. At a national level, the Restructuring Act and bank levy are also important.
The financial centre Frankfurt is of outstanding strategic importance for the government of the state of Hessen. In order to form an international profile, the state government of Hessen is focusing its efforts on further developing and strengthening the competitive position of the financial centre Frankfurt. One important way to proceed at a national level is to make use of the opportunities for influence offered by proceedings in the Bundesrat. On Hessen’s initiative, the Bundesrat has taken a stance on numerous financial market regulatory policies and worked towards tangible solutions. The objective was and still is to strengthen and expand the financial centre.
The key positions of the Hessen state government include the demand for a level playing field, that is for uniform regulatory conditions internationally – or at least at an EU level. This includes the clear objective that there can be no uncoordinated national initiatives.
Uniform regulations are absolutely essential in a domestic EU market and also work to counteract the disadvantages Frankfurt faces in international competition. With uniform regulations forming the foundation, the financial centre Frankfurt can also benefit from its strong real economic environment. Current examples of the demand for a level playing field include the statement on the CRD IV implementation package and the amendment to the Insurance Supervision Law for implementing Solvency II.
Hessen’s state government believes that, as a competence centre for regulation, financial stability and supervision, Frankfurt will continue to gain importance as a result of the increasing international significance of these areas.
The relocation of the ESRB and EIOPA as part of the new European financial market supervision in Frankfurt has already resulted in a significant gain in reputation. The functional capabilities of these new supervisory bodies are to be reviewed by the EU Commission over the coming years. This will involve considering whether the division of the three sector-specific European supervisory bodies is appropriate in practice or whether, as already demanded by the European Parliament, they should be brought together in Frankfurt. The Hessen state government will continue to support this process in the interest of the financial centre.
In addition, the state government will also advocate that Frankfurt as a regulatory centre should also play a significant role in the new fields of regulation and supervision. The potential dangers of parallel banking – also referred to as shadow banking – for financial stability make it essential to combine the EUwide recording and supervision of this financial sector in one location. On the initiative of the state government and as part of the current plans for the regulation of parallel banking in the EU, the Bundesrat has expressed itself in favour of entrusting the ESRB with this task.
The extensive inclusion and participation of scientific institutions is another important building block in the successful financial market policy of the Hessen state government. The International Center for Insurance Regulation at the House of Finance in Frankfurt, for example, began its work in October 2010. The state government is currently supporting the establishment of the Sustainable Architecture for Finance in Europe (SAFE) research centre at the House of Finance. One of the main objectives of SAFE is to provide independent consultation on upcoming financial market topics for politicians.
As a joint initiative between the state government, the City of Frankfurt, the financial industry and science, Frankfurt Main Finance campaigns for Frankfurt to be actively supported in international competition. Frankfurt is promoting itself in the areas of regulation, financial stability and supervision with attractive events, expertise and open platforms for discussion. This has already enabled the city to play the role of moderator in many international debates.
The Hessen state government will continue to actively support the interests of the financial centre Frankfurt and its national and international actors in the proposed regulatory projects and issues related to financial stability. In addition, the state government will continue to advocate that Frankfurt and the international financial community continue to enjoy outstanding real economic and regulatory conditions and to gain significance as a financial centre.