Overview of relevant points of the German coalition agreement 2021 – Financial services

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On September 26, 2021, the 20th German Bundestag of the Federal Republic of Germany was elected. The centre-left party, the Social Democratic Party of Germany (SPD) emerged as the strongest party and quickly began discussions to form a new coalition government for the 2021-2025 legislature. The SPD was already the junior partner of the previous coalition with the CDU/CSU (since 2013) under Chancellery Merkel.

The SPD’s Olaf Scholz will replace Merkel as chancellor. Scholz had previously served as finance minister under the last cabinet and so he marked the “continuity candidate” among party leaders in the 2021 Bundestag elections. Post-election exploratory talks to form a new government have resulted in coalition negotiations in which the SPD approached the centre-left Green Party, Bündnis 90/Die Grünen (the Greens) and the centre-right Free Democrats (FDP).

The negotiations ended on November 24, 2021 and resulted in the presentation of the coalition agreement1. In German politics, a coalition agreement serves to publicly present a consensus on the most important common goals and objectives of the parties under the new cabinet. In the sections below, we provide a brief overview of key points that are relevant to players in the financial services market. The sustainable finance and climate change priorities set out in the coalition agreement are discussed in our separate coverage.

The coalition agreement and key themes – a commitment to the EU

The coalition agreement that has been unveiled bears the title “Dare for more progress – an alliance for freedom, justice and sustainability”. The new incoming cabinet, in addition to advancing efforts to combat climate change (see our separate coverage on this), plans to focus on reforms aimed at improving social justice, digital transformation, safety and security. Germany’s economic competitiveness. Financial services and market players are called upon to play a key role in implementing change during the next legislature. Crucially, while the coalition agreement lays out reforms for Germany, the points detailed therein are likely to be relevant to policymakers in national capitals across the EU-27 as well as policymakers across the EU to Brussels, Paris and Frankfurt.

As an overarching message, the coalition agreement is resolutely pro-European and commits to carrying out a number of legislative and institutional reforms that have been put forward or proposed at EU level. Specifically, the new German government is committed to the EU Conference on the Future of Europe, an important means of advancing the dialogue on EU constitutional reform. The German government is also in favor of granting the European Parliament a “right of initiative”, of a commitment to a single electoral system and transnational lists for European Parliament elections, of pushing for a greater transparency in the decision-making of the European Council and greater consideration of small – the specificities of medium to medium-sized companies (i.e. reflecting the importance of the German Mittelstand) in the development of EU regulations.

Basically, this coalition agreement proposes that the incoming new cabinet is committed to pursuing a faster pace and possibly more ambitious goals when implementing change in both Germany and the EU-27. While welcome, it may also reflect an incoming government seeking to spur a rebound from the impacts of the COVID-19 pandemic which has paused a number of reforms underway or already in various stages of development. . delivery.

EU banking union, capital markets union plans and EU financial market regulatory reform

The objectives of the coalition agreement are clear in the need to complete the EU banking union. Completion is necessary to strengthen the EU single market and therefore the European economy, but also the global competitiveness of German and European financial services companies and the counterparties, customers and communities with which they engage. The following measures aim to contribute to this effort:

  • The 2021 Bundestag election was set to break the deadlock over Germany’s position on the proposed “third pillar” for banking union, i.e. the European Deposit Insurance Scheme (EDIS). ). Already in late 2019 and 2020, statements by then Finance Minister Olaf Scholz sought to break up the contentious EDIS discussion and propose compromise solutions that would be acceptable to the national electorate without derailing the progress of the EU. The compromise agreement now cements Germany’s compromise position on EDIS. While the new government remains cautious about any form of mutual risk sharing, the proposed compromise provides for a European reinsurance mechanism for national deposit guarantee schemes. Contributions must be differentiated according to risk and this is subject to the fulfillment of three essential preconditions:
    • Risk exposures in bank balance sheets need to be further reduced

    • particularly with regard to an overreliance on government bonds;

    • The EU bank recovery and resolution regime (BRRD II and SRM II) needs to be further strengthened;

    • The Institutional Protection Schemes (IPS) of the German Savings and Cooperative Banks must be protected and not affected as part of the delivery of the Compromise Position;


  • The coalition agreement supports the implementation of the core requirements of Basel III/IV as applied in the EU via CRR III/CRD VI, into German law. In this context, the coalition agreement stresses the need to reduce the competitive disadvantages faced by smaller banks and proposes to push for more proportionate risk-based supervision. Likewise, the German government plans to ensure that investment conditions are not hampered by the implementation of new prudential regulatory standards as well as by the continued (systemic) impact of extraordinary support and/or relief measures. relief that have been put in place to support the economy. in light of COVID-19;

  • Although no concrete proposals are being made on how to complete the Capital Markets Union – and this may be partly due to the fact that the European Commission’s revised regulatory reforms were published at the same time as the coalition agreement was being finalized – efforts at European and national level to do so. More specifically, however, the coalition agreement indicates lines of work on the review of MiFIR/MiFID II and the need to enhance market transparency, in particular with regard to high-frequency trading, as well as to reduce the limits of position for commodities (agricultural); and

  • With regard to Solvency II, the coalition agreement will focus on how to integrate climate risk into prudential evidence-based and risk-adjusted capital requirements, so as to also facilitate climate-focused investments. the passive. Germany will push for greater ability to apply proportionate risk-adjusted regulatory and supervisory requirements to non-complex insurance businesses and pension providers.

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Footnotes

1 The full text of the coalition agreement is available here.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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