System relevance

from Wikipedia, the free encyclopedia

As systemically important ( English systemically important , english word to English too big to fail , German  "too big to fail" ) are enterprises , critical infrastructure or occupations referred to such an important economic or infrastructural role in a State play that their insolvency or Systemic risks cannot be accepted or their service needs special protection.

Concept development

Today's concept of systemic importance underwent a gradual expansion of its term content . It developed from the "murder argument" to the vague "magic word". In October 1997 a government commission in the USA also raised critical infrastructures to be of systemic importance. While the term to 2009 exclusively for large banks was, advanced him the then head of the Federal Reserve , Ben Bernanke , in March 2009 of "large" ( English large ) to "large and complex" ( English large and complex ) to "systemically critical" ( English systemically critical ), ultimately to "systemically important" ( English systemically important ). The company size ( total assets , business volume , market share , market power ) alone is no longer critical, and the degree of crosslinking ( english too (inter) connected to fail ), financial conglomerates , insurers or non-banks - large companies were raised to the connotation. The term rose to “from economic findings to legal categories”.

The question of systemic relevance receives special attention, especially in the financial sector , where the insolvency of credit institutions , insurance companies or other financial service providers can threaten the stability of the entire financial system . Given the special role of the finance for the real economy corresponding to bankruptcies lead to massive distortions in the real economy. Such an imminent bankruptcy may be averted with public funds through a rescue operation .

States can also be considered systemically important. The insolvency of a state that is a member of a monetary union (such as the European Economic and Monetary Union ) and no longer has its own monetary policy leads to particular problems . Here, too, the question of rescue by other states arises.

history

Too big to fail

The term comes from the United States , where a government bailout ( English bailout ) of New York City in August 1914 as the first example of too big to fail is true in American finance. It all began with the closure of the New York Stock Exchange , which only reopened on December 12, 1914. The city was largely indebted in British pounds and later was no longer able to obtain the foreign currency for servicing the bond due to a lack of US dollars; shortly before their bankruptcy, the US Treasury stepped in and arranged for the repayment. The city experienced a second rescue operation in December 1975 when President Gerald Ford abandoned his initially negative attitude ( English drop dead ) at the last minute .

With the Federal Deposit Insurance Act of 17 August 1950, received FDIC the right to ask to bail out financial corporate loans and equity capital available ( English providing assistance ), if this was necessary to maintain the stability of the financial system. However, this option was only used for the first time in 1969 and has only been used very rarely since then. The following FDIC table provides a statistical overview. In May 1984 the seventh largest bank in the United States, the Continental Illinois National Bank and Trust Company , was saved as "too big to fail". The regional Penn Square Bank , which had previously suffered a crisis in May 1982 , was not saved and went bankrupt in May 1982. There were therefore indications that the size of the company was the sole selection criterion for state rescue operations in the banking sector. However, this is not absolutely true, as the bankruptcies of Lehman Brothers and Washington Mutual (the largest US building society ) show in September 2008 (Washington Mutual had to be sold to JPMorgan , the fourth largest investment bank Lehman was liquidated).

Other recent examples are rescue measures in the context of the financial crisis from 2007 , for example for Fannie Mae and Freddie Mac .

System relevance

Since the financial crisis from 2007 onwards, the term “systemically important”, “systemic” or “systemic” has emerged at banks for the rescue of ailing banks. The rescue-worthy institution (or a group of institutions) of a state plays a special role in the context of the credit system because of its size or importance and can therefore count on government aid first in the event of any state aid. What systemically relevant means in concrete terms is defined under supervisory law for Germany. According to this, institutions are systemically important if their size, the intensity of their interbank relationships and their close ties with other countries could result in significant negative consequences for other credit institutions and lead to instability in the financial system. The classification as a systemically important institution is based on mutual agreement between BaFin and the Bundesbank. The term “systemically relevant” is therefore a synonym for the financial doctrine too big to fail .

The larger the company ( company size of large companies ), the stronger the effects on other economic agents . In these cases, it is more likely that bailouts by creditors , competitors or the state will take place in order to reduce or even eliminate these effects. It is therefore often assumed that companies of a certain size become systemically important and are therefore no longer allowed to become insolvent .

In March 2009, the head of the US Federal Reserve, Ben Bernanke, pointed out that in a crisis the state has strong motivation to prevent large, interconnected companies from going bankrupt because of the negative effects of a failure. At the same time, however, he emphasized that there would be undesirable effects for market participants if a certain company were classified as too big to fail :

  • Market discipline is reduced and excessive risk taking is encouraged.
  • An artificial growth incentive is created in order to be classified as too big to fail .
  • Small businesses are sidelined because they cannot count on a rescue operation due to their size.
  • State bailouts are usually expensive for taxpayers (under fortunate circumstances they can also be lucrative) as Citigroup , AIG , Freddie Mac and others have proven.

The company's importance for financial market stability also played a role in the support provided by the financial market stabilization fund, although comparatively small banks were also able to assert themselves as systemically relevant in order to receive guarantees and capital from the bank rescue fund. The same applies to the discussion about a bank levy where large companies should pay higher tax rates.

Contagion effect

The interbank market offers banks worldwide the opportunity to be so strong network with each other that they themselves "too interconnected to go down" to be able to present (English too interconnected to fail ). This can lead to governments for fear of the consequences of contagion (contagion) would weigh carefully whether they can go bankrupt a highly cross-linked bank. This creates false incentives ( moral risk ). By entering into low net but high gross positions, especially in the case of derivatives , banks can construct an implicit guarantee of existence for themselves, especially when they are otherwise not large enough to be considered systemically important. In March 2008, for example, the small and rather insignificant investment bank Bear Stearns was bailed out because it was viewed as too connected. The more credit derivatives (especially credit default swaps ) a bank sells as protection seller, the higher the probability that the institution will be rescued by the state in an emergency. So if a credit institution is not too big to fail , it still has a chance of salvation if it is too interconnected to fail .

Legal issues

Systemic relevance is a legal term that occurs exclusively in banking law . The law for the establishment of a financial market stabilization fund (FMStFG) passed in October 2008 still speaks in Section 4 (1) FinMStFG of "the importance of ... the financial sector company for financial market stability". In § 10f para. 2 KWG criteria are listed for the systemic importance, namely the size of the group, cross-border activities of the group, interconnectedness of the group with the financial system , substitutability in terms of services and financial infrastructure offered the group complexity of the group and in accordance with § 10g Para. 2 No. 2 KWG the economic importance for the European Economic Area and the Federal Republic of Germany. The Restructuring Act , which mostly came into force in January 2011 , still spoke of the fact that the "threat to the continued existence of the company" could lead to a "system threat" (Section 48b KWG old version). It was not until the Reorganization and Liquidation Act (SAG), which came into force in January 2015 , that system relevance became a legal term. According to Section 20 (1) SAG, an institution is potentially systemically endangering if it is either a globally systemically important institution according to Section 10f KWG or another systemically important institution according to Section 10g KWG or if there are no simplified requirements for this institution in accordance with the criteria according to Section 19 para. 2 SAG can be determined.

The systemic risk since the global financial crisis legally defined as the risk of failure in the financial system , the serious negative implications for the financial system and the real economy have can ( § 1 , para. 33 KWG). The discussion mainly focused on financial institutions whose bankruptcy could cause such a disruption. These were initially described as systemically important and were assigned vital importance for the stability of the banking sector and, in some cases, the economy.

Apart from these financial laws, one of the principles of spatial planning is that, according to Section 2 (2) No. 3 ROG, the protection of critical infrastructures must be taken into account. The protection of critical infrastructures also includes supply by key industries , the impairment of which would immediately lead to serious disruptions in the supply situation . The “criticality of infrastructures” is a measure of the importance of an infrastructure with regard to its system functionality. Critical infrastructures are made up of basic technical infrastructures and socio-economic infrastructures .

Systemic relevance and systemic risk

Systemic relevance results from systemic risk , a negative externality . The systemic risk consists in the danger that the failure of an institution threatens the existence of the entire economic system . If a system presents a high systemic risk, the question of the system relevance of individual parts of the system automatically arises. This system relevance assumes on the one hand that there are individual system-relevant parts, but also that there are parts that are less important for the functioning of the system. On the other hand, system relevance means that parts identified as systemically relevant enjoy special attention and special protection. Since the world financial crisis from August 2007 showed that a domino effect led to the transfer of the financial crisis from the financial economy ( money , capital , currency markets and stock exchanges ) to the real economy ( goods markets ), the term had to be extended to the corporate crises of non-banks . The corona pandemic of December 2019 made it clear that professions can also be systemically relevant.

System relevance and system risk are causally related. If the insolvency of economic entities or the instability of economic objects represents a significant systemic risk, they must be classified as systemically relevant. System relevance therefore presupposes that there is a systemic risk that could endanger the economic system.

If it turns out that the size of a company exceeds the financial strength of a state ( English too big to rescue , German  “too big to be rescued” ), the state has to accept the bankruptcy of these companies. An example is Iceland , which in 2008/2009 decided to insolve its three systemically important banks ( Kaupthing Bank , Landsbanki and Glitnir ).

Effects and measures

If companies or business partners assume that a company is protected from any risk of bankruptcy due to its size, this creates incentives to take risks that would otherwise not be taken. It is rated as critical if central banks define criteria in advance as to when large companies or large banks are to be rescued. This would create incentives to take large risks at the expense of the general public and at the expense of personal responsibility ( moral risk ). According to calculations by US economists, the implicit state guarantees of too-big-to-fail in the USA correspond to state subsidy payments of between 5 and 35 billion US dollars annually. A study by Beatrice Weder di Mauro and Kenichi Ueda comes u. a. to the result that the German banks would be rated four to five lower rating levels without the unspoken government guarantees .

As a possible measure against the risks of protecting systemically important institutions, the breaking up of large banking groups was increasingly called for after 2007: "If a bank is too big to fail, it is too big", for example, in 2011 the annual report of the Federal Reserve Bank of Dallas called for it to be closed to smash large banks in order to embark on the "path of prosperity". John Taylor , on the other hand, demands credible and transparent principles for government intervention from the US Federal Reserve .

After the outbreak of the crisis was the subject of proper liquidation of distressed banks by the Financial Stability Board (English Financial Stability Board treated FSB) at the global level; the dilemma between insolvency proceedings that are dangerous from a systemic point of view and their risk of contagion on the one hand and economically and politically questionable bail-outs on the other should be resolved with a new resolution regime for banks. The aim is to provide instruments that enable banks to be resolved without the use of taxpayers' money. On behalf of the G20, the FSB developed an international framework for the restructuring and resolution of systemically important financial institutions ; in October 2011 he presented the “Key Attributes of Effective Resolution Regimes for Financial Institutions”. This document outlines the requirements that future resolution regimes of the participating states should meet. In particular, it is called for that the states should set up resolution authorities and equip them with instruments that enable the orderly resolution of financial institutions at no cost to the taxpayer; among other things through the instrument of creditor participation . In the EU and the euro area, these principles were implemented in 2014 with the adoption of the European Banking Union , consisting of the resolution directive and the uniform bank resolution mechanism .

Systemically important financial institutions

Global

The Financial Stability Board (English Financial Stability Board , FSB) sets since 2011 an annually updated list of global systemically important banks (English Global systemically important banks , G-SIB) in front. The November 2015 update contains 30 banks, one German and two Swiss. In addition, the FSB is since 2013 an annual list of global systemically important insurance companies (English Global systemically important Insurers , G-SII) out; it currently contains nine insurers, including one German.

The global systemically important banks (G-SIBs) and insurance (G-SII) are subgroups of systemically important financial institutions (English systemically important financial institutions , SIFI).

National

Following the concept of global systemically important banks, national systemically important banks (Domestic Systemically Important Banks, D-SIBs) are systematically recorded in accordance with the consultation paper of the Basel Committee of June 2012 . The rules provide for an annual assessment of the systemic importance of local institutions by national authorities, which, if necessary, are to set capital add- ons in Common Equity Tier 1 capital .

According to the Federal Ministry of Finance, 36 banks in Germany were rated as systemically relevant in December 2012 . The Federal Financial Supervisory Authority and the Deutsche Bundesbank are working together on a "Methodology for Identifying Institutions Potentially Systemically Endangering (PSI)" (as of June 2015), the national systemically important financial institutions.

In Switzerland, the Swiss National Bank classified the two major banks UBS and Credit Suisse (since 2012), Zürcher Kantonalbank (since 2013), the Raiffeisen Group (since 2014) and PostFinance (since 2015) as systemically relevant in Switzerland.

The Austrian financial market supervisory authority classifies seven banks as systemically relevant: Erste Group , Raiffeisen Bank International , Unicredit Bank Austria , Bawag PSK , Raiffeisenlandesbank Oberösterreich , Raiffeisen-Holding Niederösterreich-Wien and the Volksbank Group are listed as "systemically important institutions".

In the euro zone, systemically important banks have been supervised centrally by the European Central Bank since November 2014 as part of the Single Banking Supervision Mechanism (SSM). According to the definition of the SSM, this affects 116 banks in the euro zone, 21 of them in Germany and 6 in Austria.

Systemically relevant occupational groups

The term, which first appeared in the financial crisis from 2007 onwards, was also applied to professional groups during the COVID-19 pandemic , whose activities are essential for a functioning community . These include:

Which occupational groups are classified as systemically relevant differs depending on the federal state and the state. The German Federal Office for Civil Protection and Disaster Assistance has published an overview of critical services in the context of the Corona crisis and states in it on system relevance in relation to critical infrastructures: "System relevance describes the importance of institutions for maintaining systems. In the context of KRI-TIS, this means that systemically relevant companies or authorities maintain the functionality of the overall system of critical infrastructures or parts of them and thus contribute directly or indirectly to ensuring that the population is supplied with important, sometimes vital goods and services. Such companies and authorities include so-called critical infrastructures, but also facilities without which it is not possible to maintain critical infrastructures. The federal government has defined nine sectors in which critical infrastructures can be found. These include: energy supply, information technology and telecommunications, transport and traffic, health, water, nutrition, finance and insurance, government and administration as well as media and culture. The facilities that contribute to the maintenance of critical infrastructures include suppliers and service providers whose products form the basis for the functionality of critical infrastructures. "

Exceptions to working hours can be issued for employees in these professional groups . In addition, these employees can have a special right to emergency care for underage children due to the decreed closure of schools and day-care centers. For example, a general decree issued by the Bavarian Ministry of Health stipulates emergency care for children of employees in “ critical infrastructure ” facilities .

Furthermore, the nationwide law for the protection of the population in an epidemic situation of national scope stipulates that income from secondary employment in systemically relevant industries and occupations is not counted towards short-time work benefits as long as 100% of the original pay is not exceeded. This regulation applies for the period from April 1, 2020 to October 31, 2020.

economic aspects

The systemic importance attained only when disasters (such as cyber attacks , epidemics , wars , natural disasters , pandemics , terrorism ) or economic shocks ( banking crises , financial crises , corporate crises of large companies , global economic crises ) important. System relevance arises from the fact that an element of the system has the potential to cause, transmit or intensify a disruption. Economic entities, economic objects or structures that have been declared to be of systemic relevance are also protected by the state through legal norms . The national goal is to ensure the functioning of systemically important areas so that the economy and society retain their stability and are not damaged. The stability of modern economic systems is based on the stability of their subsystems; Specifically, energy security , security of supply and the stability of the financial and goods markets must be maintained. Systemically important companies or authorities maintain the functionality of the entire system or parts of it and thus contribute directly or indirectly to ensuring that the population is supplied with important, sometimes vital goods and services.

The awareness of belonging to a systemically relevant area creates moral hazards there . Because international institutions ( International Monetary Fund and World Bank ) and the large industrialized countries are forced to step in with rescue operations in the event of a crisis so that the individual state or large companies do not drag the entire economy with them through contagion , domino effects or cascade effects ; Actors like the central banks play the role of the lender of last resort . This can lead to risky behavior by individual governments and / or large corporations who trust that they will need help if necessary. They promote their company growth in order to enlarge their company size in order to get into the circle of systemically important companies or to stay there. This gives them competitive advantages over non-systemically relevant competitors. If this allows companies to socialize losses, but can earn profits themselves and are thus motivated to risky behavior, one can also speak of the risk incentive problem .

Individual evidence

  1. ↑ Angelika Amend, The Financial Market Stabilization Supplement Act or the Loss of Significance of Insolvency Law , in: ZIP, 2009, p. 594
  2. ^ Daniel Zimmer / Florian Fuchs, The Bank in Crisis and Insolvency , in: ZGR, 2010, p. 600
  3. ^ Jacob Kleinow, Systemrelevante Finanzinstitute , 2016, p. 26
  4. ^ Peter O. Mülbert, System relevance , in: Ulrich Burgard u. a. (Ed.), Festschrift for Uwe H. Schneider, 2011, p. 858
  5. ↑ a b The "too big to fail" problem and European financial market regulation: theory and practice. (PDF; 124 kB) CEP study. Center for European Politics, 2010, p. 3 , accessed on August 18, 2018 .
  6. ^ William L. Silber: When Washington Shut Down Wall Street: The Great Financial Crisis of 1914 and the Origins of America's Monetary Supremacy 2007, p. 49
  7. ↑ Christopher Riegger & Hal B. Heaton: Commercial Banking Regulation. Marriott School website at Brigham Young University . 2007 ( PDF; 312 KB )
  8. ^ Open Bank Assistance Transactions. In: Federal Deposit Insurance Corporation: Resolutions Handbook. 2003, pp. 47–56 ( PDF; 43 kB ( Memento of the original dated May 12, 2009 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice . ) @1@ 2Template: Webachiv / IABot / www.fdic.gov
  9. ^ Lynne Pierson Doti: Penn Square Bank . In: Oklahoma Historical Society (Ed.): Encyclopedia of Oklahoma History and Culture. 2007
  10. ↑ Gretchen Morgenson: Borrowers and Bankers: A Great Divide . In: The New York Times . July 25, 2008
  11. ↑ Eckhard Hein , Gustav Horn / Heike Joebges / Silke Tober / Till van Treeck / Rudolf Zwiener: Financial market crisis: First aid and long-term prevention, update from October 22, 2008 (PDF; 101 kB). IMK Policy Brief October 2008
  12. ↑ Art. 6 para. 3 of the guideline for the implementation and quality assurance of the ongoing monitoring of credit and financial services institutions by the Deutsche Bundesbank (Supervisory Directive ) of February 28, 2008.
  13. ↑ On Italy cf. Christian Siedenbiedel faz.net of March 2, 2013: "The bet on Italy"
  14. ^ Board of Governernors of the Federal Reserve System, Address to Council on Foreign Relations, Washington, DC, March 10, 2009
  15. ↑ Reuters - US government robs $ 12 billion with Citi bailout on December 7, 2010
  16. ↑ Andreas Kallert: The bank rescues during the financial crisis 2007-2009 in Germany: On the criticism of system relevance. Westphalian steam boat, Münster 2017, ISBN 978-3-89691-112-4 , p. 223 ff .
  17. ↑ Special fund for financial market stabilization. Archived from the original on March 3, 2012 ; accessed on December 18, 2019 .
  18. ↑ Marcus Günther, System relevance of financial institutions , in: WM 2010, p. 825 ff.
  19. ↑ Juliane K. Mendelsohn, System Risk and Economic Order in the Banking Sector , 2018, p. 108
  20. ↑ BMVI , Security Strategy for the Freight Transport and Logistics Industry , 2014, p. 10
  21. ↑ BMI , National Strategy for the Protection of Critical Infrastructures (KRITIS Strategy) , 2009, p. 5
  22. ↑ Bernd Buthe, Integration of spatial planning issues in traffic planning , 2017, p. 14 f.
  23. ↑ Jacob Kleinow, Systemrelevante Finanzinstitute , 2016, p. 17
  24. ↑ Financial Times Deutschland of August 21, 2007 ( Memento of the original of September 29, 2007 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. @1@ 2Template: Webachiv / IABot / www.ftd.de
  25. ↑ FAZ.Net November 22, 2010 Philip Plickert: "States hostage to the banks," FAZ November 22, 2010
  26. ↑ Olaf Storbeck, Handelsblatt June 14, 2012, How taxpayers feed the banks
  27. ^ Gerald Braunberger: Keynes for everyone. The renaissance of the crisis economist. FAZ-Verlag, 2009, p. 229
  28. ^ Harvey Rosenblum: Choosing the Road to Prosperity: Why We Must End Too Big to Fail — Now. In: Federal Reserve Bank of Dallas (Ed.): 2011 Annual Report. 2012 ( PDF; 5.1 MB )
  29. ↑ Handelsblatt: Financial Crisis - How the Fed Failed
  30. ↑ The new European rules for the restructuring and resolution of credit institutions. (PDF) In: Monthly Report June 2014. Deutsche Bundesbank, June 14, 2014, p. 31 ff. , Accessed on February 14, 2015 .
  31. ↑ 2015 update of the list of global systemically important banks (G - SIBs). (PDF; 110 kB) Secretariat to the Financial Stability Board Bank for International Settlements, November 3, 2015, accessed on November 20, 2015 (English).
  32. ↑ 2015 update of the list of global systemically important insurers (G - SIIs). (PDF; 107 kB) Secretariat to the Financial Stability Board, Bank for International Settlements, November 3, 2015, accessed on November 14, 2015 .
  33. ↑ Basel Committee on Banking Supervision : A framework for dealing with domestic systemically important banks (PDF; 56 kB). Bank for International Settlements , Basel 2012, ISBN 92-9131-141-3 (English).
  34. ↑ Andrea Rexer: 36 German financial institutions are immortal . In: Süddeutsche Zeitung , December 18, 2012. Accessed December 3, 2012.
  35. ^ Committee on Financial Stability : Second report to the German Bundestag on financial stability in Germany (PDF; 887 kB). June 2015, p. 18.
  36. ↑ On the term potentially system-endangering institute, cf. Section 20 Reorganization and Liquidation Act.
  37. ↑ Michael Ferber: SNB classifies Postfinance as systemically relevant. In: Neue Zürcher Zeitung from September 1, 2015
  38. ↑ Details "Systemically Relevant Institutes". Financial Market Authority , accessed June 30, 2019 .
  39. ↑ The start of the banking union - the single supervisory mechanism in Europe. (PDF; 186 KB) In: Monthly Report October 2014. Deutsche Bundesbank , October 2014, p. 48 , accessed on August 18, 2018 .
  40. ↑ List of supervised entities (as of 2 May 2019). (PDF) Single Banking Supervision Mechanism , June 6, 2019, accessed June 30, 2019 .
  41. ↑ ntv.de of March 19, 2020, These occupational groups are systemically relevant , accessed on March 19, 2020
  42. ↑ "COVID-19: Overview of critical services" , accessed April 30, 2020
  43. ↑ Heike Schmol / Karin Truscheit: Emergency care due to Corona: Germany's systemically important parents. In: faz.net. March 15, 2020, accessed March 31, 2020 .
  44. ↑ Information on taking up a part-time job during short-time work. In: lohn-info.de. Retrieved March 30, 2020 .
  45. ↑ BGBl. 2020 I p. 575 , Article 2.
  46. ↑ Steven L Schwarcz, Systemic Risk , in: The Georgetown Law Journal vol. 97, 2008, p. 202
  47. ↑ Federal Office for Civil Protection and Disaster Assistance , COVID-19: Overview of Critical Services , 2020, p. 1
  48. ^ Julien Schlagowski, Originäre Verbandsstrafbarkeit , 2018, p. 24