However, she said that consumers tend to be at a disadvantage to providers. This is why the government must protect consumers in a social market economy by creating an appropriate regulatory framework.

Such protection should not take the form of “spoon-feeding”: “We cannot cocoon consumers and ring-fence or prohibit all offerings that are even slightly risky”, said Dr König. Anyone who takes away private investors’ rights to invest their money in risky assets encroaches on their individual freedom to an unreasonable degree and harms competition. “We have to keep this in mind, even when we are discussing how to regulate the unregulated capital market”, said BaFin’s president. The question to ask is: “What deposit-taking activities should have to be authorised in future and what potential loopholes should we close so as to protect investors against unpredictable losses”. However, extending the prospectus requirement, the clarity of information and how financial investments are marketed should also be considered.

With regard to financial stability, Dr König believes that – like consumer protection – it is a question of the right amount of regulation. “We need a regulatory framework that helps us as supervisors to protect the public good of financial stability and to mitigate the destructive forces of a crisis”, explained Dr König, adding that it is important at the same time to allow the market players enough room to innovate and do business. The market as it stands is by no means over-regulated. In fact, a number of important regulatory steps still have to be taken.

In terms of regulating OTC derivatives, the introduction of the requirement to clear standardised OTC derivatives through central counterparties does not yet solve everything: “We must ensure that new systemic risks do not accumulate in this area”, said Dr König. Therefore, it is only logical to consider a regulatory framework for the orderly resolution of central counterparties.

She said that Basel III, whose requirements will take effect successively in the period up to 2019, is already having a stabilising effect. Dr König explicitly welcomed the fact that the authorities in Basel and Brussels remained committed to the principle of risk sensitivity. She believes that there is even some ground to be made up in this area, for example with respect to the treatment of government bonds.

BaFin’s president emphasised the importance of creating a cross-border resolution regime for systemically important banks. She noted that the European Union has already laid the foundation for such a regime. The flaw she sees is its scope: “If our goal is to abolish the de facto state guarantee for systemically important banks, we must design a resolution regime that is effective globally and across borders”.

Dr König described the comprehensive assessment for the groups of institutions that are expected to fall under the direct supervision of the European Central Bank starting on 4 November as a “special kind of steeplechase – without any preparation and with an extremely ambitious timeline”. BaFin’s president is “cautiously optimistic” about the performance of the 24 German participants. She is not anticipating any great surprises from the review and the basic scenario used in the stress test. “However, I cannot exclude the possibility that the adverse stress scenario could be very challenging for individual institutions.”