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Viewing cable 09DUSSELDORF3, REGULATORY OFFICIAL REJECTS BUNDESBANK-BAFIN MERGER RUMORS

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Reference ID Created Released Classification Origin
09DUSSELDORF3 2009-01-23 15:12 2011-08-24 01:00 UNCLASSIFIED Consulate Dusseldorf
VZCZCXRO3706
RR RUEHAG RUEHAST RUEHDA RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN RUEHLZ
RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHDF #0003 0231512
ZNR UUUUU ZZH
R 231512Z JAN 09
FM AMCONSUL DUSSELDORF
TO RUEHC/SECSTATE WASHDC 0181
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNFRG/FRG COLLECTIVE
RUEHDF/AMCONSUL DUSSELDORF 0197
UNCLAS DUSSELDORF 000003 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON GM
SUBJECT: REGULATORY OFFICIAL REJECTS BUNDESBANK-BAFIN MERGER RUMORS 
 
Sensitive but Unclassified - Not for Internet Distribution 
 
1.  (U) Summary: A senior financial regulator at BaFin in Bonn 
recently confirmed to us that plans to merge BaFin with the 
Bundesbank have been dropped.  He predicted that more 
Landesbanken would merge, leading ultimately to only two or 
three such banks nationally.  He commented that WestLB, the 
troubled state Landesbank for North Rhine-Westphalia, is in 
better shape than its reputation, in part because its new CEO 
has introduced more transparency in its operations.  End 
Summary. 
 
Rejects Rumor of Bundesbank-BaFin Merger 
---------------------------------------- 
 
2.  (U) A senior BaFin official confirmed to Pol/Econoff 
recently that its merger with the Bundesbank, rumored for 
months, would not occur.  The Bundesbank does not want to lose 
its independence, which would occur if it were to take over 
BaFin's regulatory functions, and he doubted that the Bundesbank 
was interested in insurance regulation, one of BaFin's three 
regulatory roles (the others cover banks and stocks).  Asserting 
that the division of labor between the two institutions is 
working well, he added that ongoing efforts to develop a unified 
EU-wide banking supervision system made a merger impractical 
because EU standards were not yet set.  He also stated that 
Bundesbank President Axel Weber, who he speculated has the best 
chance to replace Trichet as ECB head, would push for EU 
standards after he takes over.  In any case, a Deutsche Bank 
official reminded Frankfurt Pol/Econoff, a merger would require 
federal legislation, which is unlikely in view of the Bundestag 
elections in September. 
 
WestLB and the NY Fed 
---------------------- 
 
3.  (U) On the crisis at WestLB, the state-owned Landesbank for 
North-Rhine Westphalia, the BaFin official noted that the change 
in CEO has brought much needed transparency.  For example, there 
is now such a close working relationship between the NY Fed and 
WestLB that a Fed official works in the WestLB New York office, 
with access to all internal communications and systems.  He 
suggested that if the State Department or Treasury wish to know 
more about WestLB's U.S. operations, which he considers 
important and rather successful, the NY Fed has better access 
than even BaFin. 
 
The Future of the Landesbanks 
------------------------------ 
 
4.  (U) Regarding the future of the German Landesbank system, 
the BaFin official predicted that only two or three of the 
Landesbanks will survive the current financial crisis, citing 
Bavaria and Rhineland-Pfalz as examples.  He raised the 
possibility that one of the Landesbanks could fuse would with 
DEKA, the umbrella bank jointly held by the savings banks 
(Sparkassen) and the Landesbanks, but declined to elaborate. 
 
Comment 
------- 
 
5.  (SBU) This is the most authoritative statement we have heard 
that the rumored merger between BaFin and the Bundesbank will 
not take place.  Our BaFin interlocutor, however, may be biased 
in favor of Germany's current banking supervision model, as he 
was BaFin's chief negotiator in talks with the Bundesbank that 
led to the division of labor between the two institutions.  The 
very close cooperation between WestLB and the NY Fed reflects 
the new WestLB leadership's strategy of moving quickly to fix 
its many problems. 
 
6.  (U) This message was coordinated with Embassy Berlin and 
ConGen Frankfurt. 
 
BOYSE