Frankfurt: Regulatory centre of excellence

The recovery of the global financial sector is accelerating. Europe's top financial centres, such as London, Paris and Frankfurt, are profiting from this upswing. A study by the Landesbank Hessen-Thüringen has revealed that the number of banks in Frankfurt fell more sharply after the dot-com bubble burst at the beginning of the millennium than it did after the recent financial crisis. At the end of 2009, 227 domestic and foreign financial institutions were based in Frankfurt - almost as many as at the end of the previous year.

Still, Europeans must be careful not to miss the boat when it comes to a recovery. The countries of Europe understand that they must bundle their strengths and join together to represent their common interests. To this end, Frankfurt can contribute its in-depth expertise in risk management and regulatory issues.

Apparent stabilisation should not blind Europe to the need for an objective analysis of the crisis and a revision of our financial architecture. What counts for Europe in particular is internal and external re-regulation so that regulation arbitrage is permanently prevented. And the initially positive news on the recovery must be seen in relation to competitors outside Europe - the financial centres of Asia and Oceania are currently experiencing a far more dynamic upturn than 'old Europe'.

To meet these challenges, Europe should leverage the opportunities for closer collaboration between its countries. The place to start is not the critical regulatory questions - opinions still differ too widely here. But a dialogue is where it should start - and this can develop best through stronger co-operation in education and research, product development and marketing common European geographical advantages. Starting from this vantage point, a deeper mutual understanding of regulatory problems can develop. Whether or not a uniform view results is irrelevant - what matters is creating a sustainable common platform for discussion.

Frankfurt as a financial centre will play a critical role in such discussions because the city is a frontrunner in tackling risk management and regulatory issues. As home to the European Central Bank, Frankfurt is already the centre of European monetary policy and European bond trading - and will also serve as the base for the new European Systemic Risk Board. The board will be the central organ for macro-prudential financial regulation in the European financial systems architecture. The new European insurance regulatory authority, EIOPEA, will also probably set up office in Frankfurt; its predecessor, the Committee of European Insurance and Occupational Pensions Supervisors, has been domiciled in the city for some years. And European policy-makers from various countries have repeatedly sought for all European financial supervisory authorities to be located together in Frankfurt.

FIRM foundation

To underpin Frankfurt's claim to be a leader in risk management and regulatory issues, Frankfurt Main Finance (which represents the financial centre) launched the Frankfurt Institute for Risk Management and Regulation (FIRM) last year. FIRM plans to set new standards for research and teaching and to reinforce the links between politics, the financial sector and academia. The institute is supported by well-known companies - ranging from financial institutions and management consultants to law- and tax-advisory offices. FIRM's research activities have begun and this year it started its executive masters programme in risk management and regulation - the only course of its kind in the world.

This range of institutions in Frankfurt is embedded in the oft-cited German culture of stability. Germany's three-pillar banking system (private banks, public banks and co-operative banks) certainly played its part during the recent crisis, helping to prevent a credit crunch in the country. Technological strengths are another factor for stability in Frankfurt as a financial centre - from the globally leading payments system to the clearing system on the German stock exchange, considered the most stable in the world. 'Boring' strengths such as these are appreciated today more than ever. In short, Frankfurt can leverage its position as a bastion of strength to become an important moderator in European discussion. This will be a boon for the entire continent.

Dr Lutz Raettig is spokesman for the executive committee of Frankfurt Main Finance and chairman of the supervisory board of Morgan Stanley Bank AG, Frankfurt