Bundestag backs bank reform

Against fiery protests of domestic lenders, lawmakers of the ruling coalition of Christian and pro-business Free Democrats pushed through a bill compelling lenders to separate high-risk trading activities from their conventional client banking.

But the splitting of operations will only be required, if assets associated with such risky activities exceed 100 billion euros ($130 billion) or 20 percent of the balance sheet. This means that only a very limited number of German banks will have to act on the legislation, most likely including Deutsche Bank, Commerzbank and regional lender LBBW.

Nonetheless, analysts saw the move as an important instrument to protect taxpayers from having to foot the bill for a bank rescue scheme in the future. "The separation of risky trading activities from client business can secure the solvency of institutions and lead to the stabilization of financial markets," the draft bill read.

Looming jail terms

Direct lending and the provision of guarantees to hedge funds and private equity through the use or partial use of clients' capital deposits will be forbidden for retail banks. Lenders will still be allowed to trade on behalf of customers seeking to offset the impact of possible currency rate or price changes.

Banks now have until mid-2015 to identify risky trading activities that would force them to separate them from the client banking arms. Lenders are also required to come up with a binding plan of what measures they would take in terms of recovery or resolution, if they ran into trouble again.

When the rules come into force in 2015, bank executives may face prison terms of up to five years if they demonstrably violate the new principles of risk management and cause damage to their institutions.

hg/kms (Reuters, dpa)