WSJ.com – Germany’s plans for tighter financial market regulations is likely to hit Deutsche Bank DBK.XE -0.75% harder than once expected. That’s because the legislation, which will require big banks to separate retail and investment activities, will be especially stringent when it comes to hedge fund business, where Deutsche Bank is a significant player.
The legislation requires that the secured business of hedge funds is separated from bank customers’ money, people familiar with the legislation have said. Loans are seen as “secured” when they are backed up with securities, such as assets.
Berlin’s proposal, coordinated with France, is part of a broader push within the European Union to ring-fence banks’ high-risk activities, and force institutions to hold more capital to shield taxpayers from future bank bailouts. But Germany’s proposal appears to be the most far-reaching so far, with France’s plans, for example, requiring only a separation of the unsecured business of hedge funds.
The draft law approved Wednesday by the German Cabinet reveals a tough stance, but details remain to be clarified, including which “loan and guarantee transactions with hedge funds” will be prohibited.