German finance minister calls for Basel III

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FRANKFURT – German finance minister Peer Steinbrück is proposing more risk regulation in the wake of the subprime fallout.

The comments appear in the German magazine Spiegel and call for debate on more regulation to increase the capital reserves that banks must hold to offset their higher risk products. The liquidity crisis that has arisen from the US subprime mortgage drama recently has, according to Steinbrück, revealed the inadequacy of the international Basel II risk regulations – making a new round of ‘Basel III’ regulation necessary.

The finance minister has made a number of controversial and contradictory comments in recent months. French president Nicolas Sarkozy recently asked German chancellor Angela Merkel to force Steinbrück to apologise for contradicting Sarkozy at a meeting on the Central European Bank. On September 4, Steinbrück told reporters that the German economy had “sufficient reserves to withstand the current tensions… Those I listen to don't see a significant clouding of the economy, the fundamental basis is still intact”.

Given Steinbrück’s past emphasis on a voluntary code of conduct, his latest comments appear to be a complete U-turn in regulatory policy.