I had the privilege of being included as a presenter at this one day meeting, organized by the German government (Federal Ministries of Finance and Economic Development, the BMF and BMZ), our member the World Savings and Retail Banking Institute (WSBI), the German Savings Bank Association (DSGV), the National Association of German Cooperative Banks (BVR), and the European Association of Cooperative Banks (EACB). Beneath all the acronyms was a very important discussion about the importance of diversity in the finance industry, the different roles different types of institutions might play in supporting financial inclusion and SME financing in particular. And of course we were in Germany, where over hundreds of years they’ve developed, from the grassroots, a multi-tiered banking system where different sizes of firms, different sectors of activity, etc., can choose from a range of types of regulated bank to obtain their financial services. That country’s institutions, and Finance Minister Schauble, rightly talked about the importance of this institutional diversity in supporting an equal diversity of economic opportunity. 

The challenge, as the bigger banks get bigger and bigger, and as post-crisis reforms have focused on keeping the biggest banks from blowing up the world (that’s my simplistic interpretation of what the reaction to the crisis has been about), how do we avoid disrupting the work of these smaller financial institutions…as the Finance Minister noted, we need a “small banking box” – a regulatory approach with compliance appropriate for smaller, mostly locally active financial institutions…and much of the day’s even discussed what might that box be, and how it could be incorporated into larger processes, from Basel III/IV to national financial sector regulation, and beyond…the Bundesbank Board representative echoed this need for proportionality, talking about three key principles that might be observed: (1) make “smart exceptions”, (2) don’t touch fundamental equity and liquidity requirements, which apply regardless of size, and (3) take a pragmatic approach to promoting competitive financial markets.

My panel was about how fintech is changing things for SME financing, and for smaller financial institutions. My message was simple: fintech is making what was unaffordable affordable, and big banks and alternative financiers are taking this very seriously in the SME finance area. So smaller financial institutions, while they will always have local area knowledge advantages, will need to be on their toes – particularly as more and more of their SME clients will be interested in wider markets, particularly the lengthening global value chains. Fintech cannot just be for the big banks! It was interesting, both in my panel and in the subsequent sessions, that the same smaller sized banks who pushed for special exceptions and ease for their own operations, suddenly got a bit protectionist when talking about fintechs! Especially about fintechs that compete in the lending space…while understandable from a political point of view, I would hope this inconsistency will be realized, and a more open attitude will prevail. 

Overall it was a most interesting day, and I learned a great deal about Germany and Europe’s smaller banks, and I hope they will remain actively involved in G20 discussions on the future of financial sector regulation, as their core arguments are very important – in diversity is strength, and enabling a wide range and size of financial institutions (bank AND alternative) is vital for improving SME access to finance in both Europe and beyond.