What the coalition agreement means for the financial sector

The coalition agreement between the CDU/CSU and SPD also has an impact on the financial sector. Here is an overview.

Increasing the energy supply

The coalition partners want to increase the energy supply and thus stabilize and reduce electricity costs. Within this framework, all the potential of renewable energies should be utilized. In addition to the expansion of solar and wind energy, this also includes the expansion of bioenergy, hydropower, geothermal energy and storage capacities. The new government intends to set up an investment fund for the energy infrastructure to provide equity and debt capital for investments in combination with public guarantees and private capital.

This could mean that the draft bill presented in the last legislative period for a Future Financing Act II on the permissibility of renewable energy installations in real estate held in funds is now adopted. Furthermore, the planned new investment fund for energy infrastructure could release significant financial resources into the energy industry, which could also lead to increased involvement by asset managers in this area.

Leverage investments

The new government wants to set up investment funds, for example for venture capital, housing construction and energy infrastructure, to provide equity and debt capital for investments in conjunction with public guarantees (e.g. KfW) and private capital.

If the expertise and capacities of existing asset managers are used to set up these new investment funds, the fund business in the alternative investment fund sector could be expected to get a boost. Any measure to strengthen the underdeveloped residential construction in the real estate sector is to be welcomed. The rapid expansion of transport infrastructure could also receive an effective boost if investment funds were set up for this purpose.

Strengthening the company pension scheme

The future government wants to put old-age provision on a reliable footing for all generations. As part of this, occupational pension provision is to be strengthened and private pension provision reformed. If this is implemented, more private money would presumably flow into building up old-age provision in future. This would mean increased cash inflows for insurance companies (Riester pension, endowment life insurance) and asset management.

Construction industry boost

The coalition partners want to expand the supply of housing. To this end, they want to speed up procedures and simplify standards, for example by quickly introducing building type E. The rent freeze is to be extended for four years. The landlord-tenant dilemma is to be resolved by changing the modernization levy and investment in housing stock is to be stimulated economically. Social housing construction is to be expanded.

In order to provide equity and debt capital, an investment fund for housing construction is to be set up in conjunction with public guarantees (e.g. from KfW) and private capital, and municipal housing associations are also to be supported with equity-relieving measures.

Federal government involvement, for example through guarantees, is intended to reduce financing costs so that, together with the housing industry, a large number of apartments can be built in tight housing markets for less than EUR 15 per square meter.

This could simplify building planning and building permit procedures, especially if digitalization were to be further advanced in building administration and reporting, documentation and statistical obligations for building owners were to be reduced. Building type E and, as a consequence, the withdrawal of excessive building regulation requirements have long been demanded by players in the real estate industry. In addition, the government would have to create further incentives to build in order to achieve the desired increase in housing supply, particularly in social housing, especially if the rent cap is to remain in place at the same time.

To make matters worse for the construction industry, the yield on German government bonds has risen significantly due to the announced special funds for infrastructure, education, etc. and for military spending totaling EUR 900 billion. As a result, investments in real estate would also have to generate correspondingly higher returns. This is an additional challenge in the current environment due to the current construction and refurbishment costs, including the approval process. The extension of the rent freeze will also inhibit residential construction and refurbishment. In this respect, the announced financial incentives and support as well as the planned investment fund, which are intended to enable correspondingly low rents, could play a key role in reviving the construction industry.

Riester pension

The existing Riester pension is to be converted into a new pension product and reformed by dispensing with mandatory guarantees and reducing administrative, product and acquisition costs. An expansion of the group of beneficiaries is to be examined. This new product is to be accompanied by the simplest possible state subsidy for people with low and medium incomes. The core of the reformed Riester pension should be an investment product, which should also be available in the form of a standard product.

This additional investment product for private pension provision could lead to an additional inflow of money for insurers (endowment life insurance, Riester pension) and possibly for asset managers (capital management companies) and the funds they manage, depending on the permitted forms of structuring.

Capital market regulation

In order to strengthen Europe’s competitiveness and complete the European single market for financial services, the new government would like to work towards uniform European financial regulation and, in this context, also renounce gold plating.

Implementing this could simplify existing regulations, for example in the area of asset management, banks and insurance companies. This could lead to a corresponding reduction in internal administration costs. This may be preceded by internal reorganization and restructuring measures and the associated expenses.

A legally secure and European competitive framework for investments by funds in infrastructure and renewable energies is to be created. Tax regulations are to be adapted in a targeted manner. Framework conditions for start-ups are to be further improved. In particular, the availability of venture capital is to be increased through better participation opportunities for institutional investors.

The areas of infrastructure, renewable energies and venture capital can expect additional capital, particularly from institutional investors. This would lead to a revival of the fund business in these areas.

Cash/ digital euro/ acceptance of digital payments

The future government intends to retain cash in principle, but at least one digital payment option must be offered gradually. This would mean that digital payment options would have to be introduced in all business areas, particularly in the retail business, where they have not yet been implemented. In the banking sector, this would result in additional business.

The future government supports a digital euro that delivers real added value in both the wholesale and retail sectors, complements cash, protects consumer privacy, is free for consumers to use and does not affect financial stability.

The implementation of a digital euro will require corresponding system adjustments throughout the financial sector, particularly in the banking sector. In addition to the resulting implementation effort, this also means that banks and other financial institutions, as well as merchants who want to accept the digital euro, will have to operate the necessary infrastructure and meet special compliance requirements.

European banking union

In order to preserve the German banking system of savings banks, cooperative banks and private banks, the future government would like to take the interests of smaller banks and savings banks into account when making changes to regulations and strengthen Germany as a banking and financial location overall. This also applies to the risk-adequate design of a European system of deposit protection, which would have to take into account the requirements of our three-tier banking system. The coalition partners reject a communitized European deposit insurance scheme (EDIS) without preconditions.

The declared stronger consideration of the interests of smaller institutions appears to deviate from the previous guideline of the EU and the previous federal governments to consolidate operating market participants as far as possible and to concentrate on fewer and larger remaining market participants. It remains to be seen to what extent this declaration of intent will result in practical relief and consideration of the principle of proportionality.

Regulation of crypto assets/ grey capital market/ shadow banks

The regulation of crypto assets, the gray capital market and shadow banks is to be reviewed for gaps and these are to be closed if necessary. This declaration of intent is more indicative of a process that is already underway, without any further steps or measures being expected as a result.

Basic account fees/ overdraft interest

The future government would like to examine whether cost caps for basic account fees and overdraft interest are necessary to enforce appropriate market fees or whether the current legal situation should be maintained. If a cap were to be placed on basic account fees and overdraft interest, this would lead to a corresponding reduction in income for banks. If necessary, parts of the business model and internal processes should be made more efficient and effective at an accelerated pace. AI can become a supporting pillar here.

Commissions for financial advice

Fee-based and commission-based financial advice should continue to exist side by side. However, it is to be examined whether the instruments of BaFin’s maladministration supervision are currently sufficient to prevent misguided incentives in financial advice. In this respect, the current situation remains unchanged for the time being. BaFin’s supervisory options may be additionally strengthened.

Federal real estate

The federal government is prepared, within the scope of its possibilities, to continue to support the federal states and local authorities by providing land that is not required for housing construction and other public purposes at a reduced price.

With a view to the intended stimulation of residential construction to create an increased supply of housing, this measure will be flanked by the provision of additional plots of land where necessary. This can lead to a revival of the construction industry if such land is available where it is urgently needed for housing construction and other public projects.

Natural hazard insurance

In new business, homeowners insurance should only be offered with natural hazard insurance. In existing business, all homeowners’ insurance policies are to be extended to include natural hazard insurance on a cut-off date. It should be examined whether this model should be provided with an opt-out solution. In order to ensure long-term reinsurability, state reinsurance for natural hazards is to be introduced. The insurance conditions are to be largely regulated.

The introduction of a corresponding natural hazard insurance clause in residential building insurance policies leads to implementation costs for insurers in this regard. The success of this product will depend on the economic structure of this insurance option. The planned state reinsurance will play a decisive role here.

Conclusion

Overall, investment conditions are to be significantly improved, particularly in the areas of infrastructure, energy supply, the construction industry and venture capital, and bureaucracy and regulation are to be cut or reduced to a minimum. For the financial sector, this could mean additional business and the release of capacities. Internal restructuring may be required in order to leverage potential efficiencies. Insurers will have to offer mandatory natural hazard insurance for residential building insurance policies. It remains to be seen how the planned state reinsurance will be structured economically. The previous draft of the Fund Market Strengthening Act from the last legislative period could now be passed quickly.