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Saturday February 12, 11:17

Citigroup Case Consequences

(by Natalie Novak)

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After Citigroup sold €12 billion in bonds and bought back €4 billion at lower price last August, Germany’s Bundesbank warned of possible systemic risks in smaller European countries. “It was not the case in Germany but in smaller countries, similar behavior could lead to systemic risks,” Mr. Meister said in an interview with Financial Times.

Mr. Meister said that Europe’s biggest economy did resist Citigroup transactions but in case of different market in a smaller country the consequences could be almost fatal.

The Citigroup case deepened the argument about whether national regulators should be retained or given stronger and wider responsibilities. The ideas split. Mr. Meister says, “We need supervisors with national competence and close to market. Central European bank supervisors could not do that. National regulators are better placed to understand local systems and local laws.” Another point of view is that German central bank authorities can lose control over, for example, the French bank’s subsidiaries working in Germany.

The idea that could be used in this position is to go to lead-regulation in case when regulators in different countries can’t come to any agreement. This scheme is again opposed by Mr. Meister who says it can lead to the loss of responsibility by local regulators. “Particularly affected would be financial centers such as London and Frankfurt, where a lot of subsidiaries of foreign banks are active,” he said.

Citigroup case definitely didn’t pass unnoticed but on the contrary stirred up Europe’s banking activity.

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25 Apr 2005 12:01 PM	Japan’s Financial Agency punishes Citigroup with prohibiting order
15 Apr 2005 07:13 AM	Citigroup first-quarter profit rose 3.2%

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