Comment: What the Wirecard scandal says about the German financial system

A common thread was that I must have forgotten about the City’s own financial scandals. About the near collapse of Royal Bank of Scotland, about Libor. About NMC Health just months ago.

A tweeter called Alpha 1902 replied: “Enron? Worldcom? Fannie Mae? And then that small bank…Lehman something.”

With apologies to Alpha 1902 all those corporate collapses happened in America, so I’m not sure what he’s getting at. If he just means that corporate scandals are not unique to Germany, that’s certainly true.

But now I’ve thought about it, my point stands.

There’s been this notion for decades, accelerated after the Brexit vote, that London is poised to lose its place as the centre of high finance in Europe.

Frankfurt, Paris, and Amsterdam would eat our lunch. Any day now.

This never seemed likely to me or those in the City that follow this stuff much more closely than I.

Two anecdotes. About ten years ago I had a meeting at the Bank of England with someone very important.

Officially, this person was concerned about business being lost overseas. Privately, they thought it a joke.

The German regulators had been on the phone all week, (s)he said, worried about Deutsche Bank.

Did the Bank of England know what was going on in that institution, the Germans asked. Because, they admitted, they certainly did not.

They were aware this huge bank was a danger. And rather hoping that the London watchdogs were on top of it.

Second anecdote. A banker pal who led a City firm decades ago was thinking of buying a German broker. Out of courtesy they asked the Bundesbank if they had any objection.

The Bundesbank didn’t care less, in so far as they even understood the question.

German banking is not like the UK’s, where a small number of high street and household names dominate the landscape.

Small local banks compete, which is good for the consumer but makes it hard for those lenders to build up the profits they need to prepare for a severe downturn.

And because they are small, the regulation has tended to be patchy.

The collapse of Wirecard suggests German regulation is no better than ever it has been. Germans are brilliant at many things – penalties, cars, cleanliness – but not financial regulation.

Things go wrong in London, of course. But Royal Bank of Scotland was bailed out before it actually went bust. The experts knew what was coming. The watchdogs of Wirecard had no idea, and seemed to imagine the fine work appearing in the Financial Times was just an attempt by some stuffy British paper to harm a fine German institution.

They were completely wrong.