Germany's Merz aims to slash red tape on banks to boost economy, sources say 

By Andreas Rinke and Tom Sims

BERLIN (Reuters) -German Chancellor Friedrich Merz will push for deregulation in Europe's banking sector, four people familiar with his thinking said, his latest effort to spur growth in the continent's largest economy.

Germany's financial industry has for years complained about the burden of regulation and a resulting loss in market share to banks outside Europe and will welcome Merz' commitment to champion the issue both with his left-leaning Social Democrat coalition partners and other European governments.

Much banking regulation on the continent is carried out at European Union level and the bloc has been debating whether to follow the Trump administration's efforts to roll back rules put in place after the 2008/2009 global financial crisis, with some arguing that the regulatory burden is holding back investment, spending and economic growth.

EUROPEAN BANKS LOSING GROUND TO U.S. RIVALS

Merz, who was once chairman of the U.S. investment manager BlackRock in Germany, revealed his position in a recent speech. While acknowledging that increased bank risk buffers and reserves have strengthened financial stability, he warned that these measures have had devastating consequences for the German economy. 

"The banks are too heavily regulated," he said.

Merz fears that European banks are losing ground to U.S. competitors, a trend set to continue under Trump's business-friendly policies, said the people, speaking on condition of anonymity.

Germany's banks hope that EU finance ministers will ask the Commission to review the competitiveness of the European financial sector and to present concrete proposals for an overhaul.

Germany is the only Group of Seven leading economy to have contracted for the past two years, and is forecast to eke out only marginal growth this year.

"Fortunately, there is movement in the regulatory debate, the key now will be to quickly identify and implement practical measures," Hilmar Zettler, board member of the Association of German Banks, said in a statement to Reuters. 

Some central bankers have warned about rolling back banking regulation.

"They should do so not by lowering standards for banks," European Central Bank President Christine Lagarde said earlier this month. 

Isabel Schnabel, an ECB board member, also spoke out against easier regulation, warning that a "race to the bottom" would fuel instability that could sow the seeds of a future crisis.

(Reporting by Andreas Rinke and Tom Sims, editing by Kirsti Knolle)