The CEO of Deutsche Bank, Christian Sewing, chooses clear words.

"A recession in Germany can no longer be averted," said Sewing at the banking conference "Bank Summit" in Frankfurt.

Slowed globalization, broken supply chains, high electricity and gas prices would have caused inflation to skyrocket.

“We assume that our economy has enough resilience to overcome the recession.

But that requires the central banks to act quickly and decisively.” The European Central Bank is likely to announce another rate hike on Thursday.

0.5 or 0.75 percentage points are expected.

When asked about his preference, Sewing said that as is well known, he didn't have the power to decide, but that he was interested in a "stronger move."

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Inken Schoenauer

Editor in business, responsible for the financial market.

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Many people could still fall back on their savings to deal with higher prices.

In addition, many companies are still sufficiently financed.

But the longer inflation stays high, the greater the pain and social dynamite.

The time is more challenging than anything he has experienced in his more than 30 years of banking, said the 52-year-old CEO.

In the past 30 years one has been chasing an illusion.

"We believed that we could live permanently in a world without major conflicts, with steady growth and ongoing globalization." The truth is that 30 years of supposed calm will now be followed by a phase of increased volatility with economic uncertainty, regular crises and geopolitical conflicts, which is also likely to drag on for decades.

"Good risk management is the need of the hour."

consolidation needed

In order to master the crisis, the CEO of Germany's largest bank is also taking on the responsibility of the banking sector.

"We need banks that are able to finance this mammoth task, to protect their customers against risks and to accompany them as reliable partners." This requires a domestic financial sector that stands on its own two feet and can assert itself in global competition.

"We can no longer largely leave the field and access to the global capital markets to foreign banks." That should have been a lesson learned in recent years.

"In Germany, we must not allow dependence on gas, raw materials and supply chains to become dependent on financing."

Consolidation is necessary for the long-term strengthening of the European banking sector.

"Size matters in banking - and if we don't want to leave the field to the Americans, Europe has to create the conditions for big banks," said Sewing.

The dominance of US banks is not a law of nature.

There has been speculation about consolidation in the European banking sector for many years.

Bank representatives keep pointing out that supervisors prevent such mergers

Demand for reliable regulation

Sewing then linked his words with the demand for reliable regulation that does not always create higher hurdles and ties up more capital than necessary.

Right now this capital is needed to finance the economy.

When asked whether it might not be time to relax the reins on the banks, Mark Branson, President of the Federal Financial Supervisory Authority (Bafin), said: "It is absolutely the time to act cautiously." It was " not the time to say: Make way for the banks to fill up with less capital”.

So far there have been no contagions in the banking sector.

But you are acting in an environment of great uncertainty.

The exact risks of the energy crisis were still difficult to read from the banks' loan portfolios.

But Branson also made it clear that banks, as financiers of the economy, are also there to “take risks.

Banks are also there to suffer loan losses.” Financial institutions must be managed in such a way that not every loan default is a disaster, Branson said.

Apparently, the Bafin boss is worried about the development on the real estate markets.

"15 percent of borrowers use more than half of their net income to service their loans," Branson said.

However, this trend is slowly flattening out.

Banks in Germany currently have healthy loan books and are generally well capitalized.

"But institutions have become more cautious about their lending standards."

In his speech, Sewing also focused on the dependencies with China.

"The country's increasing isolation and the growing tensions, especially with the USA, pose a considerable risk for Germany." More than a tenth of the sales of all DAX companies come from China.

The extent to which the supply chains are linked to China had become apparent during the pandemic at the latest. "Reducing this dependency will require a change that is at least as fundamental as decoupling from Russian energy."

A decoupling from China is wishful thinking, said Lutz Diederichs, head of Germany at BNP Paribas.

"The size of the Chinese market cannot be replaced." The dependence on China affects core areas of the German economy and is much greater than the dependence on Russia.