Why balance is more important than ever for financial markets

Stock market © Fotolia/Udo Kroener

The world has never been more interconnected. But the idea that this makes the job of national governments less important is a myth. On the contrary, financial markets are extremely important, especially for the industrial sector. And policymakers must ensure that they function well.

Businesses, especially those in the German industrial sector, are characterised by their initiative in constantly coming up with good ideas to continually improve their products and tap into new markets. But good ideas are not enough, even when paired with a strong will to shape governance. To implement ideas and be able to start a business, grow it and pass it on to the next generation, people need adequate funds. A full range of financing options oils the wheels of the economy. If lending stalls, the entire economic engine can break down. That is why German industry depends on well-functioning financial markets. 

Another reason is the dynamics and volatility that characterise global markets. If the US lowers its key interest rate or China devalues its currency, German industry is directly affected. Businesses have to adjust to new global parameters every single day. The industrial sector depends on a well-functioning financial market to hedge against fluctuations of this kind as well. Without financial markets, the industrial sector would not be able to concentrate on its core business: developing, manufacturing and marketing high-quality products. Financial markets are not an end in themselves but the foundation for a successful, stable economy, and, by extension, for prosperity and employment in Germany.

Like other markets, financial markets function best when they are embedded in a well-thought-out regulatory framework. Banking law, securities law and capital markets law form this framework. Like every regulatory framework, that needs to be well balanced.

On the one hand, it must not create any false incentives that ultimately endanger the stability of the entire national economy. Also, lawmakers must always keep in mind the purpose of financial markets, which is to keep the economic engine running. They thus need to find the right amount of regulation.

The BDI is an umbrella association that pools the expertise of its members and champions moderate banking and financial market regulation that ensures long-term security for company financing and hedging.