A problem of Chief and Indian—The role of the supervisory authority BaFin and the ministry of finance in German financial market policy

The financial market crisis put the spotlight on the performance of two main German government bodies in financial market policy, the German Ministry of Finance (BMF) and the German Supervisory Authority (BaFin). The problem of delegation between the BMF as the principal of the agent BaFin is the focus of this article. During the crisis a lack of personnel in the BMF and the structural asymmetry between BaFin and the ministry caused problems in the formulation of crisis policies and in the handling of the subordinate authority. However, the crisis showed only the tip of an iceberg, because the BMF suffers from fundamental deficits in coping with the daily business of financial market policy and the control of an agency which gained more autonomy than politically intended. The overarching question is whether the BMF or BaFin controls German financial market policy.