EZA 896 Report: Germany

18 May 2009

Germany – Bad Banks: bad for banks?

•  The government draft law presented on 13May specifies the conditions which allow banks to offload toxic assets from their balance sheets.
• In contrast to other legislation the German solution has been regarded as restrictive in terms of asset eligibility and government involvement.
• In contrast to the UK and the US, where the governments commit to purchases of assets while charging the banks high fees, the German government trades off lower fees against low involvement.
• The provision that any gap between discounted book value and fair value may force banks to suspend dividend payments is regarded as a liability for future access to capital markets, hence a disincentive for commercial banks to revert to the SOFFIN.
   

Asset conclusions: for commercial banks the provisions for offloading troubled assets in terms of government influence might be regarded rather onerous, hence undermining the effectiveness of the law.
 

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