10 January 2014

Reuters: German banks urge clarity on contingent bond rules

Germany's commercial banks urged regulators to clarify quickly whether they can issue billions of euros in bonds to fulfil new capital requirements aimed at limiting the damage from future financial crises.

German lenders are still waiting for a green light from national authorities before issuing the bonds, while foreign rivals have stolen a march in tapping investors to bolster their capital safety buffers to meet the tougher international banking standards known as Basel III.

"For Germany as a banking centre it is high time that the authorities create legal certainty regarding additional core capital", Michael Kemmer, managing director of the BDB banking association, told Reuters. "Germany should keep pace with other European states like France, The Netherlands, Spain or the UK", Kemmer said.

It remains unclear in Germany whether banks will be allowed to deduct interest payments on these relatively expensive bonds from their taxes as a business expense. The banks also want to know if foreign investors in the bonds would continue to be exempted from a deduction of tax at source.

There is also the question of whether the bonds would count as equity capital for tax purposes. "For the issuing banks as well as for investors, these bonds are only attractive if they correspond to international tax standards", Kemmer said.

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© Reuters