BERLIN (MNI) – The German government cabinet on Wednesday adopted a
bill that allows for an orderly insolvency of systemically significant
banks.
The government wants the bill to be passed by both houses of
parliament before the end of the year and will ask lawmakers to agree to
an accelerated ratification process, a senior Finance Ministry official
said Monday. It aims for the law to take effect on December 31.
Chancellor Angela Merkel’s CDU/CSU-FDP coalition controls a
majority only in the lower house of parliament, the Bundestag. It
recently lost its majority in the upper house, the Bundesrat,
representing the 16 states.
The draft law foresees giving the government authority to consign
the systemic parts of a troubled bank to a state-owned “bridge bank” if
no other bank is willing to take them over.
This would presumably allow the government to operate the systemic
bank parts and liquidate the non-systemic pieces without causing
turbulence in financial markets.
In order to finance the unwinding of troubled systemic banks, the
bill foresees the creation of a bank restructuring fund, which is to be
administered by the government’s Financial Market Stabilisation Agency
(FMSA).
The financing for the fund is to come from the banking sector
itself. Banks will have to pay a levy depending on their size, systemic
risk and degree of integration in financial markets. All banks with
headquarters in Germany would be required to pay these fees, which will
not be tax-deductible.
The government expects the bank fees to amount to around E1 to E1.2
billion per year. The money is not to be used to counter the fallout
from the current crisis but only for future incidents.
If the money in the restructuring fund does not suffice, the bill
allows the government to grant the fund a loan of up to E20 billion and
credit guarantees of up to E100 billion.
–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com
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