Skip to content

German Banks insolvant & benefiting from a state guarantee? Surely not!

The Germans, an uncompromising people, invented the expression ‘schadenfreude’ which as you know is taking pleasure in the misfortune of others.  Excepting of certain sporting fixtures, such as the last Irish Versus England rugby match where Ireland denied England the Triple Crown and Grand Slam, the Irish are generally, a compassionate people.  But it is entirely forgivable to indulge just a bit, when we read the following in the New York Times.  Hat tip to Marshall Auerabck who is batting on our side treatment by the ECB and Germany in particular, of Ireland’s banking crisis

…The European Banking Authority, which is conducting the stress tests, is expected to announce in the coming days how it will define capital reserves, the money that banks are required to set aside for unforeseen shocks.

Representatives of Germany’s public sector banks, while insisting the institutions are healthy, have expressed alarm in recent days that the standard may require them to exclude much of the borrowed capital they use to bolster their reserves. As a result, some German banks could fail the test, analysts said.


If the more severe definition of capital caused some German landesbanks to fail the stress tests, they could be required to raise more money, or in extreme cases even wind down their operations. Because the landesbanks are typically owned by state governments and local thrift institutions, German taxpayers would ultimately bear much of the financial burden. In that case, the landesbanks could become a liability for Chancellor Angela Merkel at a time when her party, the Christian Democratic Union, has lost ground in recent state and municipal elections.


..The debate about how to design the stress tests takes place in the context of two decades of conflict between the European Commission and the landesbanks. In 2005, the commission required the landesbanks to give up the government guarantees that allowed them to borrow money more cheaply than commercial banks.

Without that competitive advantage, several landesbanks have been struggling to find a new reason for being. In addition, institutions like WestLB or BayernLB in Munich suffered billions of euros in losses tied to investments in the United States real estate market, and required taxpayer bailouts.

The European Commission has ordered WestLB to drastically scale back its activities and look for a buyer, as a condition for receiving government aid. But attempts to sell WestLB have been moving slowly amid meager interest from investors.

At the same time, political leaders are loath to curtail the activities of the landesbanks, which give them influence in the local economy and account for thousands of jobs.

Really! (link to full article)


Posted in Money Systems, News.

Tagged with , , .