Bad bank

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A bad bank ( Engl. From bad debt banking , dt. Bank for bad commitments ), also clearing bank , Abwicklungsanstalt or collecting bank , is a separate bank for holding derivatives and certificates of in payment difficulties to issuers and so-called for the settlement of bad loans in need of redevelopment banks. The aim is to transfer the default risk to third parties. In the context of coping with a banking crisis , the transfer of such loans to a settlement bank, for whose assumed loan portfolio the state assumes liability with its central bank , a deposit guarantee fund or a banking group , can represent a procedure to avert acute insolvency .

In the course of the financial crisis from 2007 , Germany and the USA, among others, resorted to the bad bank concept .

background

Loans are usually associated with credit risk because there is a risk that debtors will not be able to repay them. The proportion of bad credit claims fluctuates with the business cycle and with the care taken in creditworthiness checks . In order to cover receivables with risks, the bank must back them with equity . If the loan defaults exceed the amount that the bank can bear, so that the minimum capital requirements for credit risks can no longer be met, the bank's business license can be withdrawn so that it has to be processed. The bank may have to file for bankruptcy. If several banks are affected at the same time, one speaks of a banking crisis .

The liquidation or insolvency of a bank (or even many banks) leads to a market shakeout in the sense of a competitive market economy . However, it has extensive and in some cases unforeseeable consequences for creditors , investors and debtors . Confidence in other banks is also falling, and investors tend to be more cautious. This is noticeable, among other things, in the fact that a risk premium has to be paid for savings or loans with other banks, in the form of a higher interest rate. If, in the worst case, the banks' overall lending is restricted, one speaks of a credit crunch . In such a situation, the liquidity necessary for the normal business activity of companies is endangered and thus also the production or supply of goods, although there is demand. Banking crises therefore have extensive economic effects. For this reason, many attempts are made to avoid bankruptcy and the emergence of banking crises. One of the possible tools is the establishment of a bad bank. However, there are also other means, such as nationalization or state guarantees .

Reasons for establishment

A basic requirement for banking is the trust of business partners and customers in the creditworthiness of the bank. In the event of high losses due to loan defaults, this is threatened. The most important goal of the restructuring must therefore be to rebuild trust. Among other things, this requires recapitalization , i.e. the injection of new equity, as the previous capital was (partially) consumed by the losses . In addition, it is especially important to ensure that there are no more latent risks in the bank's loan portfolio.

This is difficult, especially since the real risks of a problem loan are only known after its complete settlement . Only the fastest possible processing would provide clarity. Too quick use in the crisis would, however, significantly reduce revenues.

The outsourcing of the loans to the bad bank should therefore create the possibility of achieving the best possible recovery rates without time pressure through loan restructuring or collateral realization. On the other hand, the bank to be restructured should immediately be relieved of the risk of the outsourced loans.

implementation

The settlement bank (bad bank) buys the non-performing loans from the entire portfolio . For this purpose , the bank to be restructured assigns the credit claims to the bad bank and receives, if the credit does not turn out to be completely worthless, a purchase price that is the nominal value of the credit minus the expected losses. The bad bank then bears the risk of higher losses (and the chance of lower losses). This releases the bank to be restructured from liability for this portfolio. It also no longer has to hold equity for the loan portfolio sold to the bad bank. However, there is a book loss in the amount of the discount with the transaction . If the bank cannot take this out of equity, it is insolvent and needs additional equity. This process acts like an equity injection.

The liquidation bank itself must receive sufficient capital from outside in order to be able to bear the risks from the loan portfolio. Since it works like a special debt collection company and is not designed for permanent business operations, but is dissolved as a special purpose vehicle after the portfolio has been liquidated, this can be done technically via guarantees from the state, provided the state has an interest in it. The extent to which claims must then be made against the state from the guarantees depends on the outcome of the settlement. A lot of time can pass before this is established. Details of the implementation in Germany are regulated by the law on the further development of financial market stabilization, which was promulgated in the Federal Law Gazette on July 22, 2009 . In this law, the maximum period for repayment is twenty years.

Regulatory discussion

The core of the bad bank concept is the assumption of liability for the risks outsourced in the bad bank by third parties (e.g. the state). This is questionable in terms of regulatory policy . On the one hand, the beneficiary banks are relieved of the risk costs of these claims, but in the past had received the risk premiums associated with the transactions as income. This aspect can be taken into account via the discounts with which the claims were taken over by the bad bank or via debtor warrants .

Above all, however, the problem of moral hazard is at the center of the regulatory discussion: The fact that banks can expect a resolution bank to relieve them of the risks and transfer them to the state creates an incentive for the institutions to (in trust in a safe risk transfer) to take risks that are too high.

It must also be noted that a bad bank cannot act as a traditional market participant in the market. Although confidence in other banks can be restored, confidence in a bad bank on the part of market participants cannot be expected. A bad bank is therefore dependent on government funding until it is reintegrated into another bank. This would amount to partial nationalization.

Examples

The concept of the bad bank in the form of a state rescue structure was already used in the USA during the global economic crisis . Around fifty years later, a bad bank called the Resolution Trust Corporation (RTC) was formed to deal with the savings and loan crisis .

During the Swedish banking crisis from 1990 to 1992 , the bad bank concept was used successfully. The non-performing loans (at least 120 percent of the gross domestic product ) were collected in the Bankstödsnämnden (office for banking support) and successfully processed there. Before that, however, the Nordbanken was nationalized, so that the “Good Bank” and the Bad Bank had the same owner. Since real estate prices (the decline of which had triggered the crisis) subsequently stabilized again, it was possible to absorb most of the losses from loans.

The Bank Aktiengesellschaft (BAG) , based in Hamm , a nearly 100-percent subsidiary of the Federal Association of German Cooperative cooperative banks , is originally from the hammer bank scandal emerged in June 1984th The business model of the BAG provides for taking over credit claims that have been terminated by the member banks or that require exceptional support due to necessary restructuring measures in the cooperative banking network; The BAG operates nationwide.

After the Berlin banking scandal , the unsalable property part was separated from Bankgesellschaft Berlin in 2001 and relocated to Berliner Immobilien Holding GmbH (BIH), which also contains public guarantees in the double-digit billion range. Bankgesellschaft Berlin was then the German Savings Bank Association sold .

On February 24, 2003, the Handelsblatt reported under the headline "Indiscretion after top-level meetings - bad bank causes excitement", at a time when there was still no talk of a global real estate, credit, banking, public finance and global economic crisis was about detailed plans to establish one or more bad banks in Germany.

In the financial crisis from 2007 onwards, bad banks were created in some countries and discussed in many countries. HSH Nordbank intends to set up a bad bank in Germany. Since the city of Hamburg would have to guarantee in this case, the establishment of a bad bank is still heavily discussed at the political level. The former largest bank in the world, Citigroup , also got into trouble at the beginning of 2009. She was allowed to transfer problematic assets as well as, among other things, consumer loans and trading activities to a bad bank. On May 13, 2009 , as already mentioned, the German federal government approved the draft law for the further development of financial market stabilization, which is intended to promote the creation of bad banks.

On December 11, 2009, the Erste Abwicklungsanstalt (EAA) was set up by the Federal Agency for Financial Market Stabilization (FMSA). The EAA has the task of risk positions of WestLB AG to take over and handle so until 2028 that the loss is minimized. According to its own statements, the EAA is not a bad bank; its business purpose and its establishment under the FMStG meet the requirements of a bad bank, both materially and formally. It is a liquidation agency under public law and as such it is neither a credit institution within the meaning of the Banking Act, nor does it conduct banking transactions that require authorization within the meaning of EU Directive 2006/48 / EC of June 14, 2006. The portfolio also includes the shares of Westdeutsche ImmobilienBank , a former 100% subsidiary of WestLB.

On October 2, 2010, the nationalized banking holding Hypo Real Estate (HRE) transferred existence-threatening securities and loans from over 12,500 individual items worth around 173 billion euros to the newly founded FMS Wertmanagement ; about 7.4 billion euros of which were debts of Greece (as of May 2011).

Further use of the term

The term bad bank continues to be used for specialist banks that specialize in buying and realizing non-performing loans . The above applies to these. However, the bank that sells loan portfolios does not necessarily have to be in crisis. Loan sales can also have other business policy reasons.

The organizational units within a bank that deal with the realization of non-performing loans are sometimes referred to as a bad bank . From 2003 to 2005, for example, Dresdner Bank outsourced non-performing loans to its own subsidiary, the IRU (Institutional Restructuring Unit), which is sometimes referred to in public as the Bad Bank .

Demarcation

Bad banks in the narrower sense only exist if they take over portfolios from banks and have been deconsolidated by them (i.e. not part of their group ) or if they were set up specifically for the purpose of a bad bank. Since they are not formally credit institutions, the accounting regulations specific to credit institutions and also not the KWG do not apply. In contrast to the bad bank, Zombiebank refers to a bank that continues to conduct banking business despite bankruptcy because bad loans are not written off.

See also

Web links

Individual evidence

  1. ↑ Glossary of the BMF ( Memento of the original of May 18, 2009 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice.  @1@ 2Template: Webachiv / IABot / www.bundesfinanzministerium.de
  2. ↑ Federal Law Gazette I p. 1980
  3. ↑ Focus : Federal Cabinet Approves Draft for "Bad Bank" Law ( Memento of the original from April 14, 2010 in the Internet Archive ) Info: The archive link was automatically inserted and not yet checked. Please check the original and archive link according to the instructions and then remove this notice. dated May 13, 2009  @1@ 2Template: Webachiv / IABot / kurse.focus.de
  4. ↑ The fact that profits from risky banking transactions benefit the institution itself in full, while the creation of a bad bank imposes any losses on the general public. Katherine Nölling and Philip Nölling: Germany's banks in crisis , in: Wilhelm Hankel u. a .: The economist as politician, 2003, ISBN 3-8282-0267-5 , page 619, online and
    Michael Hüther: Schirm für die Marktwirtschaft ( Memento of the original from January 26, 2009 in the Internet Archive )     Info: The archive link became automatic used and not yet tested. Please check the original and archive link according to the instructions and then remove this notice. , German Economic Institute , January 16, 2009 @1@ 2Template: Webachiv / IABot / www.iwkoeln.de
  5. ^ The Good Bank / Bad Bank concept , Peggy Berton, President of CNA Global Resource Managers
  6. ↑ "I never thought that we would have to do that again" , FAZ , October 8, 2008, in conversation with Bo Lundgren
  7. ↑ http://www.khd-research.net/Ppolitik/BankGesBerlin_3.html#2008
  8. ^ "Handelsblatt Online from March 24, 2003 - Indiscretion about the meeting of Federal Chancellor Gerhard Schröder, Finance Minister Hans Eichel and Economics Minister Wolfgang Clement with top representatives of German banks and insurance companies causes a stir"
  9. ↑ "Federal participation in HSH Nordbank is becoming more likely" , Die Welt , January 13, 2009
  10. ↑ Losses of billions: Citigroup flees into the “bad bank”  ( page no longer available , search in web archives )  Info: The link was automatically marked as defective. Please check the link according to the instructions and then remove this notice. , ZDF , today , January 16, 2009@1@ 2Template: Toter Link / www.heute.de  
  11. ↑ www.spiegel.de: Consequences for Germany - Greek bankruptcy - and then? , May 27, 2011
  12. ↑ Thomas Welter: The importance of a bad bank for credit institutions , GRIN Verlag , 2007, p. 72, ISBN 3-638-67816-4
  13. ^ “Dresdner Bank closes IRU. Goal achieved faster than planned / pioneering work done in Germany ” ( Memento of the original from February 1, 2009 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. , Allianz , September 29, 2005  @1@ 2Template: Webachiv / IABot / www.allianz.com