Brussels Concordance

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The Brussels Concordance is an international agreement between the Federal Republic of Germany and the EU Commission , which aims to abolish the institutional burden and guarantor liability in large parts of the public credit system in Germany .

prehistory

Public sector banks had, for historical reasons has always been the legal status of public institution . This legal form, which also exists for non-banks in the public sector, is characterized by the structural features of Anstaltslast and guarantor liability. Since in particular the guarantor liability, with its guarantee-like character and the consequence of the inability to become insolvent, gave the competing public-law credit institutions a competitive advantage over the other credit institutions , the private banks saw this as a competitive disadvantage for themselves. In fact, it was shown that the public institutions had lower refinancing costs and higher credit margins . In December 1999 the Association of German Banks filed a complaint with the competition authority of the European Commission , assuming that the guarantor liability constituted prohibited state aid under Article 107 (1) of the TFEU . In July 2000 the detailed arguments were presented; On January 26, 2001, the competition authority opened a formal investigation. The first meeting of representatives of the banks, the Federal Ministry of Finance and the EU Commission took place on June 1, 2001.

The longstanding disputes were finally settled by a decision of the European Commission on March 27, 2002 addressed to the Federal Republic of Germany. The federal government adopted this decision on April 11, 2002. The agreement reached on July 17, 2001 between the European Commission, represented by the Commissioner for Competition , Mario Monti , and a German delegation and the conclusions drawn from it on February 28, 2002 by both sides, have been taken into account. The delegation included State Secretary Caio Koch-Weser by the Federal Ministry of Finance, the countries of Finance Gerhard Stratthaus ( Baden-Wuerttemberg ), Kurt Faltlhauser ( Bayern ) and Peer Steinbrück ( Nordrhein-Westfalen ) and Dietrich H. Hoppenstedt , president of the German Savings Banks Association , at .

This agreement of July 17, 2001 - known as the Brussels Concordance - provided for the institutional burden to be ended on July 18, 2005 and to be replaced by another regulation and, moreover, to abolish guarantor liability. The Anstaltslast was to be replaced by a “normal beneficial owner relationship in accordance with market economy principles”. With the discontinuation of guarantor liability, the institution was no longer allowed to assume unlimited liability for the institute's liabilities , including a declaration of intent or guarantee for the continued existence of the public credit institute. As a result of the Brussels Concordance, all liabilities that existed on July 18, 2001 should continue to be covered by the guarantor liability within the framework of a grandfathering . Liabilities that the public banks entered into between July 19, 2001 and July 18, 2005 and which do not extend beyond 2015 should continue to be covered by guarantor liability. On the other hand, the guarantor's liability should not apply to those liabilities that were assumed after July 18, 2005 or during the transition period with a term beyond 2015. The abolition of Anstaltslast and guarantor liability was promptly implemented by amending the statutes and savings bank laws .

Banking impact

In connection with the Brussels Concordance, banking management discussed two effects that resulted from the elimination of guarantor liability. On the one hand, the market discipline effect ensures that the creditors of public banks actually bear a risk of loss for their invested capital once the guarantor liability has ceased . This gives them an incentive to limit the bank's risk-taking . On the other hand, there is the so-called franchise value effect . According to this, the elimination of guarantor liability increases the refinancing costs of the institutions concerned due to the higher risk of default . This decreases the present value of all future profits ( English franchise value ). With a lower franchise value , however, the willingness to take on more risk increases because the bank has less to lose. This could actually be observed at some Landesbanks from 2002 onwards.

Legal consequences

Institutional burden and guarantor liability have been abolished for all competing public-law credit institutions - in particular Landesbanken and savings banks. The other, non-competing public banks (especially development banks ), however, are not affected by the Brussels Concordance.

Web links

Individual evidence

  1. ↑ Mark Jeffrey Flannery, Could publication of bank CAMEL ratings improve market discipline? , 1998, p. 244
  2. ↑ Thomas F. Hellmann, Kevin C. Murdock, Joseph E. Stiglitz, Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough? , in: American Economic Review 90 (1), 2000, pp. 147-165