Liquidity line
Liquidity line ( English liquidity facility ) is in the banking a credit line that the liquidity risk of securitization secures.
General
Structured financing such as securitisations are characterized by the fact that the integrated special-purpose vehicles or conduits have very little equity , so that their solvency is threatened by bad debts from the loan or securities portfolios taken over . A liquidity risk arises for these companies if bad debts can not (no longer) be compensated in whole or in part by the equity of the special purpose vehicle or the conduit. The classic way of hedging this liquidity risk is therefore the liquidity line. Liquidity can also by means of a letter of credit or letter of credit to back up. Liquidity lines are intended to cover this refinancing risk by absorbing liquidity deficits. The rating agencies make a good rating for a securitization transaction of the existence of liquidity lines dependent ( English downgrade trigger agreements ).
Liquidity lines and banking crises
If liquidity lines are used, then there are market disruptions that can also affect the banks involved , which provide these liquidity lines as lenders . The liquidity of these institutions is impaired on the one hand by drawing on the liquidity lines and on the other hand by the market disruptions. Their risk-bearing capacity can be overwhelmed in a financial crisis . As a result of the US mortgage market crisis and the associated with her devaluation of ABS , it has become increasingly difficult in the summer of 2007, the cost of acquisition of bonds or loans to refinance.
In July 2007, IKB Deutsche Industriebank got into a crisis that threatened its existence due to the threat of drawing on liquidity lines that it had promised its “Rhineland Funding” conduit. A spectacular rescue operation by the 38% majority shareholder KfW and the banking associations prevented their bankruptcy . In August 2008 the IKB was sold to Lone Star . Almost at the same time, the special purpose vehicle "Ormond Quay Funding plc", which belongs to Sachsen LB , got into payment difficulties, which were eliminated by a loan from the Sparkassen-Finanzgruppe to Sachsen LB. A special report commissioned by the banking supervisory authority BaFin came to the conclusion in April 2005 that the risks associated with the “Synthetic Assets” business area of Sachsen LB were not monitored and controlled in accordance with the requirements of Section 25a KWG .
In September 2008 the American International Group (AIG) got into a corporate crisis that was not due to the underwriting business. Rather, they had put in significant liquidity lines and was a guarantor of credit default swaps occurred.
Regulatory recognition
For regulatory purposes recognized liquidity lines are as loan commitments with its Kreditäquivalelenzbetrag and a risk weight to the own resources to be counted, the highest risk of weight covered by the liquidity line risk positions corresponds. Liquidity facilities with an original maturity of <1 year (with a credit weighting factor English credit conversion factor CCF) of 20%, with a term of> to count one year with 50%. If the liquidity line only serves to cover general market disruptions - for example in the event of a lack of market liquidity - a CCF of 0% may be applied. Liquidity lines must not be used to offset losses and there must be a priori uncertainty as to whether they will ever be used. If they do not meet these conditions, a CCF of 100% must be used.
Individual evidence
- ↑ Andreas D. Christ, securitization platforms according to IFRS , 2014, p. 28
- ↑ Birgit Wolf / Mark Hill / Michael Pfaue, Structured Financing , 2003, p. 184
- ^ Constitutional Court of the Free State of Saxony , judgment of August 28, 2009, Az .: Vf. 41-I-08, p. 7 = NJ 2008, 506
- ↑ Alfred Wagenhofer, Controlling and Corporate Governance Requirements , 2009, p. 109
- ^ Constitutional Court of the Free State of Saxony, judgment of August 28, 2009, Az .: Vf. 41-I-08, p. 5
- ↑ Marie R Grothkopf, The financial crisis and its effects on the German insurance industry , 2009, p. 41 f.
- ^ Gesamtverband der Deutschen Versicherungswirtschaft (Ed.), Position Paper , 2009, p. 9
- ↑ Cordula Emse, securitization transactions of German credit institutions , 2005, p. 202
