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Germany Extends Systemic Bank Rescue Fund

by Ulrika Lomas,, Brussels

24 October 2012

The German cabinet has recently adopted a bill providing for the extension of the country’s financial market stabilization fund (SoFFin) until the end of 2014.

According to the German finance ministry, the government’s third financial market stabilization law (Finanzmarktstabilisierungsgesetz) is designed to ensure that SoFFin’s stabilization measures are maintained until such time as a single European restructuring and supervision mechanism for banks is in place, namely 2015 at the earliest.

Germany’s current financial market stabilization fund law expires at the end of 2012.

In its release, the German finance ministry highlights the fact that under the government’s new law, the product of its banking levy, which flows directly into a separate restructuring fund, may be used in future bailouts to prevent SoFFin incurring potential losses.

The ministry emphasizes that this will serve to reduce the burden on taxpayers, underscoring that in future those responsible for negative developments on the financial markets will be liable for the costs.

In accordance with Germany’s restructuring fund law, ailing banks may be either restructured or recapitalized in an organized way without endangering financial market stability.

In October 2011, European heads of state and government agreed that member states would put in place mechanisms at national level to prepare for all eventualities.

SoFFin will continue to provide guarantees of up to EUR400bn (USD520.8bn) and rcapitalization measures of a further EUR80bn.

The government is expected to publish the bill following examination of the text by coalition parties.

TAGS: tax | law | banking | Germany

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