Fund Fracas

Bank Bailout Money Triggers Debate

Soffin Building Source Martin Leissl Visum
Administrative HQ of Soffin in Frankfurt.
  • Why it matters

    Why it matters

    Like many countries, Germany has a hole in its budget from the 2008 financial crisis. Using the fees already paid by banks would close that gap, but put the burden on banks to come up with additional money for Europe’s new resolution fund in the coming years.

  • Facts

    Facts

    • Germany’s banks have already paid €2.3 billion into a national insurance fund designed to protect taxpayers from footing the bill for a future financial crisis.
    • The German taxpayer’s bill from the 2008 financial crisis totaled €21.5 billion.
    • European leaders last year set up a Europe-wide resolution fund. Banks will be expected to pay €55 billion into the fund over the next eight years.
  • Audio

    Audio

  • Pdf

It was a national insurance fund designed to strengthen Germany against the cost of a future financial crisis. Banks were asked to pay into a pot of money that would be used to prevent taxpayers from having to bail out banks like they did in the 2008 collapse.

German banks have already paid about €2.3 billion ($2.8 billion)  in taxes into the national bank bailout fund, known by its acronym Soffin, which was set up in late 2008 after the collapse of the U.S. bank Lehman Brothers.

Now a fight is brewing over what to do with the money.

The question is being asked as the European Union is set to take over the task of winding down the continent’s largest financial firms in the event of a new crisis. National insurance funds like Germany’s will be replaced by a new pan-European fund, which will act in a similar way to the Federal Deposit Insurance Corporation in the United States.

Banks will be asked to pay a total of €55 billion into the European resolution fund over the next eight years. About €15 billion of this will come from the German banking industry.

Should the existing Soffin money go into the European pot, and towards protecting from future crisis? Or should it go to the German taxpayer, who is still reeling from the last bailout?

“It would be the best to transfer the Soffin resources that have been paid up to now into the budget, to partially compensate for the losses.”

Axel Troost, Financial policy spokesperson, Left Party

It’s a tough decision. Christopher Pleister, who heads the German federal agency that manages the Soffin bank fund, brought the matter to a head: “Nobody profits from a bank collapse,” he told Handelsblatt in 2013.

Some opposition politicians in Germany want the money credited to the government for past services rendered, but the banks have their own plans. They want the money credited to the European fund, thereby lowering the amount they will have to pay in over the next eight years.

At the end of 2013, Mr. Pleister’s agency, the Financial Market Stabilization Agency, or FMSA, still had an outstanding bill of €21.5 billion. This is the remaining legacy of the 2008 financial crisis – taxpayer money used to save the banks from themselves.

Given these massive losses, the €2.3 billion in bank fees sitting with Soffin are a “drop in the bucket,” said Axel Troost, financial policy spokesman of Germany’s Left Party. He is clear about what he believes should happen. “It would be the best to transfer the Soffin resources that have been paid up to now into the budget, to partially compensate for the losses up to now,” Mr. Troost told Handelsblatt.

Gerhard Schick, financial policy spokesman for the left-leaning Green Party, agreed. It would not be asking too much to let a tenth of the losses from the crisis be covered by the banks, as long as this doesn’t create any legal complications, he told Handelsblatt.

This idea has been rejected out of hand by the Association of German Banks. The lobby group for Germany’s financial firms instead points to the looming charges for the European bailout fund, which could put a serious burden on bank balance sheets.

“Germany should take the Soffin resources into account when calculating the contributions to the resolution fund,” said Michael Kemmer, the head of the German banking association.

Mr. Kemmer noted that European leaders expressly allowed national funds to be credited towards the pan-European fund when it was initially set up last year.

“There will be no decision made before 2015 on how the resources will be used.”

Spokesperson, Federal Finance Ministry

Germany’s government does not yet want to commit one way or the other, noting there is still time to make a decision. The European fund does not come into effect until next year, and the Soffin fund will continue until the end of 2015.

“There will be no decision made before 2015 on how the resources will be used,” said a federal finance ministry spokesperson.

Finance Minister Wolfgang Schäuble has sympathy for the idea of crediting banks’ payments into the national bailout fund toward future European fees. But there are a number of considerations.

For one thing, the finance ministry wants to first make sure that no bank will have to be rescued by the German Soffin fund in future. This has not yet been decided, financial sources said. Germany could potentially still be on the hook for losses if its banks fail due to problems stemming from the 2008 crisis.

Another problem is that crediting the bank fees would have to be done bank-by-bank, because even the larger banks have contributed different amounts to the German insurance fund so far.

Antje Tillman, the financial policy spokeswoman for the Chancellor Angela Merkel’s Christian Democrats, made a plea for patience.

“It is not so often that we can decide things calmly,” she said. All options should therefore be checked carefully and examined for “what is legally possible.”

Should there be insurmountable legal hurdles for transferring Soffin’s resources into the German budget, the Left’s Mr. Troost had another idea – he pleaded that resources paid up to now should at least be credited to the contributions of banks that have “senselessly fallen under the scope” of the European bailout fund.

Mr. Troost was speaking for the thousands of smaller savings banks and cooperative banks in Germany, which critics argue are being forced to pay into the European fund despite the fact that they will never benefit from it. These banks have their own system of guarantees and are too small to be rescued by the European fund.

 

 

Frank Drost has worked in Leipzig, Stuttgart and London. He now covers financial policy for Handelsblatt in Berlin. Christopher Cermak has covered the financial crisis from the U.S. and Europe. He is now an editor for the Handelsblatt Global Edition in Berlin. To contact the authors: drost@handelsblatt.com; cermak@handelsblatt.com

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