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Banking supervision: savings banks have to change support funds

D.he lengthy support for Nord LB has unpleasant consequences for the Sparkassen-Finanzgruppe. The banking supervisory authority quickly demands a schedule of how it will rectify deficiencies in its liability system. Financial circles confirm information from the “Handelsblatt” that the savings bank group will have until the end of 2023, one year longer than initially threatened, to reform its support system. But the supervisors hold on to demands that could herald the end of the liability system in its previous form. The spokesman for the German Savings Banks Association commented only briefly on this: “After consultation with the committees, the Sparkassen-Finanzgruppe will promptly comment on the content in December 2020.”

So far, Sparkassen, Landesbausparkassen (LBS) and Landesbanken have promised to save every member of the public liability association from bankruptcy (“institute security”). In fact, no saver in a savings bank has ever lost money. Because in times of need, savings banks received money from the group’s funds or were “forcibly merged” with the neighboring savings bank. But with large members, such as Landesbanken such as LBBW and Bayern LB, in the event of a crisis there is often a struggle over who will give support money. On the one hand, this is due to the fact that in addition to the savings banks, federal states also have stakes in Landesbanken.

Eleven regional savings bank support funds

On the other hand, the savings bank group is legally organized in eleven regions. Therefore there are eleven regional savings bank support funds as well as one fund each from the Landesbanken and the LBS. The thirteen funds are linked. If, however, a large institute has to be supported and the regional savings bank fund is not sufficient, many committees have to agree so that a “money overflow” from one regional fund to the other is possible. This slowness annoys the supervisory authority – at the latest since the NordLB acted with an illegally small capital base for almost the whole of 2019, until savings bank funds finally contributed EUR 1.1 billion to the EUR 3.6 billion support of Nord LB.

More money centrally

According to reports, the supervisory authority is demanding more money in addition to greater centralization of the support system from the savings bank group. By 2024, all banks in Europe must pay 0.8 percent of the covered savings deposits into a deposit protection fund. According to reports, this means 7 billion euros for the savings banks. Their representatives see a large part of this money covered by the funds for the “institute security”. But the fact that the savings banks in some regions, such as Hesse-Thuringia, have larger funds with larger funds than others, is an element of the internal group. In addition, there is not always real money in the fund; instead, the fund volumes are covered by non-transparent additional payment obligations.

Therefore, supervisors could prescribe a new central deposit insurance fund for the savings banks, which could then easily serve as a preliminary stage for a uniform European deposit insurance (Edis). Savings banks and VR banks are vehemently resisting this.

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