How does the "Bad Bank" Concept Influence the Commercial Banks' Ability and Willingness to Increase Commercial Lending in Germany
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26.04.2011
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Englisch
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9783640899906
Seminar paper from the year 2010 in the subject Business economics - Investment and Finance, grade: 1,3, University of applied sciences, Munich, course: International Finance & Accounting, language: English, abstract: During the Financial Crisis 2007-2010, which was the result of housing bubble in the
United States in 2006, commercial banks rapidly decreased the amount of commercial
lending worldwide. So called subprime credits made the assets of commercial banks
less worth during a short period. It was the cause for the credit crunch in many
economies. Because many enterprises have to rely on debt capital, which they lend from
commercial banks to finance their investments, the credit crunch hit such enterprises
very hard. The outcome is that the whole economy suffers. Many governments
elaborated the bad bank concept to solve the problem of decreased commercial lending,
also Germany. It means, that banks will be allowed to start special purpose vehicles
(SPV) for holding the subprime credits and to bring such subprime credits out of the
balance sheet of the bank. In Anglo-Saxon countries there are two other terms in use for
SPV: (loan) recovery agency and asset management company. According to Homoelle,
Ruff and Tuerr1 in theory and praxis there are many variants of bad bank models
existing. Until now the question which model is most successful, became insufficient
exploration.
German government adopted two different models of bad banks and proposed the
Financial Market Stabilisation Act (FMStFG), which became effective on July 22th
2009.2 After that some banks used this opportunity and transferred their subprime assets
to such SPV.
The scope of the work is first to evaluate why exactly commercial banks decreased the
commercial lending, second to analyse German bad bank concept and then to work out
the incentives of this concept for more commercial lending by commercial banks and to
show some examples of implementation of bad bank concept by German banks. At the end the answer on the question, whether the bad bank concept increases the ability and
willingness of German commercial banks to make more commercial credits available or
not, will be given in this term paper.
United States in 2006, commercial banks rapidly decreased the amount of commercial
lending worldwide. So called subprime credits made the assets of commercial banks
less worth during a short period. It was the cause for the credit crunch in many
economies. Because many enterprises have to rely on debt capital, which they lend from
commercial banks to finance their investments, the credit crunch hit such enterprises
very hard. The outcome is that the whole economy suffers. Many governments
elaborated the bad bank concept to solve the problem of decreased commercial lending,
also Germany. It means, that banks will be allowed to start special purpose vehicles
(SPV) for holding the subprime credits and to bring such subprime credits out of the
balance sheet of the bank. In Anglo-Saxon countries there are two other terms in use for
SPV: (loan) recovery agency and asset management company. According to Homoelle,
Ruff and Tuerr1 in theory and praxis there are many variants of bad bank models
existing. Until now the question which model is most successful, became insufficient
exploration.
German government adopted two different models of bad banks and proposed the
Financial Market Stabilisation Act (FMStFG), which became effective on July 22th
2009.2 After that some banks used this opportunity and transferred their subprime assets
to such SPV.
The scope of the work is first to evaluate why exactly commercial banks decreased the
commercial lending, second to analyse German bad bank concept and then to work out
the incentives of this concept for more commercial lending by commercial banks and to
show some examples of implementation of bad bank concept by German banks. At the end the answer on the question, whether the bad bank concept increases the ability and
willingness of German commercial banks to make more commercial credits available or
not, will be given in this term paper.
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