SoFFin - Bundesanstalt für Finanzmarktstabilisierung: Startseite

SoFFin’s purpose is to stabilise the financial system in Germany. Its goal is and remains the restoration of mutual confidence among banks and the confidence of society at large and business in the financial sector. SoFFin funds have stood ready not only for directly rescuing financial institutions but also for long-term stabilisation by increasing institutions’ resilience. Institutions have been restructured and their business models redefined and reoriented. At the end of 2010, SoFFin discontinued the granting of new benefits to credit institutions. However, it continues to assume responsibilities and control the measures’ conditionality with regard to existing stabilisation measures. In addition, the funding of existing resolution agencies can be replenished.

SoFFin had the following instruments at its disposal.

Guarantees

The granting of guarantees by SoFFin was restricted to debt issued by 31 December 2010. This instrument envisaged SoFFin giving guarantees for newly issued debt securities and justified other debt issued by financial institutions. The maturity of the guaranteed debt was always between 36 and 60 months. For granting guarantees, the Restructuring Fund charges an individual percentage of the maximum amount guaranteed, which represents the default risk. This fee is between 0.5% and 2% p.a..

In order to receive a guarantee, the beneficiary financial corporation must have an adequate capital base. The upper limit for guarantees was based on the capital of the enterprise (including all affiliates).

Recapitalisation

SoFFin was able to grant recapitalisation up until 31 December 2010. The aim of recapitalisation was to give banks the necessary capital.

The Fund obtains remuneration at market prices for deposited capital. For assets contributed by silent partners, the remuneration is generally between 9% and 10% p.a..

SoFFin was able to recapitalise by purchasing a bank’s new shares or acquiring silent participations.

Beyond 2010, SoFFin has been authorised to maintain its previously acquired capital participations, sell them and, if necessary, augment them in order to protect them against dilution. Purchased shares, silent participations and other rights are to be sold in such a manner as to disrupt market prices as little as possible.

Resolution agencies

Up until 31 December 2010, banks were able to establish their own resolution agencies under the aegis of the Federal Agency for Financial Market Stabilisation (FMSA).

Banks were able to transfer to resolution agencies not only structured securities but other risk exposures – such as non-performing loans – and whole business lines the banks no longer viewed as strategic. This gave banks the opportunity to wind up these portfolios in an orderly fashion and to themselves reorient their strategy for a promising future. By transferring risk, the bank obtained instant relief from capital requirements and write-down pressure caused by value fluctuations. The resolution bank model implies that the bank’s owners remain economically responsible for the resolution agency, i.e. they are required to offset any losses made by the resolution agency.

The FMSA founded two resolution agencies: the Erste Abwicklungsanstalt, to which WestLB transferred non-strategic business lines and risks, and FMS Wertmanagement, which is where the HRE Group’s risk exposures and non-strategic assets went. Both resolution agencies were established under the aegis of, and are subject to legal supervision by, the FMSA. The conditions for the FMSA’s obligation to settle losses are governed by the resolution agencies’ respective statutes. Once winding-up is complete, i.e. all transferred risks and business lines have been sold off, the FMSA will dissolve the resolution agencies.