Exclusive Exclusive: German Banking Association to Create its Own 'Bad Bank'

Germany’s top private banking association is creating its own national bank that could help rescue or wind down ailing financial firms, Handelsblatt has learned. The country’s new bad bank, the first of its kind, will have a starting capital of €25 million. The new bank, called EIS-Einlagensicherungsbank (EIS deposit insurance bank), could also draw from an existing rescue fund run by the association, which its members pay into voluntarily. The EIS “can become active ahead of possible difficulties with banks on behalf of the deposit insurance fund,” Dirk Cupei, head of the financial market stability division at the association, told Handelsblatt. The deposit insurance fund was created more than a decade ago to secure customer deposits in case of bank defaults. The Association of German Banks counts more than 200 private commercial banks among its members, including Deutsche Bank and Commerzbank. Other banking networks in Germany, such as savings banks or cooperatives, have their own form of common deposit insurance. Mr. Cupei stressed that it will not be the new bank’s responsibility to help every ailing bank. “In some cases, intervention ahead of time can make more economic sense than insolvency,” he said, adding: “In other cases, financial market stability dictates that banks be wound down orderly.” The new bad bank could also technically wind down lenders that cannot be rescued, with help from the deposit insurance fund, said Mr. Cupei.   Read more in Wednesday’s Handelsblatt Global Edition at 12:00 CET.