## EXECUTIVE SUMMARY (Technical Note — Crisis Management and Financial Safety Nets)

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### Context, scope, and recent experience
- Review covers Germany’s financial safety net and crisis management arrangements: inter-agency coordination, supervisory early intervention and recovery planning, the resolution regime, Emergency Liquidity Assistance (ELA), and depositor and institutional protection regimes.
- Sources: legislation and policy documents, authorities’ questionnaire responses, and FSAP mission discussions with authorities and market participants.
- Recent failure/recapitalization cases that motivated reforms: Wirecard, Greensill, and NordLB.
- Focuses on national aspects given Germany’s operational responsibility for supervision and resolution of LSIs despite Banking Union membership.
- Germany accounts for 1,324 of about 2,400 total LSIs in the Euro Area, representing 40 percent of Germany’s banking sector assets and approximately 55 percent of total Euro Area LSI assets.
- 2018 Euro Area FSAP recommended EU-level enhancements: adequately funded common DGS, harmonized bank liquidation framework, and fine-tuning state aid rules.

### Institutional framework and coordination
- Resolution planning has advanced since 2016; resolution powers broadly in line with best practice and internal processes well developed.
- High LSI weight requires further planning for smaller banks and IPSs.
- Many crisis-management aspects governed by EU law and ECB/SSM/SRM oversight.
- Recommendation: streamline BaFin’s supervisory reporting to the MoF to protect BaFin’s operational independence while maintaining sufficient information flows (¶22). Priority: H. Timeframe: I. Authority: MoF/BaFin.
- National Financial Stability Committee (FSC) conducts crisis preparation but has limited formal in-crisis role; coordination has relied largely on ad hoc bilateral/multilateral communications.
- Recommendation: formalize in-crisis coordination by expanding the FSC’s mandate via a sub-committee or establishing a parallel crisis management committee including BaFin (supervisory and resolution roles), BBk, MoF, and the reformed deposit insurer (¶23–24). Priority: H. Timeframe: I. Authority: MoF/BaFin/BBk.
- Recommendation: expand crisis simulation/testing with greater involvement of banking supervision and DGSs/IPSs (¶24–25). Priority: M. Timeframe: NT. Authority: BaFin/BBk.

### Early intervention and recovery planning
- BaFin’s supervisory and early intervention powers exist (SAG, KWG, BRRD alignment), but use should be more proactive to avoid value destruction (¶27).
- Recommendation: make earlier use of supervisory powers; reduce reliance on lagging quantitative indicators; integrate early intervention decisions into supervisory processes; implement cultural/procedural changes per BaFin reorganization (¶27). Priority: H. Timeframe: NT. Authority: BaFin.
- Moratoria issues:
  - BaFin expects, as last supervisory escalation step, to apply blanket moratoria preventing payments, including deposit withdrawals.
  - Moratoria have been applied three times since 2015; can be up to six weeks before BaFin declares a DGS compensation event, though 1–2 weeks is more typical.
  - No known cases where a moratoriumed bank returned to viability.
  - EinSiG/DGSD payout timing: DGSs target payout of covered deposits within seven working days after determination that compensation is due; BaFin must make this determination no later than five working days after becoming aware that a bank is unable to repay deposits that are due.
- Recommendation: reduce use of moratoria, shorten moratorium periods, and reduce lags between moratoria decisions, FOLTF assessments, DGS compensation, and insolvency triggering (¶28). Priority: M. Timeframe: NT. Authority: BaFin.
- Recovery planning status:
  - Well established for SIs and potentially systemically relevant LSIs; early stage for most IPS members and smaller banks.
  - Larger banks subject to recovery planning obligations for 7–8 years.
  - LSIs deemed potentially systemically relevant required to submit recovery plans for four years.
  - Common deficiencies: governance weaknesses, optimistic valuations/scenarios, incomplete triggers or recovery options; iterative supervisory feedback addresses these.
- Recommendation: ensure IPS recovery plans are assessed to the same standards as most systemically important banks and describe IPS support mechanics, governance, timeliness, and scenarios where the IPS itself is in distress (¶30). Priority: H. Timeframe: I. Authority: BaFin.

### Resolution regime and operational preparedness
- Legal basis: SAG (implements BRRD) and SRM Regulation; three EU conditions to trigger resolution: FOLTF, no reasonable prospect of alternative private measures, and public interest assessment.
- Recommendation: ensure FOLTF assessments are carried out before moratoria where feasible to improve sequencing of intervention (¶31).
- Internal coordination:
  - BaFin’s Core Crisis Committee (CCC) manages resolution processes; CCC excludes banking supervision and President’s office to avoid conflicts but AM3 coordinates with those areas.
  - Recommendation: further formalize in-crisis cooperation between BaFin’s resolution and supervisory functions (¶32). Priority: M. Timeframe: I. Authority: BaFin.
- Resolution tools and safeguards:
  - Tools: bail-in, transfer to purchaser, bridge bank, asset management vehicle, supplementary powers (management replacement, require affiliates’ services, temporary stay of early termination rights, short moratorium).
  - Safeguards: NCWO principle; protection of set-off and collateral rights.
  - BaFin has resolution manual, critical paths, automated bail-in calculation tools, dry runs, appointed panels of technical advisors.
- Loss-absorbing capacity and bail-in readiness:
  - Final MREL/TLAC targets generally set for 2024; shortfalls against final 2024 TLAC/MREL requirements are already very rare.
  - Banks required to provide specified liability data to BaFin within 24 hours of a request in a crisis.
  - Recommendation: continue engagement on bail-in execution for international securities and valuation expert deliverables (¶35). Priority: M. Timeframe: NT. Authority: BaFin.
- Government stabilization tools and resolution funding:
  - Germany has not implemented BRRD optional government stabilization tools (government guarantees and public equity support); authorities should consider implementation where legally possible (¶36). Priority: M. Timeframe: MT. Authority: MoF.
  - Germany participates in the SRF; SRF target level: 1 percent of covered deposits; transitional arrangements until 2023 mean part of resolution costs would be met from a German “national compartment” (¶37).
  - Statutory DGSs can be required to contribute to resolution costs, capped at half of their target level of ex ante funding (0.8 percent of covered deposits).
  - Recommendation: review national discretion under DGSD to increase cap on DGS contributions as a percentage of the target level (¶37). Priority: M. Timeframe: MT. Authority: MoF.
  - Resolution funding liquidity needs reduced in principle by access to ELA from the BBk for banks that underwent resolution, subject to safeguards.

### Depositor and institutional protection (DGS and IPS)
- System is complex and provides high protection levels above European/international peers; division into multiple schemes concentrates failure costs for scheme members.
- Almost all banks are members of a voluntary DGS or IPS; many deposits receive protection above €100,000 (via voluntary schemes).
- Statutory DGSs target ex ante fund level of 0.8 percent of covered deposits, to be reached by July 2024; can levy additional contributions normally not exceeding 0.5 percent of covered deposits per year.
- Statutory funds cover close to €2 trillion in deposits, about 50 percent of all nonbank domestic deposits.
- Voluntary BdB DGS planned changes (post-Greensill):
  - For natural persons: protection limit will fall from €5 million initially to €1 million by 2030.
  - For corporations: protection limit will fall from €50 million to €10 million.
  - Deposits in foreign branches, public corporations, and financial institutions will cease to be covered.
  - Even after changes, individual coverage will remain 10 times the harmonized EU level at the end of the transition period.
- DSGV IPS planned changes (post-NordLB):
  - Measures include: establishment of a small ex ante fund (target 0.5 percent of DSGV aggregate risk-weighted assets); streamlining governance procedures for escalation to national IPS; enhancements to data and risk monitoring.
- Risks from broad protection:
  - Potential effects on moral hazard, bank funding costs, allocation of financial assets between deposits and other instruments, and risk-taking by new entrants.
  - Voluntary DGS and IPS arrangements lack clear legal rights to compensation or support above €100,000; schemes’ public communications may create depositor expectations of support.
  - Recommendation: authorities should review systemic implications of near-universal protection and develop an overall DGS/IPS reform strategy; consider requiring stronger legal commitments from schemes (¶47–48). Priority: H. Timeframe: MT. Authority: MoF/BBk/BaFin.
- Recommendation: establish a single mandatory DGS as a public body to increase risk pooling, reduce fragmentation, mitigate conflicts of interest, and ensure access to robust government-backed liquidity lines (¶46, ¶43). Priority: H. Timeframe: NT. Authority: MoF.
- Recommendation: ensure mandatory DGSs have access to a robust public sector backstop liquidity line (¶43). Priority: H. Timeframe: NT. Authority: MoF.
- Recommendation: review suitability of voluntary DGS and IPS arrangements lacking legal rights to compensation/support given depositor-confidence implications (¶48). Priority: M. Timeframe: NT. Authority: MoF/BaFin.

### Emergency Liquidity Assistance (ELA)
- BBk may grant ELA and bears associated credit risk; ECB Governing Council non-objection required for larger ELA operations.
- ELA provided only to solvent institutions (meeting Pillar 1 capital requirements or credibly able to restore compliance within a 24-week window) and subject to ELA agreement requirements.
- Banks that have been subject to resolution are not excluded from ELA; BaFin should liaise with BBk to confirm post-resolution solvency.
- Nonbank financial institutions (including CCPs) could receive ELA; BBk should define internal standards for CCP lending.
- Given limited recent operational experience, recommendation: test BBk operational arrangements for ELA with the industry to identify information and collateral gaps (¶53). Priority: M. Timeframe: MT. Authority: BBk.

### Key recommendations (condensed from Table 1)
- Institutional arrangements and coordination
  - Streamline BaFin supervisory reporting to MoF (Priority: H; Timeframe: I).
  - Formalize in-crisis coordination via FSC expansion or parallel committee (Priority: H; Timeframe: I).
  - Expand crisis simulation/testing and involve DGSs/IPSs (Priority: M; Timeframe: NT).
- Recovery planning and early intervention
  - Make earlier use of supervisory powers (Priority: H; Timeframe: NT).
  - Reduce and shorten moratoria; shorten decision lags (Priority: M; Timeframe: NT).
  - Ensure IPS recovery plans meet high standards (Priority: H; Timeframe: I).
- Resolution regime
  - Further formalize BaFin internal cooperation between resolution and supervision (Priority: M; Timeframe: I).
  - Review DGSD discretion to increase DGS contribution caps (Priority: M; Timeframe: MT).
  - Review implementing BRRD government stabilization tools (Priority: M; Timeframe: MT).
  - Continue work on bail-in execution (Priority: M; Timeframe: NT).
  - Ensure resolution plans for IPS members cover scenarios of widespread IPS distress (Priority: H; Timeframe: I).
  - Reassess resourcing for LSI and host institution resolution planning (Priority: H; Timeframe: I).
- Depositor and institutional protection
  - Review systemic implications of near-universal protection and develop DGS/IPS reform strategy (Priority: H; Timeframe: MT).
  - Ensure mandatory DGSs have access to public sector liquidity backstop (Priority: H; Timeframe: NT).
  - Establish a single mandatory DGS as a public body (Priority: H; Timeframe: NT).
  - Review suitability of voluntary DGS/IPS arrangements lacking legal rights to compensation (Priority: M; Timeframe: NT).
- Emergency Liquidity Assistance
  - Test ELA operational arrangements with the industry (Priority: M; Timeframe: MT).

### Recent cases and practical lessons
- NordLB recapitalization (2019): final support package €3.1 billion (65 percent federal states, 12 percent three regional savings bank associations, 24 percent DSGV IPS).
- Wirecard Bank AG (June 2020): intragroup deposits ring-fenced by BaFin enabling solvent wind-down with deposits remaining available under insolvency law.
- Greensill Bank AG (March 2021): rapid asset growth, concentrated lending, moratorium imposed March 3; DGS compensation declared March 16; compensation around €3.1 billion paid by mandatory and voluntary DGSs.

### Selected key statistics and operational figures
- BaFin staffing: 2,720 total staff; about 550 work in banking supervision.
- BaFin resolution sector: about 100 staff.
- BBk supervision staff: about 1,500 directly involved in supervision of banks and CCPs.
- Statutory DGS target ex ante fund level: 0.8 percent of covered deposits (to be reached by July 2024).
- Statutory DGS additional levies: normally not exceeding 0.5 percent of covered deposits per year.
- SRF target level: 1 percent of covered deposits.
- Voluntary BdB DGS historical/transition limits:
  - Previously announced protection limit for Greensill bank: ~€75 million.
  - Natural persons: from €5 million to €1 million by 2030.
  - Corporations: from €50 million to €10 million.
- Recovery planning timelines:
  - Larger banks: recovery planning obligations for 7–8 years.
  - LSIs deemed potentially systemically relevant: required to submit recovery plans for four years.
- Moratoria: applied three times since 2015; can be applied for up to six weeks before BaFin declares a DGS compensation event, though 1–2 weeks is more typical.
- Bail-in data readiness: banks required to provide specified liability data to BaFin within 24 hours of a request in a crisis.

*Source: IMF staff—EXECUTIVE SUMMARY (Technical Note prepared by Mark Adams) from Germany FSAP materials (1deuea2022008).*

### EXECUTIVE SUMMARY __________________________________________________________________________ 4

### EXECUTIVE SUMMARY

### Context and scope and recent experience
- The note reviews Germany’s financial safety net and crisis management arrangements, including inter-agency coordination arrangements, supervisory early intervention and recovery planning, the resolution regime, emergency liquidity assistance (ELA), and the depositor and institutional protection regimes.
- The review draws on legislation and policy documents, the authorities detailed responses to a questionnaire, and discussions with the authorities and market participants during the FSAP mission.
- The failures of Wirecard and Greensill, and the recapitalization of NordLB, have highlighted the complexity of Germany’s arrangements for bank crisis management and prompted further reform efforts, including changes or proposed changes to BaFin’s banking supervision, EU regulation of fintech groups, Germany’s private sector voluntary deposit guarantee scheme (DGS), and the IPS for Landesbanks and savings banks.
- The FSAP review focused on national aspects of Germany’s financial sector safety net, which remain critical despite German membership in the Banking Union. The German authorities have primary operational responsibility for the supervision and resolution of LSIs.
- Germany accounts for 1,324 of about 2,400 total LSIs in the Euro Area, representing 40 percent of Germany’s banking sector assets and approximately 55 percent of total Euro Area LSI assets.
- The 2018 Euro Area FSAP (IMF Country Report No. 18/226) outlined recommended enhancements at the European level, including the introduction of an adequately funded common DGS, a harmonized bank liquidation framework and a finetuning of state aid rules.

### Institutional framework and coordination
- Much progress on resolution planning and preparedness has been achieved since the last FSAP in 2016. Germany’s resolution planning is well advanced, with resolution powers broadly in line with best practice and well-developed internal resolution processes.
- The large weight of LSIs in Germany’s financial sector calls for further progress on planning for crisis management for smaller banks and the institutional protection schemes (IPSs) of which they are members.
- Many aspects of crisis management are governed by EU law, or the rules and oversight of the ECB, SSM, and SRM.
- A more systematic and streamlined approach to BaFin’s supervisory reporting to the MoF, to ensure BaFin’s operational independence, should be considered while maintaining sufficient information flow from BaFin to the MoF. The detail and frequency of communication between BaFin supervision and the MoF appears to go beyond the necessary oversight and financial stability responsibilities of the MoF.
- The national Financial Stability Committee (FSC) already carries out work on crisis preparation and prevention, but formal arrangements for in-crisis coordination should be strengthened. The FSC has a limited role in-crisis, and coordination has occurred mainly through strong and regular—but ad hoc—communication (both bilateral and multilateral).
- To increase engagement on crisis planning and allow for more systematic coordination during an active crisis or near-crisis situation, the authorities should either strengthen the FSC’s crisis management role through a sub-committee or establish a parallel crisis management committee. All financial safety net authorities should be included: BaFin, as both supervisory and resolution authority, the central bank, and the MoF. The reformed deposit insurer should also be integrated into crisis coordination arrangements.

### Early intervention and recovery planning
- More proactive use of BaFin’s supervisory and early intervention powers for weak banks would help prevent value destruction in distressed banks. This need is recognized in BaFin’s own reorganization plan and some necessary changes to BaFin’s procedures for applying the ladder of early intervention actions have been identified.
- BaFin should limit its use of blanket moratoria on the liabilities of weak banks, and in cases where it is used, shorten the moratorium period. BaFin expects, as the last step of the supervisory escalation ladder, to apply a blanket moratorium preventing payments, including deposit withdrawals, from a weak bank.
- Although moratoria are an early intervention measure intended to be applied to going-concern banks, in practice there have been no cases in which a bank subject to a moratorium had successfully returned to viability. Given the typical length of the moratorium, this significantly extends the period for which deposits covered by the DGS may be unavailable, with potentially significant impact on depositors and depositor confidence.
- The EinSiG, in line with the DGSD, requires that DGSs target a payout of covered deposits within seven working days following a determination that compensation is due. BaFin must make this determination no later than five working days after becoming aware that a bank is unable to repay deposits that are due.

### Resolution regime
- Resolution planning is well advanced and resolution powers are broadly in line with best practice, with well-developed internal resolution processes.
- The idiosyncratic and complex system of depositor and institutional protection in Germany creates high levels of protection above European and international peers, and the division into multiple schemes means the cost of each failed bank can be high for the scheme of which it is a member.
- Additional financial support from outside the IPS has been necessary in previous cases of distress at Landesbanks.
- IPS resolution plans should better align with the most likely failure scenarios and the scope of recovery planning. Given IPS commitments to support members, planning should prepare for scenarios where the IPS itself is in distress or multiple IPS members are simultaneously in distress.
- Further formalize in-crisis cooperation arrangements between BaFin’s resolution and supervisory functions.

### Depositor and institutional protection (DGS and IPS)
- Almost all banks are members of a voluntary DGS or IPS, which offer levels of protection for depositors (and, for IPSs, other creditors) well above European and international peers.
- The DGSs and IPSs play a useful role in risk monitoring and routinely handle failure of small institutions; however, recent crisis experience has tested the limits of the current structures.
- The FSAP recommends a single mandatory DGS, established as a public body.
  - A single scheme would increase risk pooling and diversification across the banking system and be more robust to medium- or large-sized failures.
  - Establishing the DGS as a public body would ameliorate conflicts of interest arising from the involvement of active bankers in DGS governance.
  - In line with international good practice, the DGS should also have access to robust government-backed liquidity lines and not rely solely on market-based borrowing.
- The authorities should review the systemic implications of maintaining very broad protection for depositors and develop an overall strategy for DGS/IPS reform. The authorities’ current work focuses on individual supervisory and oversight responsibilities rather than overall impact.
- The authorities should conduct a broader assessment of the impact of high levels of protection on financial stability, including through moral hazard and bank funding costs, allocation of financial assets between deposits and other instruments, and whether they incentivize riskier behavior by new entrants.
- Review the suitability of voluntary DGS and IPS arrangements that lack clear legal rights to compensation or support, given the likely impact on depositor confidence of any failure to provide support.

### Emergency Liquidity Assistance (ELA)
- Test operational arrangements for ELA with the industry.

### Key recommendations (from Table 1: Main Recommendations—Crisis Management and Financial Safety Nets)
- Institutional Arrangements, Coordination, and Cooperation
  - 1. Streamline the scope and frequency of BaFin’s supervisory reporting to the MoF to ensure operational independence (¶22). Priority: H. Timeframe: I. Authority: MoF/BaFin.
  - 2. Formalize in-crisis coordination arrangements through expanding the FSC’s existing crisis management mandate to include a greater operational role in crises, or establishing a parallel committee (¶23–24). Priority: H. Timeframe: I. Authority: MoF/BaFin/BBk.
  - 3. Expand the existing program of crisis simulation and testing, with greater involvement of banking supervision departments (¶24). Priority: M. Timeframe: NT. Authority: BaFin/BBk.
  - 4. Increase coordination with DGSs and IPSs and their involvement in the program of crisis-simulation exercises (¶25). Priority: M. Timeframe: NT. Authority: BaFin/BBk.
- Recovery Planning, Early Intervention, and Triggers
  - 5. Make earlier use of supervisory powers to increase effectiveness of dealing with problem banks (¶27). Priority: H. Timeframe: NT. Authority: BaFin.
  - 6. Reduce the use of moratorium powers, shorten moratorium periods, and reduce lags between decisions on moratoria, FOLTF assessments, DGS compensation, and triggering of insolvency (¶28). Priority: M. Timeframe: NT. Authority: BaFin.
  - 7. Ensure that IPS recovery plans are assessed to the same standards as the most systemically important banks (¶30). Priority: H. Timeframe: I. Authority: BaFin.
- Resolution Regime
  - 8. Further formalize in-crisis cooperation arrangements between BaFin’s resolution and supervisory functions (¶32). Priority: M. Timeframe: I. Authority: BaFin.
  - 9. Review the national discretion available under the DGSD to increase the cap on DGS contributions to the costs of resolution as a percentage of the target level (¶37). Priority: M. Timeframe: MT. Authority: MoF.
  - 10. Review implementing the BRRD government stabilization tools (¶36). Priority: M. Timeframe: MT. Authority: MoF.
  - 11. Continue and expand existing work on bail-in execution, in particular on cross-border issues and timely valuation data (¶35). Priority: M. Timeframe: NT. Authority: BaFin.
  - 12. Review the application of the public interest assessment methodology to IPS and voluntary DGS members to capture impacts on the stability of these schemes (¶43). Priority: M. Timeframe: MT. Authority: (unspecified).
  - 13. Ensure resolution plans for IPS members are appropriate for scenarios where a large share of members of an IPS, or the IPS itself, are in distress, promoting review of EU legislation, if necessary (¶39). Priority: H. Timeframe: I. Authority: BaFin/MoF.
  - 14. Reassess resourcing for LSI and host institutions resolution planning, given the large number of institutions and increasing size and complexity of some, e.g., of business models post-Brexit (¶21). Priority: H. Timeframe: I. Authority: BaFin/MoF.
- Depositor and Institutional Protection
  - 15. The authorities should review the systemic implications of maintaining near-universal protection for depositors and develop an overall strategy for DGS/IPS reform (¶47). Priority: H. Timeframe: MT. Authority: MoF/BBk/BaFin.
  - 16. Ensure that the mandatory DGSs have access to a robust public sector backstop liquidity line (¶43). Priority: H. Timeframe: NT. Authority: MoF.
  - 17. Establish a single mandatory DGS as a public body (¶46). Priority: H. Timeframe: NT. Authority: MoF.
  - 18. Review the suitability of voluntary DGS and IPS arrangements that lack clear legal rights to compensation or support, given the likely impact on depositor confidence of any failure to provide support (¶48). Priority: M. Timeframe: NT. Authority: MoF/BaFin.
- Emergency Liquidity Assistance
  - 19. Test operational arrangements for ELA with the industry (¶53). Priority: M. Timeframe: MT. Authority: BBk.

Note: H, M, and L stand for high, medium, and low. In terms of timeframe, I, NT, and MT stand for immediate (within one year), near-term (within 2–3 years), and medium-term (within 3–5 years).

*Source: IMF staff—EXECUTIVE SUMMARY (Technical Note prepared by Mark Adams) from Germany FSAP materials.*

### Box 1. Main Findings of the 2018 Euro Area FSAP on Crisis Management (Concluded)

### Box 1. Main Findings of the 2018 Euro Area FSAP on Crisis Management (Concluded)

### Key findings on EU / banking union powers and resolution tools
- Many banking union countries have not availed themselves of essential powers available under EU directives.
- Example shortfalls:
  - Most countries have not established powers for public equity support and temporary public ownership (i.e., “government stabilization tools”).
  - Almost two-thirds of the countries have not authorized the use of deposit insurance funds in liquidation proceedings, preventing the use of time-tested and cost-effective purchase and assumption (“sale of business”) transactions in liquidations.
- Recommendation: A more unified resolution framework for small and large banks should include an administrative bank liquidation tool. Features and expected benefits:
  - Allow the National Resolution Authority (NRA) to appoint a liquidator and commence proceedings.
  - Authorize the NRA to apply this tool to all banks within its remit—irrespective of whether the public interest test is met.
  - A liquidation tool would help reduce destruction of value, level the playing field for creditors, and reduce the risk of member states “gaming” the system.

### European framework and interaction with German authorities
- As Germany is part of the European Union and the Euro Area, the management of distressed financial institutions takes place within a European framework.
- Roles and responsibilities:
  - The ECB, as part of the SSM, has direct responsibility for the supervision of Germany’s largest institutions (Significant Institutions (SIs)).
  - BaFin and the Deutsche Bundesbank (BBk) are responsible, under the oversight of the ECB, for the supervision of other smaller banks (LSIs).
  - The Single Resolution Board (SRB) has primary responsibility for decisions relating to the resolution of larger and cross-border institutions.
  - BaFin is responsible, under the SRB’s oversight, for the resolution of other smaller banks.
  - Any provision of ELA is the BBk’s responsibility, but it must act within a framework set by the ECB.
- Legal note: The BBk is not legally required to provide ELA in any specific case. However, should the BBk decide to grant ELA, the ECB Governing Council may object, under Art. 14.4 of the Statute of the ESCB and the ECB.

### Market structure and recent experience of financial distress in Germany
- System structure and aggregate figures:
  - Germany’s financial system is bank-centric.
  - Credit institutions have assets equivalent to 270 percent of GDP and account for about 60 percent of financial sector assets.
  - Germany accounts for 25 percent of total Euro Area bank assets and about 55 percent of total Euro Area LSIs by both number and assets.
- Pillar breakdown:
  - First pillar (private commercial banks): about 48 percent of banking sector assets; includes 1 German global systemically important bank (G-SIB), 12 other SIs, and a large number of smaller banks.
    - This pillar has recently grown due to the transfer of some wholesale banking activity from the United Kingdom after Brexit, and now includes multiple large capital markets-focused subsidiaries of non-EU G-SIBs, with the total assets of non-EU groups having grown more than ten-fold in the last four years.
  - Second pillar (publicly owned Sparkasse and associated institutions): ~32 percent of bank assets; consists of the 376 publicly owned Sparkasse and associated financial institutions, including the 5 Landesbanks, which provide wholesale financial services to the Sparkassen.
  - Third pillar (cooperative banks): ~20 percent of bank assets; includes 1 large central institution, DZ Bank, and more than 800 individual cooperative banks.
- Institutional Protection Schemes (IPSs) and membership:
  - Institutions in the savings bank and cooperative bank pillars operate as part of networks that include IPSs recognized under EU law.
  - Of the 1,324 German LSIs, almost 1,200 are members of an IPS, as are 8 of the 21 SIs.
  - IPSs seek to detect distressed members early, have powers to intervene in their management, and provide financial support to prevent their failure.
  - The IPS for savings banks and Landesbanks is operated by the Deutsche Sparkassen-und-Giroverband (DSGV), and includes 11 regional sub-funds as well as sub-funds for Landesbanks and for regional building societies (Bausparkassen).
  - The IPS for cooperative banks is operated by the Bundesverband der Deutschen Volksbanken (BVR) and organized on a central level.
- Recent cases of distress and restructuring:
  - Three significant cases of bank distress or failure since the 2016 FSAP: one Landesbank (NordLB), and two German bank subsidiaries of international financial services groups (Wirecard and Greensill).
  - Restructuring of former Landesbank HSH Nordbank was completed in 2018, resulting in its conversion into a private-law bank (Hamburg Commercial Bank), following the transfer of a large portfolio of non-performing loans to the former regional government shareholders.
  - The liquidation of Maple Bank, a Canadian-owned bank which failed in 2016, has been almost completed.
  - Other crisis-era support measures (public sector guarantees of bank funding, a blanket government guarantee of deposits, and public sector recapitalization or full nationalization of several banks) have mostly come to an end.
  - The wind-down of bad banks established for Hypo Real Estate and WestLB continues under the supervision of FMSA, the former national resolution authority.

### Institutional Protection Schemes (Box 2) — design, benefits, and supervisory treatment
- IPS definition and regulatory benefits:
  - An IPS is a mutual support arrangement between banks, which commits to provide financial support to ensure the liquidity and solvency of its members.
  - If an IPS meets certain criteria set out in the Capital Requirements Regulation (CRR), its members gain some of the same regulatory benefits as institutions that are members of a single consolidated group, including:
    - (i) apply a zero percent risk weight to most exposures to other members of the same IPS;
    - (ii) exempt these exposures from large exposure limits;
    - (iii) exempt exposures to the capital of other IPS members from being deducted from their own capital;
    - (iv) waive individual institution liquidity requirements and apply more favorable inflow and outflow percentages for the calculation of the liquidity coverage ratio.
- Recognition and supervision:
  - As both German IPSs include both SIs and LSIs, the SSM and BaFin cooperate on the assessment of whether they meet these criteria.
  - Banks must apply to their supervisor (either BaFin or the SSM) for recognition of any IPS they are members of.
  - The SSM has published guidelines on how it and national supervisors will assess compliance with these criteria.
  - Neither BaFin nor the SSM has direct prudential regulatory authority over IPSs under the CRR. However, both German IPSs are recognized by BaFin as DGSs, and must meet the requirements of the EinSiG (which transposes into German law the Deposit Guarantee Scheme Directive (DGSD)), and BaFin can intervene in the event of violations.
- CRR recognition criteria and SSM guidance:
  - The CRR criteria require IPSs to have systems to monitor and influence their members’ riskiness, and to be able to grant support from funds readily available to it.
  - The SSM guidelines further specify requirements including:
    - governance structures must allow timely decisions on support measures;
    - a clear commitment to provide support;
    - an ex ante fund (although there are no guidelines on the size of the fund).
- Comparative note:
  - The two German IPSs are by far the largest in the Euro Area. Other Euro Area IPSs exist in Austria, Italy, and Spain. Apart from the German schemes, only the two Austrian IPSs, one of which is wholly consolidated into a single banking group supervised on a consolidated basis as an SI, form a large part of their national banking system.
  - Most other large EU cooperative bank networks (e.g., in France, Italy, and the Netherlands) are now supervised as consolidated groups. These cooperative bank networks share many features with IPSs and retain some decentralized decision making.

*Source: Box 1. Main Findings of the 2018 Euro Area FSAP on Crisis Management (Concluded) — IMF PDF content provided.*

### Box 3. Recent Cases of Bank Distress

### Box 3. Recent Cases of Bank Distress

### Recent cases: NordLB, Wirecard Bank AG, Greensill Bank AG
- NordLB required recapitalization in 2019 following losses on its shipping loan portfolio and restructuring costs; it had an earlier recapitalization in 2011-12.
- Formal discussion of support from the DSGV IPS began on 19 January and concluded with an agreement between the DSGV and NordLB’s shareholders on 21 June.
- Final NordLB support package: asset guarantees from the federal states and direct capital injections and investments of €3.1 billion (65 percent from the federal states, 12 percent from three regional savings bank associations, 24 percent from the DSGV IPS).
- Wirecard Bank AG: bank subsidiary of Wirecard AG which failed in June 2020 following accounting fraud revelations. At insolvency of Wirecard AG, Wirecard Bank held significant intragroup deposits that, under German insolvency law, would be subordinated to other claims; intragroup liabilities were ring-fenced by BaFin, enabling a solvent wind-down with deposits remaining available rather than resolution or insolvency.
- Greensill Bank AG: subsidiary of Greensill Capital which entered insolvency in March 2021 after highly concentrated lending against inadequate collateral and withdrawal of insurance coverage. Rapid growth in 2019 (fivefold increase in total assets in one year) and large deposit inflows via online brokers.
- BaFin imposed a moratorium on Greensill Bank on March 3, preventing all payments including deposit withdrawals, petitioned courts to open insolvency proceedings, and declared that DGS compensation would be paid on March 16.
- Compensation around €3.1 billion was paid by both the mandatory DGS and the voluntary DGS operated by the German Bankers Association (BdB).

*INSTITUTIONAL FRAMEWORK*
### Institutional roles and coordination
- Germany’s crisis management involves German public authorities, European institutions, and multiple industry-run DGSs and IPSs; coordination arrangements in live crises remain somewhat informal and none of the DGSs or IPSs are formally embedded in institutional coordination.
- Ministry of Finance (MoF):
  - Responsible for overall safety net framework and legal/technical oversight of BaFin.
  - Chairs the FSC, participates in resolution colleges, represents Germany if the European Council must approve or object to an SRB resolution scheme.
  - Any use of public funds would require MoF to seek authority from the German parliament.
- BaFin:
  - Prudential and conduct supervisor and national competent authority (NCA) for banks, capital market firms, insurers, pension funds, and FMIs.
  - Prudential NCA for credit institutions participates in the European SSM; lead responsibility for supervision of LSIs under SSM oversight and participation in SSM-led JSTs for SIs.
  - Crisis-related responsibilities include review of recovery plans, early intervention, recognition of IPSs (jointly with SSM), several decisions related to bank failure (declaration of DGS compensation events, FOLTF determinations, initiating insolvency, proposing withdrawal of a banking license).
  - About 550 of BaFin’s 2,720 staff work in banking supervision.
  - Post-NordLB reorganization: specialized Directorate R covers most crisis management issues (apart from DGS issues) and intensified supervision of weak banks.
- BaFin as NRA (since 2018):
  - Participates in the European SRM, with lead responsibility for resolution planning and resolution of LSIs, FMIs, and investment firms.
  - Resolution directorates run crisis-simulation exercises (most recently in September 2020), prepare resolution plans, assess resolvability, and chair BaFin’s internal Core and Extended Crisis Committees.
  - NRA functions carried out by three resolution directorates reporting to the Chief Executive Director of the resolution sector; about 100 staff in the resolution sector.
- Bundesbank (BBk):
  - Key role in banking supervision and financial stability analysis; may grant ELA and assume associated credit risk.
  - About 1,500 BBk staff directly involved in supervision of banks and CCPs; operational responsibility for on- and offsite supervision tasks though BaFin makes supervisory decisions.
  - Requires ECB non-objection for larger ELA operations.
- Recommendations on coordination and reporting:
  - Authorities should take a more systematic and streamlined approach to BaFin’s supervisory reporting to the MoF to ensure BaFin’s operational independence; consider a sub-committee within FSC or parallel body with greater operational role in crisis management.
  - Formalize in-crisis coordination (sub-committee within FSC or separate body parallel to FSC) to move beyond ad hoc bilateral/multilateral communication.
- DGSs and IPSs:
  - Germany has three separate mandatory DGS schemes (one for each banking pillar) to meet the €100,000 per depositor EU requirement; most private banks are also members of a voluntary BdB DGS offering higher protection (15 percent of the member bank’s eligible capital per depositor).
  - Savings banks, Landesbanks, and cooperative banks are members of IPSs that provide financial support to prevent member failures.
  - DGSs and IPSs have extensive powers (inspection, intervention, financial support) but limited engagement in authorities’ crisis preparation and coordination due to their status as industry bodies.
  - Authorities should revise crisis coordination arrangements to increase coordination with DGSs and IPSs and involve them in crisis-simulation exercises.

### Staffing and organizational observations
- BaFin’s resolution directorates: about 100 staff in resolution sector.
- BaFin’s banking supervision: about 550 of 2,720 staff work in banking supervision.
- BBk: about 1,500 staff directly involved in supervision of banks and CCPs.
- Some BaFin teams (resolution planning for LSIs and host institutions) may be resource-stretched due to large numbers and diverse/complex institution coverage.

*EARLY INTERVENTION AND RECOVERY PLANNING*
### Supervisory powers and use
- BaFin’s supervisory and early intervention powers derive from the Recovery and Resolution Act (SAG) and the Banking Act (KWG), aligned with the BRRD and Article 104 of the CRD.
- Powers include: develop restructuring plans; limit lending, deposit growth, or business activities; require recovery plan options; dismiss management; appoint special representatives (including “strong” special representatives).
- Special representatives are often BBk staff; BBk staff cannot be appointed as “strong” special representatives.
- Observations and recommendations:
  - BaFin should make earlier use of its supervisory powers for weak banks; supervisors have sometimes issued multiple warnings or requested multiple reports before taking proactive formal measures.
  - Identified needs: reduce excessive reliance on lagging quantitative indicators; integrate early intervention decisions into supervisory process; implement cultural and procedural changes per BaFin’s reorganization plan.
  - BaFin should reduce use of blanket moratoria on liabilities of weak banks and shorten moratorium periods.
    - Moratoria: applied three times since 2015; can be up to six weeks before BaFin declares a DGS compensation event, though 1–2 weeks is more typical.
    - BaFin was not aware of cases where a bank subject to a moratorium returned to viability; moratoria led to closure and/or DGS payouts.
    - EinSiG/DGSD payout timing: DGSs target payout within seven working days after determination; BaFin must make determination no later than five working days after becoming aware that a bank is unable to repay deposits that are due.
  - BaFin should review processes to avoid long moratorium periods and be prepared to decide on next steps promptly when considering a moratorium (DGS compensation event declaration, withdrawal of authorization, application for insolvency).
### Recovery planning status
- Recovery planning is well established for SIs and potentially systemically relevant LSIs; early stage for most IPS members and smaller banks.
- Recovery planning responsibilities: Directorate R in BaFin’s banking supervisory area; for LSIs, BaFin assesses plans in coordination with BBk; for SIs, assessments occur in SSM JSTs.
- Larger German banks have been subject to recovery planning obligations for 7–8 years.
- LSIs deemed “potentially systemically relevant” have been required to submit recovery plans with similar scope to large banks for four years.
- Common early deficiencies in recovery plans: governance weaknesses, overly optimistic valuations or scenario assumptions, incomplete triggers or recovery options; addressed through iterative supervisory feedback.
- Smaller private banks submitted simplified recovery plans (in alignment with BRRD) between end-2020 and October 2021; early analysis shows similar shortcomings as larger banks’ early submissions.
- IPS recovery plans:
  - First joint IPS recovery plans only recently submitted at time of FSAP; BaFin had not yet seen their content.
  - Given IPSs’ size and importance, recovery plans must meet high standards similar to the largest banks.
  - Recovery plans should clearly describe how financial support from IPSs would be provided, governance arrangements, speed of action, and scenarios where the IPS as a whole is in financial distress.

*RESOLUTION REGIME*
### Legal framework, triggers, and internal coordination
- Legal basis: SAG (implements BRRD) sets BaFin’s powers, tools, and objectives as German NRA; SRM Regulation defines SRB powers and coordination framework.
- Resolution trigger process:
  - Three EU conditions to trigger resolution:
    1. Bank is “failing or likely to fail” (FOLTF) — assessment by BaFin banking supervision (usually Directorate R) in consultation with the NRA and notification to the SRB.
    2. No reasonable prospect that alternative private sector measures will succeed — led by banking supervision; intensified supervision team discusses with voluntary DGS/IPS whether they will provide financial support; resolution is not triggered until DGS/IPS confirms unwillingness to step in.
    3. Public interest assessment.
  - Recommendation: In reviewing options to reduce moratoria use, BaFin should consider ensuring FOLTF assessments are carried out before moratoria.
- Internal coordination:
  - Resolution directorates’ Core Crisis Committee (CCC) manages the process supported by AM3 and relevant Resolution Planning Unit.
  - CCC does not include banking supervision representatives or BaFin President’s office to avoid conflicts of interest; AM3 coordinates with these areas.
  - CCC meets regularly, not only in crises.
  - Recommendation: internal coordination with banking supervision and BaFin President’s office could be more formalized.

### Resolution powers, bail-in, and operational preparedness
- BaFin resolution tools: bail-in of own funds and liabilities; transfer assets/liabilities to private purchaser, temporary bridge bank, or asset management company; supplementary powers (replace management, require affiliates to provide essential services, temporary stay of early termination rights, impose short moratorium).
- Safeguards: “no creditor worse off” (NCWO) principle; protection for set-off and collateral rights.
- BaFin has extensive internal documentation: comprehensive resolution manual, critical paths for each tool, information tools for decision making during a resolution weekend.
- BaFin staff have protection against individual legal liability for resolution decisions taken in good faith; courts can require compensation but cannot reverse resolution decisions.
- BaFin has appointed panels of technical advisors (valuation experts, implementation advisors, transactional advisors).
- Loss-absorbing capacity and bail-in:
  - Most German banks meet applicable requirements to issue liabilities able to absorb losses in resolution.
  - For G-SIBs, FSB TLAC standard implemented in CRR; for all banks, MREL implemented in BRRD and SRMR, set on individual bank basis by BaFin (LSIs) or SRB (SIs).
  - In general, banks’ final MREL targets are set for 2024; due to ongoing issuance and statutory subordination of legacy senior unsecured debt, shortfalls against final 2024 TLAC/MREL requirements are already very rare.
  - BaFin requires banks to deliver specified data on liabilities within 24 hours of a request in a crisis; information at granular level (individual ISINs and subordinated deposits) in a BaFin-ready format.
  - BaFin has automated tools to perform instrument-level bail-in calculations and prepare implementing legal instruments and CSD instructions; dry runs have been conducted.
  - Further work planned: bail-in execution of international securities (legal issues and data requirements for international CSDs) and engagement with valuation experts on deliverable information for bail-in calculations (e.g., structured instruments, derivatives).
- Recommendation: BaFin should continue engagement on bail-in execution of international securities and valuation expert deliverables.

### Government financial stabilization tools and resolution funding
- Germany has not implemented BRRD optional government financial stabilization tools (government guarantees and public equity support); authorities should consider implementing these optional tools if legally possible to provide a structured framework for last-resort support when other resolution tools would not maintain financial stability.
- Resolution funding:
  - Germany participates in the European Single Resolution Fund (SRF) which raises levies to meet resolution costs and will have future access to ESM backstop once ESM reforms complete.
  - SRF target level: 1 percent of covered deposits; transitional arrangements until 2023 mean part of costs of a German bank resolution would be met from a German “national compartment.”
  - Legal/operational obstacles exist to SRF fund use in practice.
  - Statutory DGS schemes (including DSGV IPS) can be required by BaFin to contribute to resolution costs, capped at half of their target level of ex ante funding (0.8 percent of covered deposits).
  - Recommendation: legislators should consider removing the 50 percent cap on DGS contributions as DGSs are protected by NCWO safeguard limiting contributions to losses they would incur in insolvency.
  - Resolution funding needs for liquidity purposes are reduced by the possibility, in principle, for banks that have undergone resolution to access ELA from the BBk, subject to safeguards.
### Resolution planning for SIs, LSIs, IPSs
- Resolution planning is well advanced for SIs and larger LSIs; multiannual BaFin work program until 2024 focuses on resolvability and areas such as transfer to private sector purchasers, liquidity needs in resolution, and planning for capital-markets-focused investment firms and non-EU groups.
- Common impediments to resolvability identified: data availability, governance, liquidity in resolution, communications planning.
- Recommendations:
  - BaFin could use formal powers requiring action to address impediments in addition to guidance and dialogue.
  - Thresholds for the public interest assessment and for triggering resolution should adequately account for broader systemic risks given LSIs and IPSs’ importance.
  - BaFin should lead in ensuring PIA and resolution planning for IPS and voluntary DGS members are fit for purpose.
  - BaFin should ensure resolution plans for IPS members account for scenarios where a large share of IPS members or the IPS itself are in distress, promoting review of EU rules if necessary to enable planning at the IPS-as-a-whole level.

*DEPOSIT GUARANTEE AND INSTITUTIONAL PROTECTION SCHEMES*
### Structure, coverage, and practical operation
- Germany’s depositor and institutional protection system is complex and nearly provides universal coverage to deposits and many other bank liabilities; system consists of at least five schemes, some divided into multiple subschemes.
- Statutory DGSs protect deposits up to €100,000 per depositor; separate schemes for private sector banks, cooperative banks, and for savings banks/Landesbanks (merged with IPS).
- Statutory funds cover close to €2 trillion in deposits, about 50 percent of all nonbank domestic deposits.
- Most private banks and all savings/cooperative banks are voluntary members of either an IPS or a voluntary “top-up” DGS, protecting deposits above €100,000:
  - Private voluntary scheme: additional coverage up to 15 percent of the member bank’s eligible capital per depositor (coverage levels for largest banks can be in billions of euros).
  - IPSs: seek to avoid payouts by providing financial support to distressed members; mandatory DGS funds may be used for failure-prevention measures.
- Schemes’ powers and interactions:
  - Schemes identify vulnerable members early and can intervene (by information access, audits, reporting requirements, restructuring plans, capping deposit growth, guarantees, capital injections).
  - Schemes have agreements permitting onward sharing of information with BaFin and BBk.
  - In practice, statutory DGS payouts are rare because voluntary DGS and IPSs often provide financial support to prevent failures.
  - There have been three payout cases (including Maple Bank and Greensill Bank) for the private statutory scheme since the last FSAP; none for the IPS statutory schemes.
  - BaFin’s Directorate R typically seeks confirmation from schemes about their willingness to provide financial support before imposing a moratorium or triggering resolution.
  - For private banks, voluntary DGS financial support decisions require a majority vote of the voluntary DGS executive board; three cases in the last 10 years where the scheme took over member banks.
  - For cooperatives, support typically in form of credit risk guarantees to support restructuring or merger; occasionally full payout from voluntary IPS fund when no credible restructuring is possible.
  - For savings banks and Landesbanks, governance and burden-sharing across subschemes and public sector shareholders is especially complex (e.g., Landesbank subscheme with highly concentrated exposure to six members).
### Resources, liquidity backstops, and recent reforms
- Statutory schemes’ resources and limits:
  - Statutory schemes target ex ante fund level of 0.8 percent of covered deposits, to be reached by July 2024; can raise additional levies (normally not exceeding 0.5 percent of covered deposits per year) if fund depleted.
  - Private voluntary fund and cooperative IPS have additional ex ante funds but do not publicly disclose sizes; DSGV IPS has no additional ex ante fund (some subschemes do).
  - Voluntary schemes may borrow from members but lack committed credit lines.
  - Tiered depositor preference in Germany limits potential losses to schemes: all deposits preferred to other senior unsecured creditors; statutory scheme covered deposits preferred to other deposits.
- Liquidity backstop recommendation:
  - Authorities should put in place a public sector liquidity backstop for at least the statutory schemes, since financial resources are limited and schemes lack robust liquidity backstops.
  - Potential losses and immediate liquidity needs for payouts (especially for one or more medium-sized LSIs) could severely strain schemes’ financial resources; committed, robust private sector liquidity lines would be difficult to obtain.
  - Many other DGSs maintain government liquidity lines; Germany should consider public sector liquidity backstop.
- Voluntary DGS reform following Greensill:
  - Private banks’ voluntary DGS will change coverage from percentage-of-capital to fixed limits from 2023:
    - For natural persons: protection limit will fall from €5 million initially to €1 million by 2030.
    - For corporations: protection limit will fall from €50 million to €10 million.
    - Deposits in foreign branches, public corporations, and financial institutions will cease to be covered.
  - Even after changes, individual coverage will remain 10 times the harmonized EU level at the end of the transition period.
- DSGV IPS planned changes after NordLB:
  - Expected measures include: i) establishment of a small ex ante fund (target 0.5 percent of DSGV aggregate risk-weighted assets); ii) streamlining governance procedures for escalation to national IPS; iii) enhancements to data and risk monitoring.
- Structural consideration:
  - Authorities should consider merging the three statutory schemes into a single body established in the public sector to increase risk pooling and diversification and facilitate provision of a robust public sector liquidity line.
  - Merging could also remove obstacles to German participation in a single European deposit insurance scheme, although alternative models may maintain multiple national schemes.

*Key statistics and precise figures cited*
- NordLB support package: €3.1 billion (65 percent federal states, 12 percent three regional savings bank associations, 24 percent DSGV IPS).
- Greensill payout compensation: around €3.1 billion.
- BaFin staffing: 2,720 total staff; about 550 work in banking supervision.
- BaFin resolution sector: about 100 staff.
- BBk supervision staff: about 1,500 directly involved in supervision of banks and CCPs.
- Statutory DGS target ex ante fund level: 0.8 percent of covered deposits, to be reached by July 2024.
- DGS additional levies: normally not exceeding 0.5 percent of covered deposits per year.
- SRF target level: 1 percent of covered deposits.
- Voluntary BdB DGS historical protection examples and planned limits:
  - Previously announced protection limit for Greensill bank: ~€75 million.
  - Voluntary DGS protection transition: natural persons from €5 million to €1 million by 2030; corporations from €50 million to €10 million.
- Recovery planning timeline:
  - Larger banks subject to recovery planning obligations for 7–8 years.
  - LSIs deemed potentially systemically relevant required to submit recovery plans for four years.
- Moratorium application:
  - Moratoria applied three times since 2015; can be applied for up to six weeks before BaFin declares a DGS compensation event, though 1–2 weeks is more typical.
- Bail-in data readiness: banks required to provide specified liability data to BaFin within 24 hours of request.

*Italicized source attribution line below as required by pipeline*
*Source: IMF, Box 3. Recent Cases of Bank Distress (excerpts from 1deuea2022008).*

### introduction of an EDIS.

### introduction of an EDIS.

### Deposit guarantee schemes (DGS) and institutional protection schemes (IPS): coverage and systemic implications
- The broad coverage of the schemes poses potential systemic risks; the authorities should review the systemic implications of maintaining near-universal protection for depositors and develop an overall strategy for DGS/IPS reform.
- High levels of protection may have significant effects on:
  - moral hazard;
  - bank funding costs;
  - allocation of financial assets between deposits and other instruments;
  - behavior and risk appetite of new entrants to the German market.
- The authorities’ current work focuses mainly on supervisory and oversight responsibilities for parts of the system, rather than its overall impact.
- The private sector voluntary DGS does not provide depositors with any legal right to compensation, and IPS members similarly have no right to financial support.
  - Neither the voluntary private DGS nor the IPSs provide a legal commitment to support or compensation above €100,000.
  - Voluntary DGS compensation could, in principle, not be paid in specific cases, and IPSs could allow members to fail without providing any financial support.
- The schemes, in their public communications and descriptions of past behaviour, stress the reliability of their support; depositor behavior is likely to assume support will always be provided.
  - If, in an individual case, a scheme did not provide support, this could jeopardize depositor confidence across all members of the scheme.
  - The lack of legal commitment also makes it unclear to what extent costs of resolution could be shared with the scheme in the event resolution of a scheme member is required.
- Recommendation: Review requiring stronger legal commitments from the schemes.

### Institutional form and governance
- As an interim measure, loss-sharing and liquidity provision arrangements could be adopted between the three pillars within Germany.
- Establishing the DGS as a public body would:
  - facilitate these changes; and
  - ameliorate conflicts of interest arising from the involvement of active bankers in the DGS’s governance.

### Emergency Liquidity Assistance (ELA): mandate, practice, and operational preparedness
- The BBk may decide to grant ELA, subject to non-objection of the ECB Governing Council.
  - Decisions on ELA are taken by the BBk, which also bears their credit risk.
  - Non-objection of the ECB Governing Council is required for larger ELA operations.
- In order to obtain non-objection, ELA provided by the BBk should meet requirements set out in the ELA agreement.
- In line with the ELA agreement, the BBk would provide ELA only to solvent institutions, defined as meeting all Pillar 1 capital requirements (or being credibly able to restore compliance within a 24-week window).
  - This assessment could be extended to include a more forward-looking assessment of bank viability (building, for example, on supervisory assessments of business models) and restoration of compliance with capital buffers.
- Although the BBk has not provided ELA since the end of the Global Financial Crisis, it has considerable experience adapting to a changing Eurosystem collateral framework and other terms for monetary policy lending.
  - The wide range of monetary policy operations adopted by the Eurosystem over the last decade helps to mitigate the lack of recent operational experience of granting ELA, as many operational, legal, and technical requirements are similar, and all major German banks are monetary policy counterparties.
- Banks that have been subject to resolution are not excluded from ELA.
  - Given resolution is designed to ensure the restoration of solvency, BaFin—as the NRA—should ensure it liaises with the BBk to confirm any bank post-resolution meets the solvency requirements.
- Nonbank financial institutions could also receive ELA; the BBk should define internal standards for lending to CCPs in particular.
  - At present, German CCPs are authorized as credit institutions according to the Kreditwesengesetz (German Banking Act).
  - The one major CCP is additionally authorized as a credit institution according to the CRR.
  - Decisions regarding provision of ELA to CCPs would follow, in principle, the same process applicable to any other relevant credit institutions, or financial institutions, in the event of uncovered liquidity needs.
  - Specific planning for CCP ELA would help to future-proof this, given that German CCPs are growing in scale following Brexit, and ensure the BBk is prepared to manage the types of liquidity needs and collateral likely to be sought by CCPs.
- Given the lack of recent operational experience of ELA for both the BBk and German banks, the BBk should test its operational arrangements for ELA with the industry.
  - This would help identify gaps in banks’ ability to provide information on solvency, collateral availability, transfer of non-standard collateral, despite the availability of supervisory data, the Security Holdings Statistics, and AnaCredit loan reporting.

### Annex I — Progress on 2016 FSAP Recommendations (selected entries)
- Crisis preparedness
  - Define a coordination mechanism, including the SRB, ECB, and MoF in a system-wide crisis.
    - Responsible: German authorities/SRB/ECB
    - Status: For coordination within Germany, see discussion in ¶24–25 in main text. For ECB/SRB coordination, see Euro Area FSAP.
  - Develop contingency plans for a systemic wide crisis and test plans via a simulation exercise.
    - Responsible: German authorities/SRB
    - Status: Implemented. See ¶21/33 above.
  - Streamline and simplify SSM decision-making procedures.
    - Responsible: German authorities/SSM
    - Status: See Euro Area FSAP.
- Resolution planning
  - Deepen planning to ensure temporary liquidity funding needed to support the orderly resolution of banks (i.e., private funds and public backstops).
    - Responsible: German authorities
    - Status: Partially implemented. See discussion of SRF in ¶37 above, ELA in resolution cases in ¶51, and DGS/IPS funding in ¶43.
  - Continue efforts to identify and remedy operational impediments to expeditious implementation of resolution tools, and ensure ability to maintain control during this implementation period.
    - Responsible: German authorities
    - Status: Implemented. See discussion on resolution tools in ¶34–35 in main text.
- Resolution funding
  - Lead EU-level discussion to establish a common permanent backstop for SRF.
    - Responsible: German authorities/SRM
    - Status: Implemented. See discussion of SRF in ¶37 in main text.

### Annex II — Financial Soundness Indicators for Banks, 2015–2020 (selected statistics)
- Capital adequacy: Regulatory capital to risk-weighted assets
  - 2015: 18.3
  - 2016: 18.8
  - 2017: 19.4
  - 2018: 18.9
  - 2019: 18.6
  - 2020: 19.2
- Regulatory Tier I capital to risk-weighted assets
  - 2015: 15.7
  - 2016: 16.3
  - 2017: 16.9
  - 2018: 16.6
  - 2019: 16.5
  - 2020: 17.2
- Asset composition: Loan to households (sectoral distribution of loans to total loans)
  - 2015: 29.0
  - 2016: 28.5
  - 2017: 28.6
  - 2018: 29.1
  - 2019: 29.5
  - 2020: 28.4
- Nonperforming loans (NPLs) to gross loans
  - 2015: 2.0
  - 2016: 1.7
  - 2017: 1.5
  - 2018: 1.2
  - 2019: 1.1
  - 2020: 1.7
- Liquidity: Liquid assets to total short-term liabilities
  - 2015: 146.5
  - 2016: 146.6
  - 2017: 151.3
  - 2018: 151.7
  - 2019: 161.2
  - 2020: 169.6
- Sensitivity to market risk: Net open positions in FX to capital
  - 2015: 4.6
  - 2016: 4.0
  - 2017: 3.7
  - 2018: 3.2
  - 2019: 3.7
  - 2020: 3.4

*Source: introduction of an EDIS. (IMF country report content provided in the source PDF.)*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1deuea2022008.pdf_