Table of Contents

Financial Crisis Containment and Government Guarantees

Financial Crisis Containment and Government Guarantees

Edited by John Raymond LaBrosse, Rodrigo Olivares-Caminal and Dalvinder Singh

Financial Crisis Containment and Government Guarantees analyses the international community’s commitment to forging enhanced, well thought-out, mechanisms for containing systemic risks in the context of a highly interconnected global financial framework which incorporates ongoing financial innovation.

Chapter 7: The Federal Agency for Financial Market Stabilisation: From rescuing to restructuring

Christopher Pleister

Subjects: economics and finance, financial economics and regulation, money and banking, law - academic, finance and banking law

Extract

The financial market crisis worsened steadily after summer 2007. Distressed banks, rattled investors, the real economy’s need for fresh capital and central banks’ attempts to address the most severe liquidity needs led to a bundle of problems which seemed to be spiralling out of control. All developed economies were affected, albeit to varying degrees. The effects of the fall of the US investment bank Lehman Brothers were particularly dramatic for Germany. The order of the day was to act as fast as possible because survival of the German banking sector was at stake. A key element of the response to the crisis in Germany was to establish a new institution, in order to supplement the range of tasks already performed by the Deutsche Bundesbank and the Bundesanstalt für Finanzdienstleistungsaufsicht (Germany’s Federal Financial Supervisory Authority, hereinafter BaFin). Neither prudential instruments nor German insolvency laws were adequate for rescuing German banks that had got into difficulty. The government needed to take action: it set up the Bundesanstalt für Finanzmarktstabilisierung (Financial Market Stabilisation Agency, hereinafter FMSA), originally to function as a temporary institution.

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