Liquidity Consortium Bank

The Liquidity Consortium Bank (German: Liquiditäts-Konsortialbank GmbH, also known as LiKo-Bank) was a specialized financial institution in Germany. It was established in 1974 at the initiative of the Deutsche Bundesbank following the collapse of Herstatt Bank.[1]: 14  It lost its purpose as a consequence of European monetary union, and was eventually liquidated in 2014-2015.

Overview

LiKo-Bank's purpose was to provide liquidity to solvent banks that found themselves in situations of liquidity stress, in order to support stability to the domestic and international payments system.[1]: 8  The liquidity was provided by buying high-quality claims held by the bank that would not be eligible as collateral for central bank liquidity, in exchange for central bank-eligible bills of exchange. The LiKo-Bank had access to a rediscount line at the Bundesbank of up to 1.1 billion Deutsche Mark.[1]: 15 

The Bundesbank held 30 percent of the LiKo-Bank's capital, with the rest owned by the three main German banking associations (BdB, BVR and DSGV) and specialized financial institutions.[2] The bank's supervisory board included the President of the Bundesbank and representatives from the German banking associations.[3] Its co-managers (German: Geschäftsführer) were the co-managers of AKA Ausfuhrkredit, a private-sector export credit institution which managed all of the LiKo-Bank's operations.[2][4]: 70 

In practice, the LiKo-Bank acted as lender of last resort for the German banking sector, a role that was not part of the Bundesbank's mandate. This arrangement was unique to Germany.[5] The establishment of the European Central Bank with a capacity of its own for liquidity provision made the LiKo-Bank practically redundant.[2]

During the bank's existence, only nine applications for liquidity support were submitted, of which only four were approved, the last in 1985.[6]

On 4 April 2014, the LiKo-Bank's shareholders unanimously approved to start a liquidation process on 31 July 2014. That process was substantially completed in December 2015 as shareholders were reimbursed of their residual interest in the LiKo-Bank's capital, including €38 million for the Bundesbank.[7]: 85 

See also

References

  1. ^ a b c Thorsten Beck (February 2001), Deposit Insurance as Private Club: Is Germany a Model?, World Bank
  2. ^ a b c Frank M. Drost (13 April 2010). "Liquiditäts-Konsortialbank : Die nutzlose Rettungsbank". Handelsblatt.
  3. ^ "Liko-Bank – Europe's last resort?". Euromoney. 1 July 2000.
  4. ^ AKA Annual Report 2015 (PDF), AKA Bank
  5. ^ Alessandro Prati & Garry J. Schinasi (December 1998), "Ensuring Financial Stability in the Euro Area", Finance & Development (35:4), International Monetary Fund
  6. ^ Björn Godenrath (5 April 2014). "Gesellschafter beschließen Auflösung der Liko-Bank". Börsen-Zeitung.
  7. ^ Annual Report 2015 (PDF), Deutsche Bundesbank


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