Germany has approved its draft bill that aims to help banks transfer structured securities, such as ABS and CDOs, to a government-backed unit on a voluntary basis.
The government plan would allow private banks to offload troubled assets to a special-purpose vehicle, with a 10% reduction in their booking value. In return, the banks will receive a government-guaranteed bond amounting to the transfer value of those assets.
The plan mainly focuses on commercial banks, which can transfer toxic securities acquired before Jan. 1, to this special-purpose vehicle. Banks will have to pay a risk-adequate guarantee fee to the government-owned financial market stability fund, or SoFFin, which guarantees the bond, and they will also have to pay an annual fee over a guarantee period of 20 years to the difference between the 90% booking value of the securities and the fundamental value of the assets, which is typically lower than the booking value, according to the draft bill.
The government aims to implement the bill, which requires approval by the lower and upper houses of parliament, before the general elections take place in September.
It is also examining a second model that might eventually supplement the special-vehicle unit model for commercial banks by helping Landesbanken restructure by transferring troubled assets and non-strategic assets to an institution, with the former owners still liable for the risks stemming from these assets. However, the government has said that this plan will be complicated and will need time to be finalized.