There is something to be said for having a large and loyal domestic investor base. Throughout the crisis, German institutions have benefited from this. So although the wider credit market might view German banks generally as too risky a proposition to lend to without a guarantee, domestic support has allowed them to sell billions of euros-worth of Pfandbriefe.
All this is remarkable because in recent weeks there have been lurid reports that the true nature of the German banks’ bad debts is in excess of €800 billion – a figure that dwarfs those attributed to the much-maligned UK banking sector.
It seems unlikely that the numbers are accurate. They were leaked from a confidential BaFin report and refer, it seems, to the widest possible range of assets up for consideration for inclusion in Frankfurt’s bad bank proposal.
Yet the gap between the number included in the leaked BaFin document and the size of the subsequent bad bank proposal (€200 million) gives weight to those who accuse Germany of enthusiastically pursuing regulatory forbearance.
In essence the scheme provides a mechanism for German banks to voluntarily shift structured credit assets off their books, into a special purpose vehicle, at a 10% discount to where they were marked at the end of March.