A blind bailout

Author: | Published: 1 Dec 2008

At the end of September and in the early days of October, the German government decided to guarantee all private customer deposits with banking institutions for an unlimited amount and started work on a stabilisation programme.

The programme came into force on October 18 2008 under the Financial Market Stabilisation Act (Act), the Act on the Formation of a Financial Market Stabilisation Fund and the Act on the Acceleration and Simplification for Acquisitions by the Fund of Equity in and Risk Positions of Financial Institutions (Acceleration Act).

The objective of the Act is to overcome the tight liquidity of financial institutions and to improve their equity. Under the Act, through a state-owned fund, the Sonderfond Finanzmarktstabilisierung (Fund), the government will:

guarantee financing obligations of financial institutions incurred between October 18 2008 and December 31 2009 and with a term of up to 36 months; take equity or similar stakes in financial...