German lawmakers are set to pass a law shifting more responsibility to banks in managing shocks to the financial system and setting caps on bonuses for executives of lenders bailed out by the taxpayer.
The legislation, more than a year in the drafting, is aimed at replacing the government’s 480 billion-euro ($665 billion) bank-rescue fund with money from banks. The law includes updated insolvency rules, limits to bonus payments at banks including Commerzbank AG and Hypo Real Estate Holding AG as well as a framework for Germany to sell its stakes in those lenders. The government has a lower-house majority that ensures the law will pass in a vote scheduled for about 8 p.m. today.
The bill marks a shift from state-backed crisis-management to preventative measures funded by banks, prompting lenders to complain about the costs they will have to shoulder. Opposition parties say the government hasn’t done enough to shield taxpayers from having to bail out distressed banks deemed to be “systemically relevant.”
“This bill is not a milestone but a missed opportunity,” Gerhard Schick, parliamentary finance spokesman for the opposition Greens, said in an interview. “The new fund is woefully underfinanced, plus the banks have carte blanche to ramp up bonus pay the minute the government pulls out of its rescue stakes.”
The bill bars the four lenders in which the government bought stakes since 2008 -- Commerzbank, Hypo Real, Aareal Bank AG and WestLB AG -- from paying any staff member more than 500,000 euros annually, whatever the composition of the pay. The pay threshold can be exceeded by any bank that returns at least half of the government’s rescue aid, the bill shows.
Smaller Than Soffin
The bill also limits the new bank fund to 70 billion euros, about a seventh of the existing Soffin fund. Private lenders will contribute a total of about 1.3 billion euros annually, according to the Finance Ministry. That means it might take more than 50 years to reach full capacity.
Germany’s private banks have campaigned to push down payments into the fund, saying this week in a BDB federation statement that they have “reached their limit” in paying for regulations introduced by Merkel’s government.
As of Oct. 19, Soffin put up 221.1 billion euros in bank guarantees and purchases of stakes. It failed to a show a profit on the investment in 2009.
The U.S. government’s bailout of financial companies through the Troubled Asset Relief Program has earned $25.2 billion on its investment of $309 billion in banks and insurance companies, an 8.2 percent return over two years, according to data compiled by Bloomberg.