Document Type

Case Study


The insolvency of Lehman Brothers in September 2008 and the subsequent global liquidity crisis spurred the German state to pass the Financial Market Stabilization Fund Act (Finanzmarktstabilisierungsfondsgesetz, “FMStFG”) establishing the Federal Agency for Financial Market Supervision (Bundesanstalt für Finanzmarktstabilisierung), or FMSA. Created in October 2008, it provided government support to ailing financial institutions. The FMSA supported German banks and maintained the stability of the German banking system, in part by establishing the Financial Market Stabilization Fund (Sonderfunds Finanzmarktstabilisierung), or SoFFin. SoFFin could provide capital injections and risk shield measures of €80 billion and also possessed a guarantee provision of up to €400 billion. The actual recapitalizations peaked at €29.4 billion in late 2010. Capital injections rescued overcapitalized banks and assisted in the government takeover of and restructuring of HRE Gruppe. SoFFin was supposed to accept applications until late 2009, but this was extended several times until 2010. SoFFin was later reopened in 2012, finally closing in 2015. Germany has since passed a Restructuring Act that acts as a framework for winding up banks that are “too big to fail,” making systemic risk support operations a permanent pillar of German banking regulations. Though this law facilitates the resolution of systemically relevant banks, it does not sufficiently clarify interagency coordination, nor does it establish a resolution for other systemically important nonbank financial institutions. As of the end of 2018, SoFFin has €14.6 billion outstanding from capital injections.