Municipal funds not secured: Greensill is probably worth billions of euros

Friday, March 5th, 2021

Municipal funds not secured
At Greensill there are probably billions of euros

Around 3.6 billion euros in deposits are said to be in the heavily lurching Greensill Bank in Bremen. Private investors are well protected, but this does not apply to municipalities – Osnabrück, for example, fears 14 million. The Greens blame the Bafin, who is still nibbling on the Wirecard scandal.

At Bremer Greensill Bank AG, which got into severe turbulence, there are around 3.6 billion euros in deposits in the fire, according to information from financial circles. Of this, around 3.1 billion euros are secured by the statutory deposit protection scheme and the deposit protection fund of the Association of German Banks (BdB). This is especially true for the funds of private customers. For municipalities and certain investment firms, among others, the protection no longer applies since 2017.

Before investors are compensated, the financial regulator Bafin would have to determine the bankruptcy of the bank and the compensation event. The supervisor has up to six weeks for this test. The Bafin had closed the Bremen subsidiary of the British-Australian financial conglomerate Greensill this week due to the threat of over-indebtedness for customer traffic. During a special audit it was found that the institute was not in a position to "provide evidence of the existence of accounts receivable that it had purchased from the GFG Alliance Group". According to reports, it is about the accusation of falsification of accounts.

Accusations against the financial supervisory authority Bafin are loud from the Green parliamentary group. "After the Wirecard scandal, the financial supervisory authority is in the process of sweeping up the pieces, the next scandal is coming – and again the Bafin is not doing a good figure," said financial politician Lisa Paus in Berlin. The Greensill Bank case fits seamlessly into the "long list" of supervisory failures of recent years.

Greensill becomes a topic on the finance committee

The imbalance is also putting municipalities under considerable pressure. They fear the failure of the money invested in the bank. Bafin emphasized that it had worked closely with the Federal Association of German Banks and the Auditing Association of German Banks (PdB) in the review of Greensill Bank. The PdB's examination showed a concentration risk at the bank, but no evidence of fraud or other criminal acts. In parallel to the auditing association's approach, Bafin carried out its own investigations in the first half of 2020, initiated a special audit and adopted its own measures. According to the information, this included a deposit ban, a loan ban and the appointment of special representatives.

The banking association BdB, which represents private institutes, said it had already given the Bafin its first reports at the beginning of 2020. Last summer there were reportedly further indications that the banking supervisors at Bremer Bank should take a closer look. A few weeks ago, the Bafin sent a special representative to the bank.

The Bafin let the bank do it, although there were already serious indications of possible inconsistencies, criticized Paus. The Greens had put the case on the agenda of the finance committee. "The fact that German private banks are now likely to have to pay for losses in the billions through deposit insurance means additional stress in an already tense situation. All reasons to lean over the case in the next finance committee," said Paus. The Bundestag Finance Committee will meet again on March 24th.

"The complete failure threatens"

In times of zero and negative interest rates, Greensill Bank offered overnight and fixed-term deposits at unusually high savings rates. Municipalities also took advantage of this. The 44,000-inhabitant city of Monheim am Rhein, which is financially sound as a kind of trade tax oasis and has been viewed critically by other municipalities for a long time, claims to have invested 38 million euros in the money house.

Mayor Daniel Zimmermann from the locally active Peto party had initiated a special audit and said: "It could be that the total loss of the invested money threatens." According to their guidelines, Monheim may only invest money with banks that are deposit-protected, i.e. protected against failure. The local politician pointed out that the protective framework of the deposit protection fund had been reduced some time ago and local authorities had dropped out in 2017: "In order to avoid negative interest rates, the city had in some cases still invested money in private banks."

Osnabrück also fears 14 million euros. The city invested 11.5 million euros in November due to the good rating at Greensill, said the city's chief financial officer, Thomas Fillep. There were also two other smaller investments. Fillep also criticized the Bafin: "A note to the municipalities, for example via the municipal umbrella organizations, would have been enough that we would not have done any more business with this bank at first." The city now wants to examine legal steps, including against financial advisors to the municipality.

If the supervisory authority establishes the event of compensation, the deposit protection fund of the private banks steps in for funds from private individuals. In addition to the statutory deposit guarantee, private banks have filled another pot on a voluntary basis. Since October 1, 2017, however, the federal, state and local governments as well as certain investment firms no longer benefit from this voluntary deposit protection offered by private institutions.

"Rely on test organs"

The inexpensive investments were also advertised on portals such as "Weltsparen" or "Zinspilot". The interest portals now defended the brokerage of savings deposits at Greensill Bank. The Berlin finance company Raisin, which is behind the "Weltsparen" portal, announced that they only work with licensed institutes that are subject to the respective banking supervision and, in some cases, other control bodies. "As a platform, we cannot and must not do more than the supervisory authorities, rating companies and auditors can do," said a spokeswoman. "We are relying on auditors who had not taken any sanctions in the case of Greensill Bank by the beginning of the week," it said.

"Deposits are an extremely safe form of investment," emphasized the Hamburg company Deposit Solutions, which operates the "Zinspilot" and "Savedo" portals. Deposit Solutions only cooperates with banks that have a license to collect private customer deposits and whose customer deposits are protected by statutory deposit insurance. The collaboration with Greensill has meanwhile ended.

The banking association BdB and consumer advocates have already reassured private investors in the Greensill case: Savings of up to 100,000 euros per customer are protected by the EU's statutory deposit insurance. The rescue fund of the private banks, which according to BdB at Greensill covers up to almost 75 million euros per customer, is even more extensive.