Understand and utilize regulatory requirements as an opportunity
The German word for the EAA, “Abwicklungsanstalt”, sounds like a government agency. And in fact, the EAA is indeed a part of the German government’s efforts to stabilize the financial market. As a public law entity it is subject to special regulations and supervisory requirements. That is a special challenge for a commercially-oriented institution, but simultaneously an indispensable building block for the success of the model.
The EAA has been successful on the international financial markets not in spite of, but rather precisely because of its status as a public law entity.
The bad bank concept is nothing new for international negotiation partners. But initially, the status of a public law winding-up agency was something unaccustomed. As a result, the EAA has spent the last several years working to convince the markets and demonstrate its sustained professional expertise. Governmental supervision and equity guarantees as well the duties of the liable public stakeholders to offset losses demonstrate the security and reliability of the EAA. And indeed, it benefits from them.
Compared with other financial institutions, the EAA has more supervisory bodies and additional reporting obligations. This helps to safeguard the public interest.
The EAA is controlled not just by external auditors, the German Federal Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) and the Deutsche Bundesbank (German central bank). The German Federal Agency for Financial Market Stabilisation (Bundesanstalt für Finanzmarktstabilisierung - FMSA) supervises it, too. The German Federal Audit Office (Bundesrechnungshof) audits the management of the EAA, while NRW’s State Audit Office (Landesrechnngshof) audits its budgetary and commercial management. In addition, the EAA’s Managing Board reports to the responsible committees in the German Federal Parliament (Bundestag) and NRW’s State Parliament (Landtag) as well as to the governing bodies of the liable stakeholders. This degree of supervision is time consuming, to be sure, but it also means that strategic business decisions are subject to additional external reviews.
Successful financial institutions implement supervisory requirements efficiently. Today the EAA is a centre of excellence for regulatory process security.
Based on the experiences in the financial crisis, business processes have become more strongly regulated and controlled at both a national and international level. And this trend is growing unabated. All financial institutions must be prepared to quickly and completely meet increasing demands. Anyone who can implement regulatory-compliant processes in a streamlined and efficient manner has a competitive advantage. In recent years the EAA as a winding-up agency has steadily developed into a centre of excellence in this area.