In the public interest
The EAA is a public law institution that operates on the international markets in a structurally and financially independent manner. It plans and organises the portfolio wind-up based on commercial principles so that any potential losses will not be borne by its liable stakeholders: the German State of North Rhine-Westphalia and the North Rhine-Westphalian Associations of Giro and Savings Banks. One objective is to avoid the need to utilise their duty to offset losses. This is an achievable goal from today’s perspective – precisely because of the unique model of a winding-up agency.
The EAA can plan strategically and optimise its opportunities in the long term
A winding-up agency focuses its skills and resources on reducing the portfolio. When doing so, it targets value preservation, not profit maximisation, and orients itself towards the long-term success of all wind-up measures, not just on gains in the short term. This makes it possible for the EAA to operate with the long-term perspective in mind and minimise risks, thus boosting the chances of success.
In particular, the option to wait pays off when markets are volatile
The EAA is not a credit, financial or investment services institution in the legal sense. Its accounting is based on German commercial law and it is not subject to Germany’s laws for minimum capital requirements. The EAA is not forced to sell its exposures at any price. It is therefore less exposed to market fluctuations and can instead wait for better conditions. The EAA’s staying power is thus an advantage for taxpayers.
The EAA can obtain affordable funding
Even though the objective is not to utilise the public sector’s obligation to offset losses, this duty still benefits the EAA. The winding-up agency is protected against insolvency as a result; its rating is currently derived from the German State of North Rhine-Westphalia (NRW). This provides the EAA with affordable funding to refinance the assets in its portfolio and to manage its operations in a robust and independent manner.
Public supervision guarantees transparency
The structure of the supervisory and control system at the EAA is similar to that of a corporation. But as a tool of financial market stabilisation, it has an additional, public-sector level of supervision. The German Federal Agency for Financial Market Stabilisation (Bundesanstalt für Finanzmarktstabilisierung – FMSA), the governmental supervisor, continuously monitors the overall wind-up planning and how it is being implemented. Internal and external audits, also by the governmental audit agencies of both the German federal and state governments, help to ensure that the EAA reliably fulfils the taxpayers’ mandate.