Unpredictable Future - The Hold-Up Over banking levy's Exit Legislation and Restructuring Funds
By Mathias Hanten and Moritz Maier *
Controversy Regarding Funds - Deciding the Recipient of Remaining National Bank Taxes
The recent political shift has left a legislative vacuum - with the traffic light government's exit, a multitude of financial legislative projects hang in the balance, none more pressing than the handling of the remaining funds from the original national banking levy. This levy, in place from 2011 to 2014, required banks to pay a portion into the Restructuring Fund (RSF), a federal government asset.
After the establishment of the Single Resolution Fund (SRF) as a European solution in 2016 and the transfer of a high security sum from the RSF to the SRF, the remaining balance of the RSF today amounts to a substantial 2.3 billion euros. However, this funds' purpose now appears dubious, as it lacks a clear direction or destination.
So, what next? The question has taken on a new urgency, given the constitutional limits on the levy's usage. The collected funds were intended for group-specific purposes, and the European SRF has already received an influx of 78 billion euros - more than enough to fulfill the original purpose.
Negotiating the RSF's Final Act
The usual suspects - banks and BaFin, the administrator of the RSF - have commenced a standoff, with numerous credit institutions seeking repayment of their RSF contributions. The draft Restructuring Fund Transfer Act (RStruktFüG), proposed to address this demand by transferring the RSF residue to the Financial Market Stabilization Fund (SoFFin) for debt reduction, has been met with resistance. Critics contend that repayment is within BaFin's discretion, while proponents argue that the purpose of the special levy has been satisfied.
Stranded in Limbo
Despite the impending legal regulation promised in the draft bill, some credit institutions have taken matters into their own hands, launching administrative lawsuits against BaFin to force a decision. The current stalemate leaves the question of the RSF residue's handling unresolved, with the trajectory of future legislation uncertain.
The Shifting Baseline
With the traffic light coalition's departure, the passage of the RStruktFüG in this legislative period seems unlikely. In turn, the question of how and when a new Bundestag can regulate the RSF's funds remains unanswered.
Legal Scholars' Take
In March 2022, the legal scholar team Milutinovic/Reimer of Heidelberg University provided a legal opinion under the aegis of Christian Lindner. The opinion advocates against a repayment claim by the banks, but also rejects a return of the RSF residue to the federal budget. The opinion sides with the transfer to the SoFFin, echoing the solution recommended in the RStruktFüG.
Alternative Perspectives
However, the legal dogmatics underpinning the claim for reimbursement by the banks is open to challenge. Some argue that the law of civil society could be applied to the same effect, given the banks' common purpose and the termination of that purpose. Such an approach raises questions about the distribution of the remaining assets, as governed by Section 734 of the German Civil Code, particularly in the absence of alternative regulations.
Regulation the RSF's Fate from the Outset
The intricate legal situation regarding the RSF's remaining funds underscores the need for legislation. Unfortunately, the political climate makes individual answers less predictable than in the past. In the face of this uncertainty, the application of existing law turns crucial, while one can always hope for the creative interpretations of the German administrative courts.
Moreover, the situation highlights the significance of outlining the fate of residual funds from special levies at the outset, rather than relying on ad hoc decisions. In light of the shuttered door that is the traffic light coalition, future legislators might do well to heed this lesson.
*Dr. Mathias Hanten is a partner at Deloitte Legal. Dr. Moritz Maier is a counsel at the firm.
Enrichment Data:
- In a broader EU banking context, regulations such as the Bank Recovery and Resolution Directive (BRRD) and Minimum Requirement for Own Funds and Eligible Liabilities (MREL) set standards on loss absorption and recapitalization in bank resolution, influencing fund usage.
- Potential solutions to fund allocation post-resolution often involve clear statutory frameworks, transparency, and stakeholder engagement to decide on reimbursements, reinvestments, or redistribution of residual funds, balancing creditor rights, public interest, and market competitiveness.
- The fate of residuals from occasion-specific special levies should be regulated in the ordinance law from the start, ensuring clarity and fairness in handling remaining funds.
- The ongoing standoff between banks and BaFin, accompanied by the administrative lawsuits filed by some credit institutions, highlights the need for a clear resolution regarding the distribution of the Restructuring Fund's (RSF) remaining 2.3 billion euros in the business and finance sector.
- In light of the political uncertainties, it is crucial for future legislation to address the purpose and destination of the RSF's residue, taking into account the European banking regulations such as the Bank Recovery and Resolution Directive (BRRD) and Minimum Requirement for Own Funds and Eligible Liabilities (MREL), to ensure fairness, transparency, and market competitiveness.
