LiKo-Bank's purpose was to provide liquidity to solvent banks that found themselves in situations of liquidity stress, in order to support stability to the domestic and international payments system.^[1]^: 8 The liquidity was provided by buying high-quality claims held by the bank that would not be eligible as collateral for central bank liquidity, in exchange for central bank-eligible bills of exchange.^{[citation needed]} The LiKo-Bank had access to a rediscount line at the Bundesbank of up to 1.1 billion Deutsche Mark.^[1]^: 15

The Bundesbank held 30 percent of the LiKo-Bank's capital, with the rest owned by the three main German banking associations (BdB, BVR and DSGV) and specialized financial institutions.^[2] The bank's supervisory board included the President of the Bundesbank and representatives from the German banking associations.^[3] Its co-managers (German: Geschäftsführer) were the co-managers of AKA Ausfuhrkredit [de], a private-sector export credit institution which managed all of the LiKo-Bank's operations.^[2]^[4]^: 70

In practice, the LiKo-Bank acted as lender of last resort for the German banking sector, a role that was not part of the Bundesbank's mandate. This arrangement was unique to Germany.^[5] The establishment of the European Central Bank with a capacity of its own for liquidity provision made the LiKo-Bank practically redundant.^[2]

During the bank's existence, only nine applications for liquidity support were submitted, of which only four were approved, the last in 1985.^[6]

On 4 April 2014, the LiKo-Bank's shareholders unanimously approved to start a liquidation process on 31 July 2014. That process was substantially completed in December 2015 as shareholders were reimbursed of their residual interest in the LiKo-Bank's capital, including €38 million for the Bundesbank.^[7]^: 85

Overview

See also

References