“Verständigung I & II” Agreements
The “Verständigung I” agreement reached between the EU Commission and the Federal Government on July 17, 2001 provides for the legal status of the public-law banks to remain unchanged. Under this agreement, the state guarantees – institutional liability and guarantor liability – were to be abolished after a transitional phase ending on July 18, 2005. The liabilities were then to be modified in a way which would make them similar to the relationship between a private shareholder and a private-law company.
In a subsequent agreement, the so-called “Verständigung II”, dated March 1, 2002, the European Commission and the Federal Government defined special regulations for legally independent development banks engaging in the competition-neutral infrastructure and development business. Under this agreement, institutional liability and guarantor liability will continue to apply to this type of bank, which means that they continue to benefit from excellent funding conditions.
These advantages may be used exclusively for economic and structural development tasks. These tasks were defined in a law with effect from March 31, 2004.
To fulfil these formal requirements for qualification as a “Verständigung II Bank”, the North Rhine-Westphalian Parliament adopted the “Act on the Reorganisation of Landesbank Nordrhein-Westfalen into the Promotional Bank of the State of North Rhine-Westphalia“ (“Reorganisation Act“) in March 2004 in a broad political consensus, giving NRW.BANK the official status of a promotional bank that will continue to benefit from institutional liability and guarantor liability.
Institutional liability (Anstaltslast) and guarantor liability (Gewährträgerhaftung)
Institutional liability is the obligation of the public-law guarantor to secure the financial basis of a bank, to keep it functional and cover any potential financial gaps. Institutional liability is limited neither in amount nor in time. It is considered a general principle of law and makes insolvency virtually impossible for NRW.BANK in an economic sense. (Moreover, insolvency proceedings are made legally impossible for NRW.BANK by Section 17 (2) of the Act on NRW.BANK.)
Guarantor liability is a direct obligation, which is based on a law or ordinance, of a public-law institution (state, municipality, other corporation under public law) towards creditors of a public-law bank for all liabilities of that bank. It obliges the guarantor to step in in case of insolvency or liquidation of the bank. It is not a general principle of law and requires an express legal basis.
Funding
According to Section 4 (3) of the Reorganisation Act, NRW.BANK benefits from an explicit funding guarantee, on the basis of which issues by NRW.BANK have a solvency weighting of “zero”. This means that banks who are creditors of NRW.BANK are no longer required to back their claims on NRW.BANK with liable capital. NRW.BANK will pass the resulting funding advantages on to the recipients of promotional loans in North Rhine-Westphalia.