Media reports in recent days suggest that Bremen-based Greensill Bank AG could be in acute distress. The bank is a subsidiary of the British-Australian group Greensill Capital, which specialises in supply chain finance. The group had to file for bankruptcy protection in Australia this week after Crédit Suisse and Swiss asset manager GAM stopped important financing due to concerns about Greensill’s financial situation. A particular point of concern are the high liabilities to the British-Indian steel entrepreneur Sanjeev Gupta.
In 2017, Greensill Capital took over the former NordFinanz Bank in Bremen and renamed it Greensill Bank. Subsequently, total assets grew rapidly from 665 million euros in 2018 to 3.8 billion euros in 2019. Around one third of the 3.2 billion euros in customer deposits were acquired via comparison websites such as Weltsparen or Zinspilot, which broker term deposits across Europe. Greensill Bank attracted its customers with unusually high interest rates and the protection of funds by the deposit guarantee scheme of the Association of German Banks. For some time now, the German bank supervisor BaFin has installed a special representative at Greensill Bank to oversee the bank’s daily business. According to media reports, BaFin is currently considering imposing a moratorium that would temporarily prohibit the bank from withdrawing funds.
MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group commented:
“The case of Greensill Bank once again shows how important it is to rigorously connect risk and liability in deposit insurance. The bank offered investors unusually high interest rates in recent years. It was able to attract large deposits via comparison websites within a short period of time. In principle, more cross-border comparisons of offers from banks in the Eurozone are welcome. But the central marketing argument was the deposit guarantee. Some ten thousand customers lent money to the bank without caring about its risk profile.
This can only work if banks’ contributions to the guarantee schemes are strictly proportional to the risk of their business models. We Greens have been calling for this for years, not only for deposit insurance but also for the bank resolution fund. We have been successful in anchoring the principle of risk proportionality in EU law. However, the EU Commission and the EU bank resolution authority have not sufficiently anchored this principle in the fine print. As a result, conservative institutions often subsidise their risky competitors. Today’s comparison websites make it particularly easy for risky institutions to exploit these perverse incentives.
In the United States, the big investment banks have to pay their fair share for deposit insurance. Unfortunately, the European rules on deposit insurance and the national implementations are not strict enough. As a result, a real weighting of risks often does not happen. In the upcoming revision of the European framework and the discussions on the introduction of a European deposit guarantee scheme this year, improvements must be made. A common deposit insurance in a true banking union can only work if risk and liability are linked without exceptions.”
Report in the Handelsblatt:
Report in the Financial Times:
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