The Liquidity Consortium Bank (, also known as LiKo-Bank) was a specialized financial institution in

Germany Germany, officially the Federal Republic of Germany, is a country in Central Europe. It lies between the Baltic Sea and the North Sea to the north and the Alps to the south. Its sixteen States of Germany, constituent states have a total popu ...

. It was established in 1974 at the initiative of the

Deutsche Bundesbank The Deutsche Bundesbank (, , colloquially Buba, sometimes alternatively abbreviated as BBk or DBB) is the National central bank (Eurosystem), national central bank for Germany within the Eurosystem. It was the German central bank from 1957 to 19 ...

following the collapse of

Herstatt Bank Herstatt Bank (Bankhaus I.D. Herstatt K.G.a.A.) was a privately owned bank in the German city of Cologne. It went bankruptcy, bankrupt on 26 June 1974, an event widely referred to as the Herstatt crisis. Herstatt's failure specifically highlighte ...

. It lost its purpose as a consequence of

European monetary union The economic and monetary union (EMU) of the European Union is a group of policies aimed at converging the economies of member states of the European Union at three stages. There are three stages of the EMU, each of which consists of progress ...

, and was eventually liquidated in 2014-2015.

Overview

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. 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. The LiKo-Bank had access to a rediscount line at the Bundesbank of up to 1.1 billion

Deutsche Mark The Deutsche Mark (; "German mark (currency), mark"), abbreviated "DM" or "D-Mark" (), was the official currency of West Germany from 1948 until 1990 and later of unified Germany from 1990 until the adoption of the euro in 2002. In English, it ...

. 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. The bank's supervisory board included the President of the Bundesbank and representatives from the German banking associations. Its co-managers () were the co-managers of , a private-sector export credit institution which managed all of the LiKo-Bank's operations. In practice, the LiKo-Bank acted as

lender of last resort In public finance, a lender of last resort (LOLR) is a financial entity, generally a central bank, that acts as the provider of liquidity to a financial institution which finds itself unable to obtain sufficient liquidity in the interbank ...

for the German banking sector, a role that was not part of the Bundesbank's mandate. This arrangement was unique to Germany. The establishment of the

European Central Bank The European Central Bank (ECB) is the central component of the Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's Big Four (banking)#International ...

with a capacity of its own for liquidity provision made the LiKo-Bank practically redundant. During the bank's existence, only nine applications for liquidity support were submitted, of which only four were approved, the last in 1985. On , the LiKo-Bank's shareholders unanimously approved to start a liquidation process on . 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.

References

Banks established in 1974 Defunct banks of Germany {{bank-stub

Overview

See also

References