Specialist principle comes under scrutiny

HypoVereinsbank’s decision to combine its mortgage banks under one roof has revived the long-running debate about the validity of the specialist bank principle – the foundation of Germany’s system of mortgage banks. They can issue Pfandbriefe by virtue of being restricted to low-risk lending activities to the public sector and lending against property.

This system has guaranteed 100 years of top-quality, non-defaulting Pfandbriefe, but it is not flawless. Apart from the public law Landesbanken – owned by the states of the German federation – which also have issuing rights, there are so called mixed banks.