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Liko-Bank – Europe’s last resort?

Few people expect a large bank to carry enough capital to meet every conceivable financial and operational catastrophe - except perhaps Daniel Zuberbühler, director of the Swiss Federal Banking Commission. In recognition of this, regulators and bankers are wrestling with the question of who should provide liquidity if a "too-big-to-fail" bank gets into trouble and threatens dislocation of the financial system?

The possible choices are: central banks as lenders of last resort; insurance; or mutual insurance by banks themselves.

Some Germans believe they have a model that combines the first and the last of these. In 1974, after the Herstatt crisis which dislocated international currency markets and threatened bank liquidity in Germany, the Germans set up their own Liquiditäts-Konsortialbank - Liko-Bank for short.

It is owned 30% by the Bundesbank and 70% by individual members of the various German bank associations. It has capital and reserves of e224 million with total callable liquidity of e1.7 billion. Its single board includes representatives from the bank associations and the Bundesbank, including Bundesbank president Ernst Welteke, and Commerzbank chairman Martin Kohlhaussen. It has a credit committee headed by Kohlhaussen, which includes Bernd Thiemann, head of DG Bank and Bundesbank director Helmut Schieber.

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