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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.

       
Otto Dichtl

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.


Deutsche Hypo and HypoVereinsbank have universal banking licences, and yet can also issue Pfandbriefe. Exceptions to the mortgage bank act were made for the banks that issued Pfandbriefe before the inception of the law in 1900. Depfa is another exception. It came to have quasi-mixed status with its privatization in 1990, because one of its subsidiaries, the Bauboden AG that was transferred to Depfa in 1979, is a commercial bank.



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