Das Bilanzproblem der Banken – Ein Lösungsvorschlag / The bank‘s balance sheet problems: a proposal for a solution

In this paper, we propose a method for a bail-out of the banking system without expenses to the taxpayer. This is done by applying an instrument that has been twice proven to work successful. On two occasions, after the end of the Third Reich in World War II and after German Reunification in 1990, so called “Ausgleichsforderungen” (compensation bonds) were assigned to banks because the turmoil of war and peaceful revolution respectively had rendered worthless a great part of banks’ assets. These compensation bonds were designed to agree the balance after an asymmetric conversion of outstanding accounts and liabilities during currency reform, which would have left most financial institutions in a state of over-indebtedness. These bonds were none fungible, bore interest and were in the course of time slowly redeemed by the German government. Contrary to this past approach, we suggest that in the current crisis the toxic assets should be exchanged by zero bonds rather than by interest bearing bonds. The key idea is to spread the hidden balance risks over time and thus, ultimately, make the banks themselves pay for the costs without forcing them into crisis induced insolvency. As will be outlined, this course of action is from an ordoliberal point of view superior to existing solution. Not only will zero bonds save taxpayer`s money, but also uphold the market principle of liability for one’s actions, thereby avoiding to set incentives for inefficient risk-prone behavior during the next bubble.