When the Financial Crisis hit Germany
On the 30 July 2007 the effects of the global financial crisis hit Germany. IKB, a medium-sized bank previously only known to insiders, was caught out.
Most bankers worldwide aswell as in Germany remember July 2007 well. From early that year there was ever more frequent news out of the USA of defaults on home loans. More and more homeowners couldn’t afford the repayments because they earned too little. These poorly secured mortgages, known as „subprime“ in the jargon, were bundled up and hidden in packages of better secured loans. And so they found buyers – all over the globe.
One of the buyers was the IKB Deutsche Industriebank (German Industrial Bank). It plunged into crisis at the end of July 2007 because it had invested in exactly those poorly secured home loans in the USA for years. The IKB bank was the first victim of the financial crisis in Germany. It was bailed out with money from the KfW (the federal development bank), the government and from other banks.
When Deutsche Bank turned off the tap
Axel Weber as head of the German Central Bank at that time was deeply involved in sorting out the crisis. The decision to bail the bank out took place on a weekend, he still remembers well. On 27 July, a friday, Deutsche Bank had cut back additional funds and informed BaFin (Federal Financial Supervisory Authority), the banking regulators. „We only cut back the available funds because the crisis was already apparent“, said Josef Ackermann, the head of Deutsche Bank at that time, against accusations that the bank was responsible for the the near collapse of the IKB.
But that was only the beginning. In the aftermath the Düsseldorf bank WestLB collapsed, other state banks needed to be propped up by their state and the SachsenLB bank was taken over by the state bank of Baden Würtemberg. They had all invested in subprime loans.