Since the beginning of 2011, creditors of and investors in German banks have faced a radically changed restructuring regime, whose impact on investor recoveries in a crisis may be significant. While at first glance the new framework seems to introduce proceedings similar to a U.S. Chapter 11 reorganization or English Scheme of Arrangement that look somewhat familiar and predictable to foreign investors, the most important and dangerous change to investors are the largely extended powers of the German banking and capital markets supervisory authority (BaFin) to cause overnight transfers of banks to bridge bank entities with potentially disastrous results to bank investors. This paper summarizes the most important aspects of the new regime and points to some of the risks that investors may face in the future.
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