A German court declared on Tuesday that a small bank linked to a collapsing British financial company was insolvent, generating losses for dozens of small German cities.
Greensill Bank AG was declared insolvent by a local court, leaving cities as creditors who are likely to suffer losses. Around Germany, at least 12 cities with a total of € 200 million, equivalent to about $ 238 million, in deposits are in the same situation. Individual depositors are covered by insurance.
Among them is Mengen, a small municipality in southwest Germany. Like most cities that put money in the bank, Mengen was trying to avoid the small losses that come with negative interest rates.
Greensill Bank of Bremen, formerly known as NordFinanz Bank AG, was acquired in 2014 by Greensill Capital, which filed for insolvency on 8 March. The bank offered slightly positive interest rates, outpacing the negative rates offered by an increasing number of German banks.
Mengen Mayor Stefan Bubeck said the city was not trying to get a high interest rate, just to avoid negative rates. The city “did not want our deposit to go down,” he said. Bubeck fears that most of the money invested will be lost. “We are shocked.”