Corporate Governance

Rhineland Funding Structure

By Harvard Law School Program on Corporate Governance

One of the off-balance sheet structures that has caused substantial losses for a European bank is the so-called “Rhineland Funding”. This structure has resulted in substantial losses for the German bank IKB Deutsche Industriebank. The Rhineland Funding conduit had substantial exposure to U.S. subprime mortgages and was unable to issue asset-backed commercial paper (ABCP) against the conduit and, moreover, was unable to obtain lines of credit from Deutsche Bank and other financial institutions to raise financing. As a result, IKB had to step in and provide liquidity to the Rhineland Funding conduit as a result of various liquidity standby facilities it had earlier provided the Rhineland Funding conduit.

It has been difficult to obtain details on the structures of these off-balance sheet conduits and the various entities affiliated with them. An organizational chart describing the Rhineland Funding structure and affiliated parties is available here.

Full post as published by The Harvard Law School Corporate Governance Blog on May 15, 2008 (boomark / email).