Promotional Banks: An Introduction to Reputational Risk Management

Heidi Rudolph

While the reputation of a commercial bank has a big influence on its business model, as commercial banks could conduct their business and manage their business branches on their own, the mission of promotional banks is clearly defined by the fact that is a promotional bank as such. Further, the mission of such banks is in many cases influenced and regulated by their special shareholders (ie, the state) and even prescribed by law. As an example the European Investment Bank (EIB) is legitimated based on Article 308 of the treaty on the functioning of the European Union. The KfW in Germany is based on the law concerning KfW and the KfW’s articles of association. The use of government guarantees¹¹The shareholder of the promotional bank (eg, the federal or state government) takes over parts of the credit risks and guarantees for the borrowers. In case that the loan cannot be paid back, the state or the federal government takes the risk. As a consequence of the government guarantee, the creditworthiness of such promotional institutions equals the creditworthiness of the state or federal government that supports their refinancing on the capital markets. and the type of business of German