Domestic public-sector lending

vdp members provide approximately one-half of Germany's public-sector lending. The Public Pfandbrief is used to fund claims under such loans.


Section 20 of the German Pfandbrief Act (Pfandbriefgesetz, PfandBG) specifies the types of public-sector loan business in Germany and abroad that may be used as cover assets for Public Pfandbriefe. Loans to domestic regional and local authorities (e.g. Federal states, cities, and municipalities), often in the form of a loan granted in exchange for a promissory note, called a Schuldscheindarlehen, as well as bonds (e.g. issued by the Federal government or a Federal state), are eligible as public cover assets.

Public corporations and public institutions

Claims against public corporations and public institutions are eligible as cover only if they benefit from institutional liability (Anstaltslast), guarantor liability (Gewährträgerhaftung), or a public funding guarantee or if these institutions are entitled to charge fees, rates, or other levies (section 20 (1) No. 1a PfandBG).

Public-private partnerships and loans guaranteed by public-sector bodies

Public-private partnerships are an attractive business field for the member institutions. Forfaiting under waiver of recourse became eligible as cover when the PfandBG entered into force in 2005. In other words, if a public authority purchased claims and waived recourse against the seller, those claims may be used as cover. This is what is meant by the wording in section 20 (1) PfandBG relating to “claims acknowledged in writing as not subject to recourse”.

In the case of loans guaranteed by public-sector bodies, a municipality, for example, guarantees that a municipally owned corporation will repay the loan made to it by a Pfandbrief bank.

Guarantee claim

The criteria for the eligibility of publicly guaranteed loans as cover are set forth in section 20 (1) No. 2 PfandBG. Under that provision, the Pfandbrief bank’s direct guarantee claim may be structured as follows:

  • as a claim against the public guarantor for payment (e.g. under a guarantee given by a public-sector body), or
  • as a legally enforceable claim against the public guarantor that it provide the borrower with financial resources.