Voting control rule

When preparing the financial statements of a bank and of a company in general, all entities that are dependent on the reporting company as a result of voting rights must be included (voting control rule). – The introduction of this characteristic alone for the consolidation requirement meant that banks only mentioned their special purpose entities in off-balance sheet transactions until the subprime crisis in 2007. This is because the originating bank (originator) rarely held voting rights, and certainly not a majority of voting rights. Therefore, there was no need to report conduit risks on the balance sheet, even if the originator had granted credit quality enhancing facilities in the form of irrevocable loan commitments to the special purpose vehicle. – See activity-shifting, on-balance-sheet, consolidation, nothing, on-balance-sheet, voting-rights disclosure.

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
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