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Berlin backs bad bank plan

<!--StartFragment--> THE GERMAN cabinet yesterday backed a &ldquo;bad bank&rdquo; plan for regional banks &ndash; known as Landesbanks &ndash; that would allow the publicly-owned lenders to offload toxic assets and make consolidation more likely, the finance ministry said.<br /><br />Under a deal brokered by Finance Minister Peer Steinbrueck last week, German state leaders agreed to consolidate the Landesbank sector by the end of 2010 in return for the federal government&rsquo;s help in the form of the &ldquo;bad bank&rdquo; model.<br /><br />The plan, which must be approved by parliament, would create a federal institute for financial market stabilisation (FMSA) into which Landesbanks could dump non-strategic business operations.<br /><br />&ldquo;With this, the government particularly wants to support the necessary consolidation of the Landesbanks,&rdquo; the finance ministry said in a statement.<br /><br />The financial crisis has lent weight to Berlin&rsquo;s case for consolidation in the Landesbank sector, which has met resistance from German states, whose leaders want to avoid politically damaging job losses in their regions.<br /><br />At least four of the seven Landesbanks &ndash; HSH Nordbank, BayernLB, LBBW, and WestLB &ndash; need to offload billions of euros of risky assets.<br /><br />&ldquo;The government expects that in two to three years there will be fewer than seven Landesbanks and a completely changed Landesbank structure,&rdquo; a government spokesman said.<br /><br />The Landesbanks&rsquo; owners &ndash; generally states and savings banks &ndash; would carry responsibility for any risks arising from toxic assets moved into the &ldquo;bad bank&rdquo;. <!--EndFragment-->