Berlin backs bad bank plan
THE GERMAN cabinet yesterday backed a “bad bank” plan for regional banks – known as Landesbanks – that would allow the publicly-owned lenders to offload toxic assets and make consolidation more likely, the finance ministry said.
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’s help in the form of the “bad bank” model.
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.
“With this, the government particularly wants to support the necessary consolidation of the Landesbanks,” the finance ministry said in a statement.
The financial crisis has lent weight to Berlin’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.
At least four of the seven Landesbanks – HSH Nordbank, BayernLB, LBBW, and WestLB – need to offload billions of euros of risky assets.
“The government expects that in two to three years there will be fewer than seven Landesbanks and a completely changed Landesbank structure,” a government spokesman said.
The Landesbanks’ owners – generally states and savings banks – would carry responsibility for any risks arising from toxic assets moved into the “bad bank”.