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Germany

Finance Minister Steinbrueck Rules out "Bad Bank" for Germany

German Finance Minister Peer Steinbrueck has ruled out the creation of a "bad bank" to take toxic assets from the nation's major financial institutions.

SOS sign with Frankfurt's business district in background

Many top German banks are seeking to offload their bad debt

Such a bank would need to be funded by at least 150-200 billion euros ($198-260 billion) of taxpayers' money, the minister told the newspaper Frankfurter Allgemeine Zeitung on Sunday, Jan. 18.

"How could I take such a proposal to the federal parliament?" he asked. "The nation would think we've gone crazy."

Josef Ackermann, chief executive of Deutsche Bank, Germany's biggest lender, has called for such an institution that would allow banks to unload their bad assets and troubled loans.

The British government on Monday launched its own insurance scheme to protect banks from so-called toxic assets, a move it is hoped will encourage institutions to restart lending to businesses and households.

Toxic assets linger

German Finance Minister Peer Steinbrueck

German Finance Minister Peer Steinbrueck called the idea "too costly"

Steinbrueck's comments came amid reports that Germany's leading banks and financial institutions faced further losses totalling nearly 300 billion euros.

The news magazine Der Spiegel said the figure was based on a survey of 20 leading institutions by the Bundesbank, Germany's central bank, and the financial watchdog Bafin.

The report said the banks, some of which suffered huge losses at the start of the credit crunch last autumn, had written off only about a quarter of their bad assets.

"The remainder is still registered in accounts at illusory values," the Der Spiegel article said.

The finance ministry confirmed the survey, but declined to comment on the figures.

A fresh start for banks

Deutsche Bank Frankfurt

Even Germany's biggest lenders are mired in toxic debt

A "bad bank" would grant the ailing banks a new start by soaking up their problem debts and assets. Once the financial situation normalized the "bad bank" would seek to sell the assets.

But politicians and experts at the government's financial markets stabilization fund, Soffin, want the banks to bear the losses should the "bad bank" end up in debt when the markets return to normal.

Germany's ruling coalition has created a 400-billion-euro fund to provide loans and credit guarantees to financial institutions. It is aimed at restoring confidence among the banks so that they will resume lending operations to one another.

But leading bankers say those guarantees distort competition in favor of banks that take up the government's offer and make conditions harder for those that have not needed the aid.

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