Two more German banks admitted exposure Friday to the collapse of venerable American investment bank Lehman Brothers as the EU called for tougher oversight to prevent a US-style financial meltdown in Europe.
A huge infusion of cash by central banks in Europe and the US helped markets rally Friday
The disclosure Friday that public banks Bayern LB and NRW Bank were exposed by the collapse this week of US investment bank Lehman Brothers came a day after a federally controlled German bank, KfW, said its exposure to Lehman's failure totalled 536 million euros ($772 million).
In a letter to staff, Munich-based Bayern LB, which is controlled by Bavaria state, put its risk at up to 300 million euros.
All three banks had placed funds with Lehman.
German federal bank KfW is under fire for mistakenly wiring millions to Lehman before its collapse
"Like many other banks active worldwide, our company had a business relationship over many years with Lehman Brothers," said the letter signed by Bayern chief executive Michael Kemmer.
He said accountants were still comparing which sums were credits and which were debts to establish the net exposure, but the figure so far was "up to 300 million."
NRW Bank, controlled by the state of North-Rhine Westphalia, said it had lent money to Lehman Brothers, but declined to say how much.
"They weren't problem investments," said a spokesman.
Although no German banks have so far failed or been forced to merge, the known exposure of German taxpayers to the crisis was approaching $1.2 billion Friday.
Europe seeks tighter banking regulations
Global markets have been shaken by the financial earthquake on Wall Street though indexes in many countries rallied Friday after a host of major central banks in America, Europe and elsewehere made almost a quarter of a trillion dollars available to struggling banks.
The US Federal Reserve said it had authorized another $180 million lending program to help banks in need of emergency cash.
The EU is now seeking to use the US economic meltdown, which it asserts was the result of a negligent attitude towards finance, as motivation to beef up its supervision of the financial sector in two key areas.
The crisis on Wall Street has sparked some intense soul-searching
"We need more coordinated action by supervisors than currently exists," said EU Economic and Monetary Affairs Commissioner Joaquin Almunia on Thursday, Sept 18, in Madrid. "We must move forward faster. We cannot wait until a financial institution operating in seven or 10 countries of the European Union has problems such as those of Lehman Brothers or Bear Sterns," he continued
The EU’s first goal is to tighten regulation of credit ratings agencies, which have come under fire for failing to alert investors about risks threatening borrowers’ solvency.
The EU commission is also assembling plans to coordinate regulation of insurers and is set to announce a similar plan for the banking sector next month..
While continental European countries took the initiative to hold talks about tougher oversight of financial speculation, especially hedge funds, before the US financial crisis, European regulators have failed to keep tabs on the frequent cross-border consolidation in the banking industry sector in recent years. Banks are thus largely supervised along national lines.
That would mean that major European banks such as Deutsche Bank, Unicredit and BNParibas could potentially face various sets of regulations across Europe in times of trouble -- a burden feared by many officials.