In a step away from its long-held policy of aiding failing financial institutions on a case-by-case basis, the German government is reportedly examining ways to offer a safety net to the country's entire banking sector.
The government is working on a plan that would offer safeguards to the whole banking sector
A day after a last-minute rescue of German property lender Hypo Real Estate, German Finance Minister Peer Steinbrueck said safeguards for all financial institutions needed to be considered.
"Now we have to try to move beyond Hypo Real Estate's singular solution and try to put an umbrella over all of Germany so we're not mixed up with one case after another," he told German broadcaster Deutschlandfunk on Monday, Oct. 6.
While there was no guarantee new cases would crop up, he told reporters in Berlin German financial markets remained "highly dangerous" and that all that could currently be done was to keep "other dominos from falling."
European markets plunged by nearly 6 percent in late-morning trading on Monday. Frankfurt's blue chip DAX slumped 4.54 per cent to 5,533.57, its lowest level since July 2006.
All 30 companies on the index suffered losses, with financial institutions leading the way.
So far, Germany has only offered a lifeline to individual institutions
The German government is working on a "Plan B" to protect the banking industry, Steinbrueck said. While he refused to go into the proposal's details, he said it would not include a European rescue fund, which was proposed by France last week.
Steinbrueck said the government would have ample opportunity to discuss its plans with other financial leaders when ministers are meet at the euro-zone, EU and G7 levels this week.
The German Savings Bank Association has already called for federal protection across the banking sector in the wake of the 50- billion-euro ($68 billion) Hypo Real Estate bailout, according to spokesman Christian Achilles.
But the umbrella protection plan may face resistance from within Chancellor Angela Merkel's grand coalition of Social and Christian democrats.
"I am still in favor of individual decisions because I think we can't make things too easy for bank managers," conservative finance expert Otto Bernhard told German television channel N-TV on Monday.
He added that he opposed general safeguards because they would protect mangers who had lost customers' money in risky investments.
German leaders wanted the public to know its savings were safe
Over the weekend, Germany also guaranteed all the country's personal savings deposits, estimated at 568 billion euros, as other European governments moved to make similar promises after Ireland and Greece had already done so.
Steinbrueck and Chancellor Angela Merkel said Sunday that the move would reassure a skittish public that its savings were safe.
"It was a signal from the Chancellor and me, that savers understand they mustn't be worried about their savings," Steinbrueck said. "That's important in this situation because we don't want them to run to their banks filled with fear and withdraw money."