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Germany

Germany Steps up Pressure for Bank Regulation

As Germany Friday, Oct. 10 stepped up diplomatic pressure to regulate financial markets under an eight-point plan, Berlin denied it had plans to nationalize commercial banks.

A piggy bank is smashed open

Germany wants to bring in regualtions to protect banks and people's savings

However, Berlin may inject equity into troubled German banks, its two top financial officials signaled as they arrived in Washington for Group of Seven (G7) talks.

As the stock market crash worsened, Finance Minister Peer Steinbrueck said, "The downward spiral has gathered pace. Case by case answers are not going to help any more, even in Germany."

"The financial sector as a whole requires a solution of a stabilizing character," he added.

Axel Weber, president of the German Bundesbank and a senior board member of the European Central Bank, said it was a possibility to inject capital into banks temporarily as Britain had done.

There was no alternative but to act, said Weber.

So far, Germany has only had to guarantee a single, 50-billion- euro ($70-billion) bail-out for a mortgage lender, Hypo Real Estate, and it has been refusing to contribute to a joint EU bail-out for other banks.

Instead, its leaders have pointedly criticized deregulated financial markets in Britain and the United States and demanded action to bring markets under tighter rules.

Merkel keen on regulation

Chancellor Angela Merkel and finance minister Peer Steinbrück

Merkel and Steinbrueck want financial regulation

In a speech Friday in Dresden, German Chancellor Angela Merkel said, "In this crisis, we have to see the opportunity to persuade those who have not been persuaded so far that rules have to be established."

Ahead of a meeting in Washington on Saturday, Finance Minister Steinbrueck this week offered finance ministers an English translation of the eight-point plan of reforms he unveiled in a speech to parliament on September 26.

Merkel said Thursday she would not rule out increased state intervention in the panic, but Finance Ministry spokesman Torsten Albig said Friday there were "no current considerations" of taking over banks.

Albig admitted that government and central bank intervention had failed to stop the world slide in confidence. "We've evidently not found a means that fundamentally calms the markets," he said.

Merkel's deputy spokesman Thomas Steg added that no decisions about conceivable future actions had been taken. He denied any disagreement between Merkel and Steinbrueck, who belong to different political parties.

About half the German retail banking system is already state-run, with the federal and state governments either owning banks of their own or overseeing trustee savings banks and non-profit cooperative banks.

Among points in the eight-point plan are a call to put "innovative financial instruments" back onto bank balance sheets and increase bank liquidity "cushions."

Personal legal liability for bankers

A broker reacts at the stock market in Frankfurt, central Germany, Friday, Oct. 10, 2008.

Those responsible for the crisis should take the strain

Berlin also wants greater personal legal liability imposed on brokers and bank executives as well as changes to their pay incentives to stop them taking big risks to earn more.

In addition, Steinbrueck wants to stop banks packaging up mortgages and other loans as securities and selling these completely, eliminating all the bank's own risk.

In the plan, which has the status of Berlin government policy, he also said he wants regulatory authorities in the different countries to confer and work by standard rules.

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