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Bad banks

ch/ncy/AFP/dpaMay 13, 2009

The German cabinet has agreed on a plan to clean up toxic assets from bank balance sheets. In the run-up to the election, the issue has become highly politically charged.

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German Finance Minister Peer Steinbrück, in a grey suit and red tie, spreads his arms in parliament.
Steinbrueck wants to reassure voters they won't wear the cost of the bail-outImage: ap

The scheme, which forms a key element of Berlin's bid to turn Europe's biggest economy around, would allow banks to park their toxic assets for up to 20 years, in specially created institutions. Banks would receive government backed bonds in return.

Finance Minister Peer Steinbrueck said the banks would still be held responsible for the toxic assets and, in the long run, they would bear the cost of transferring and holding the assets.

Just five months out from a national election, the issue has proved politically prickly.

Politicians are torn between the pressing need to revive Germany's foundering banking sector and burdening taxpayers with a huge bank bailout.

Berlin hopes that once the toxic holdings have been removed from banks' balance sheets, they will begin lending to each other and to businesses and consumers again. That is meant to jolt the German economy back to life.

Economic forecasters predict 6 percent shrinkage in Europe's biggest economy in 2009.

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German government steps in to clean up banks' toxic assets

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