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Banking

Germany reactivates bank rescue fund

The German parliament has approved a government plan to provide cash-strapped banks with a safety net for the second time since the collapse of Lehman Brothers. But the banks say they won't need it.

Sign of Commerzbank in front of bank's HQ

Germany's biggest banks claim they can do without state aid

The Lower House of the German Parliament, the Bundestag, has approved a law which will reactivate a state rescue fund for struggling banks. The SoFFin fund is to provide up to 400 billion euros ($527 billion) in guarantees for cash-strapped banks and up to 80 million euros specifically for recapitalization needs.

Following a string of stress tests in the sector, the European Banking Authority (EBA) had estimated that six major German banks needed to drum up an additional 13.1 billion euros to meet higher stock capital requirement.

"We're looking at a tool to be used by banks in an emergency so as to prevent the current debt crisis from spreading to the real economy," said German Christian Democrat financial affairs spokesman Norbert Barthle after a session of the budget committee on Wednesday.

Quelling public apprehensions

During the debate on Thursday, Finance Minister Wolfgang Schäuble assuaged the fears of many Germans that the fund might again cost the taxpayer dearly.

Portrait of German Finance Minister Wolfgang Schäuble

German Finance Minister Schäuble threw his weight behind the rescue fund

"It seems that banks will manage on their own", Schäuble told parliament. He described the fund as "preventive medicine" and added that the new law might well never be used at all.

SoFFin was first set up in 2008 following the collapse of Lehman Brothers, but ceased operation at the end of 2010. The reactivated rescue fund will only be available until the end of this year as European banks have to build up core capital of 9 percent by the end of June.

Germany's two biggest banks - Deutsche Bank and Commerzbank - have the largest gap to close. But both have lately won back some confidence among investors after revealing concrete plans to meet future capitalization requirements without resorting to state aid.

Author: Hardy Graupner (AFP, dpa)
Editor: Michael Lawton

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