EU regulator endorses German bank relief plan

1st August 2009, Comments 0 comments

The European Commission said the plan to provide banks with the "possibility of asset relief" comes in addition to a German rescue package it had approved last October.

Brussels -- The EU's top competition regulator has approved a German plan to help commercial and state-owned banks recover from the global financial crisis, a statement said Friday.

The European Commission said the plan to provide banks with the "possibility of asset relief" comes in addition to a German rescue package it had approved last October.

"The German asset relief scheme now provides an efficient tool for addressing the uncertainty regarding the quality of banks' assets," EU Competition Commissioner Neelie Kroes said.

"This will contribute to maintaining market confidence. Yet, restructuring is likely to be necessary in a significant number of cases," she said.

German banks are heavily exposed to losses stemming from the international financial crisis and the collapse of the US market for high-risk, or subprime, mortgages.

Bank owners would pay for the costs of the measures, which allow them to transfer risky and non-core assets to a separate entity. This would clean up balance sheets and pave the way for fresh lending to the recession-hit economy.

The plan was approved by the German parliament on July 10.

It involves exchanging financial instruments including asset-backed securities and collateralised-debt obligations for bonds that would be backed by the state, with banks paying a fee for the guarantees.

Because those instruments would have a higher value on financial markets, it should foster refinancing and allow banks to extend more credit to companies and individuals.

Up to 230 billion euros (320 billion dollars) worth of such so-called toxic assets held by private banks could be covered by the law.

A separate "bad bank" model designed for regional state-owned banks would allow them to offload troubled activities to an entity that could liquidate their toxic assets.

AFP/Expatica

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