German regulator says HRE rescue saved banks worldwide

31st July 2009, Comments 0 comments

Jochen Sanio said the government had to rescue the bank to prevent a collapse of the financial system, adding that it would have been impossible for commercial German banks to save HRE on their own.

Frankfurt -- German banking regulator BaFin was unable to prevent a collapse of property financier Hypo Real Estate (HRE) and the state had to buy the bank to avoid "an end of the world financial system," BaFin president Jochen Sanio said Thursday.

Sanio told a parliamentary committee that a new German institution should be set up along the lines of the US Federal Deposit Insurance Cooperation, or FDIC.

Sanio said the government had to rescue the bank to prevent a collapse of the financial system, adding that it would have been impossible for commercial German banks to save HRE on their own.

"There would have been the end of the world financial system," he told the committee.

German central bank governor Axel Weber added that an HRE insolvency would have had "incalculable risks" and the term "meltdown would have been quite appropriate."

"There was really a feeling of doom," said Weber, who is also an influential member of the European Central Bank's governing council.

The real estate lender required more than 102 billion euros (143 billion dollars) in loans and was finally taken over by the government in June.

HRE got into trouble after the failure of the US investment bank Lehman Brothers in September intensified liquidity problems at HRE's Irish unit Depfa Bank.

The Lehman collapse "delivered the coup de grace to an already fatally weakened" bank, Sanio said.

AFP/Dow Jones/Expatica

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