German cabinet reactivates bank bailout fund

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Germany's cabinet approved Wednesday reactivating its banking stabilisation fund, which could step in if six big German banks identified as needing new capital cannot raise funds on their own.

A bill to reactivate SoFFin, initially set up in 2008 and equipped with 400 billion euros ($522 billion) of guarantees, was approved at the last cabinet meeting of the year, government spokesman Steffen Seibert told a regular news conference.

It still faces a vote by the lower house of parliament, the Bundestag, before it can take effect in law, probably in February.

A clause allowing the government to force a bank to seek help from SoFFin, which also has 80 billion euros in funding, when its recapitalisation needs pose a danger for the whole banking sector, has been removed.

Instead, under the law, German financial sector watchdog BaFin will oversee banks' recapitalisation plans and have the possibility to demand changes or improvements.

If it is unsatisfied, it could put an official in place, mandated by the government to effectively replace the management of the bank and who would then seek SoFFin's aid.

The European Banking Authority said last week it had calculated that German banks needed to raise additional 13.1 billion euros ($17 billion) in new capital to withstand future financial shocks.

© 2011 AFP

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