Germany must consolidate public regional banks: minister

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Economy Minister Rainer Bruederle called for a major consolidation of Germany's public regional banks in light of proposed new global banking rules, in a newspaper interview published Sunday.

"Restructuring is necessary," Bruederle told Bild am Sonntag, when asked about the lenders known as Landesbanken. "One, maybe two are sufficient as umbrella institutions for the savings banks."

On September 12, central bankers endorsed new minimum capital requirements for international banks, known as the Basel III accord.

The agreement stipulates that banks will have to hold common equity equivalent to at least seven percent of their assets by 2019. That is more than triple the two percent required at the moment.

Germany's seven public regional banks, widely seen as the Achilles' heel of the financial system in Europe's biggest economy, will face greater difficulties as they are barred from the retail banking market.

Because of that restriction, they turned to risky financial instruments that suffered great losses in the financial crisis, leaving them in worse shape than many of their European rivals.

Several of these lenders needed bailouts of billions of euros in emergency fresh capital and loan guarantees, and observers fear that the new rules will find them critically short of funds again.

German officials have long called for a consolidation of the system but the Basel III accord has lent new momentum to the cause.

Bruederle said he hoped the 16 regional states would muster the political will to slash the number of Landesbanken, saying it was time for them to "clean house".

© 2010 AFP

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