German Works on New Rescue Plan for Banking Sector

Daily Forex Fundamentals | Written by DailyFX | Jan 22 09 08:52 GMT |

Germany is working on a new rescue plan for the banking sector, according to Handelsblatt reports. Germany's EUR 500 bln rescue fund for German banks includes an option to buy back toxic assets, which lenders are hesitant to use as they would be required to buy the assets back within three years. The newspaper report quoted the budget spokesman for Chancellor Merkel's CDU as saying that the model will be based on that used to restructure East German lenders after unification back in 1990. The government coalition of CDU and SPD continues to reject the idea of a "bad bank", which would immediately take over toxic assets, instead the government is considering a modification, which foresees that the government takes on toxic assets in return for an "equalization claim", so the state would not have to provide liquidity immediately even though banks would clear their balance sheets of toxic assets immediately. When the assets mature the government would have to pay for the loss in value, but in return for a share of the bank's profits over the next 40-50 years, so that banks would still participate in the financing of the losses from the troubled assets. Handelsblatt has dubbed this model "bad bank light". DailyFX Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.