Germany has approved a so-called ‘bad bank’ plan, under which the Berlin government will take over almost 200 billion euros worth of lenders’ toxic assets, such as loans that stand no chance of being repaid.
The cabinet approved the move, which is intended to boost confidence in the banking sector and as a result increase the amount of lending. The banks would swap the toxic assets for guaranteed bonds. That theoretically would keep the risk with the banks rather than passing it on to the taxpayers. German Finance Minister Peer Steinbrück said they do have enough money: “I would like to emphasize that the funds that we are allowed to use are sufficient. So, I don’t need to ask the Bundestag for further funds in addition to the 500 billion euros already appropriated.” Germany has been slower than other leading economies to help its banks deal with the toxic asset problem. The German government wants to get parliamentary approval for the plan before the summer recess starts on 3rd July.