German Government Announces Rescue Deal for Banks

[FarCenter]

The German government has announced a rescue package for its banks which would include 80 billion euros ($108 billion) in fresh capital and 400 billion euros in loan guarantees, the finance ministry said in a statement.

The package assumes that 5 percent of a federal guarantee will ultimately be lost, according to provisions of the legislation leaked Monday to German news agency dpa.

The legislation, therefore authorizes the Finance Ministry to borrow funds to the value of the 5 percent -- some 20 billion euros -- to counter-balance that eventuality.

Chancellor Angela Merkel was expected to announce Germany's role in the coordinated European rescue at a 3 pm news conference, with her finance minister to issue details half an hour later.

Banks rescued

A state fund -- the German Financial Market Stabilization Fund -- would be set up to inject 80 billions euros into German banks and purchase their troubled assets.

The ministry would be authorized to borrow 70 billion euros for that fund. That sum is about 50 percent more than the stabilization fund announced Monday in London for leading British banks.

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The banks would be required to show they were pursuing "careful" business plans and the government would have power to set caps on pay for their executives and supervisory boards.

In addition the draft bill authorizes the German state to guarantee interbank trading.

Loan guarantees

The Finance Ministry would have the power to extend guarantees totalling 400 billion euros up to December 31, 2009.

Banks would have to pay a fee of 2 percent per annum for such guarantees.

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http://www.dw-world.de/dw/article/0,2144,3707451,00.html