The Germans get tough with the state banks

Last week I wrote a post suggesting that the Germans were getting tired of bailing out their banks and had moved to more draconian solutions to ‘fix’ the banking sector. Nationalizing Hypo Real Estate this week will be the first move in that direction.

But the Germans are not nearly finished in their effort to clean house. Next on the list are the state banks, the Landesbanken.

The Financial Times reports:

The German government has issued an ultimatum to the country’s seven Landesbanken to agree by July to consolidate the troubled state-owned banking sector or face exclusion from Berlin’s plan to take toxic assets off banks’ books.

Government officials told the Financial Times that four of the banks held so many troubled assets that it was “impossible” to see how their owners – German regional governments and municipal savings banks – could save them without Berlin’s help.

For the first time, Berlin had “a very good chance” of forcing the Landesbanken to shrink their balance sheets and merge into “one, two or three” banks by 2012, an official said. They would be “German players with some European scope”.

The merger of the sector into one federally-owned Landesbank would create one of the world’s biggest banks by assets, although any resultant entity would have to shrink rapidly.

For those like me who have been very critical of the slowness of European governments to take matters in hand in this banking crisis, this should be viewed as good news. In a recently leaked document, it was HRE, the Landesbanken and Commerzbank with the lion’s share of potentially crippling toxic asset exposure.

Now, it looks as if HRE and the Landesbanken, have been taken care of.  Commerzbank is the only problem child left to solve.

Berlin issues ultimatum to Landesbanken –

  1. Thomas says

    It would be great if – as you write – “the Landesbanken have been taken care of”. Unfortunately, that hasn’t happened yet. Not by a long shot. But at least Berlin now seems to be trying to tackle the problem instead of looking the other way and hoping that it goes away by itself…

    1. Edward Harrison says

      You’re probably right: I shouldn’t count my chickens before the eggs are hatched. And they haven’t nationalized HRE either. But, at least Steinbrueck has taken his head out of the sand and finally awoken to the depth of the problem.

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