Germany backs law to nationalise banks
The German government has approved measures allowing it to temporarily nationalise troubled banks through the seizure of shares in order to shore up the country’s financial sector.
“This measure is meant to stabilise a bank relevant to the system in Germany,” Finance Minister Peer Steinbrück told a press conference in Berlin on Wednesday, referring to the troubled property lender Hypo Real Estate (HRE).
He said the government had no interest in increasing its influence in the banking sector, but that Germany also wanted to avoid a situation similar to what happened when US investment bank Lehman Brothers last year.
“It’s about securing public funds,” he said, adding that nationalisation was only to be used as a last resort.
The law is seen paving the way for the government to bail out Munich-based Hypo Real Estate, which would be the first time in modern German history the state has taken control of a bank.
Nationalising banks "is only permissible when there are no other reasonable legal and economic solutions available to safeguard financial market stability," according to the draft text obtained by news agency AFP. "The banking crisis has expanded into an acute crisis of the financial system. In this crisis situation, it is the fundamental duty of the state to restore trust in the financial markets and to prevent a further deterioration of the crisis."
HRE has soaked up more than €100 billion ($126 billion) in public aid since October, half of it in public loan guarantees, but its future still depends on the state becoming a major shareholder.
The government fears an HRE bankruptcy could have a devastating knock-on effect in Germany, possibly even in Europe.
In addition to its real-estate activities, HRE plays a major role in the issuance of Pfandbriefe, bonds in which small investors, savings banks and insurance companies have placed large sums. However, the concept of seizing assets from troubled companies is hotly disputed in Germany for historical reasons.
The idea is linked to Nazi seizures of Jewish property in the 1930s and East German confiscation of private business after World War II. But as the crisis shows no sign of ending, the nationalisation of major banks – previously unthinkable – is becoming increasingly seen as a palatable option in the face of the ongoing financial sector chaos.
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“This measure is meant to stabilise a bank relevant to the system in Germany,” Finance Minister Peer Steinbrück told a press conference in Berlin on Wednesday, referring to the troubled property lender Hypo Real Estate (HRE).
He said the government had no interest in increasing its influence in the banking sector, but that Germany also wanted to avoid a situation similar to what happened when US investment bank Lehman Brothers last year.
“It’s about securing public funds,” he said, adding that nationalisation was only to be used as a last resort.
The law is seen paving the way for the government to bail out Munich-based Hypo Real Estate, which would be the first time in modern German history the state has taken control of a bank.
Nationalising banks "is only permissible when there are no other reasonable legal and economic solutions available to safeguard financial market stability," according to the draft text obtained by news agency AFP. "The banking crisis has expanded into an acute crisis of the financial system. In this crisis situation, it is the fundamental duty of the state to restore trust in the financial markets and to prevent a further deterioration of the crisis."
HRE has soaked up more than €100 billion ($126 billion) in public aid since October, half of it in public loan guarantees, but its future still depends on the state becoming a major shareholder.
The government fears an HRE bankruptcy could have a devastating knock-on effect in Germany, possibly even in Europe.
In addition to its real-estate activities, HRE plays a major role in the issuance of Pfandbriefe, bonds in which small investors, savings banks and insurance companies have placed large sums. However, the concept of seizing assets from troubled companies is hotly disputed in Germany for historical reasons.
The idea is linked to Nazi seizures of Jewish property in the 1930s and East German confiscation of private business after World War II. But as the crisis shows no sign of ending, the nationalisation of major banks – previously unthinkable – is becoming increasingly seen as a palatable option in the face of the ongoing financial sector chaos.
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