The paper said it had obtained draft legislation that showed the regulator, Bafin, would be given powers to fire managers and restructure major banks under threat of insolvency and without the agreement of shareholders. The proposal would attempt to head off a repeat of the disastrous experience with Hypo Real Estate, a key mortgage lender that has required massive government aid to avoid collapse.
The 28-page legislation, drafted by the economics minister, will not be adopted before next month's general election because of opposition from Merkel's Social Democratic Party (SPD) coalition partner. For the centre-left SPD, the proposal doesn't go far enough in allowing the government to nationalise troubled financial institutions as a last resort.
But it would likely become law if Merkel was re-elected chancellor and she obtained enough votes to form a coalition with the pro-business Free Democratic Party, as polls suggest is likely.
German banks are heavily exposed to losses stemming from the international financial crisis and the collapse of the US market for high-risk, or subprime, mortgages.