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Germany Drafts Plan to Shield Banking Sector
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"One of the problems would be that banks might be saved in countries in which the national supervision fell asleep, so to speak, and did not do its job," Heise said. "For that reason, I believe it would not be a good idea to have a bailout fund right now."
On Sunday, German finance officials said they had stitched together a $70 billion bailout for Hypo Real Estate Holding AG, a blue-chip commercial lender that was in danger of failing. A rescue plan announced a week earlier had fallen apart after private banks involved in the deal said Hypo's liabilities were worse than expected.
Hypo officials said that they had been forthcoming about problems on their balance sheet but that credit conditions had worsened in recent days, making it extremely difficult for them to refinance debt. Lawmakers, however, reacted with anger; Steinbrueck, the finance minister, said it was "unthinkable" that Hypo's senior managers would be allowed to keep their jobs.
German officials said their decision to guarantee all personal bank deposits was made to avoid a full-blown financial panic and had nothing to do with Hypo, which has no retail branches and focuses on loans to property developers.
Hypo is only the latest German bank to get into trouble because of shaky real estate investments. In summer 2007, IKB Deutsche Industriebank, which was heavily loaded with U.S. subprime securities, was bailed out by its parent company and a German banking association. Sachsen LB, which was deep into the Irish real estate market, was taken over by another German bank. And earlier this year, a rescue was organized for West LB, a bank that had heavy exposure in the U.S. subprime market.
There were few signs of panic withdrawals on Monday, but many account holders said they were nervously watching developments.
Olaf Wilcken, a 73-year-old retiree from Berlin, said he no longer trusted banks to protect his money.
"The whole economy is in bad shape, thanks to all these super-capitalists or whatever you want to call them," he said. "They have ruined the system for the rest of us."
Dieter Hentschel, 66, a former schoolteacher, said he was leery of the government's promise to insure all accounts.
"No one can guarantee the entire banking and savings system," he said. "But my view is that we shouldn't panic. We should just wait and see what happens. I just hope there are enough intelligent economists working with the government."
According to a poll conducted last week for Der Spiegel, a leading German magazine, less than a quarter of Germans favor a hands-off policy under which the government would allow banks to fail. About 44 percent said the government should nationalize ailing banks, and 22 percent said they should be subsidized with taxpayer funds, according to the survey.
As in the United States, public anger toward the financial industry is growing, with grudging acceptance that only the government can fix the situation.
"The bankers have failed," commentator Carsten Knop wrote in the Frankfurter Allgemeine Zeitung, a leading daily paper. "Now their nerves are raw. And their nervousness and mutual loss of trust are succeeding in destabilizing the system, which they should know best, but which they currently mistrust the most. Only the state can create trust in such a situation, as questionable as that may seem."
Special correspondent Shannon Smiley contributed to this report.
