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Germany drafts bank takeover law Germany drafts bank takeover law
(about 1 hour later)
The German cabinet has agreed on a draft law that will allow it to temporarily nationalise troubled banks.The German cabinet has agreed on a draft law that will allow it to temporarily nationalise troubled banks.
The law would allow private-sector banks to be nationalised through the seizure of their shares to support Germany's financial system. The law would allow private sector banks to be nationalised through the seizure of their shares to support Germany's financial system.
The draft law, which still has to be approved by the German parliament, said nationalisation would be a last resort.The draft law, which still has to be approved by the German parliament, said nationalisation would be a last resort.
It is seen paving the way for the government to take over stricken German property lender Hypo Real Estate. The law is seen paving the way for the government to take over stricken German property lender Hypo Real Estate.
The lender's situation remains shaky despite a total of 102bn euros ($128bn, £90bn) in guarantees it has received from the government and other banks since October.The lender's situation remains shaky despite a total of 102bn euros ($128bn, £90bn) in guarantees it has received from the government and other banks since October.
If the nationalisation goes ahead, it would be the first takeover of a bank by the government in modern history of the country. Finance Minister Peer Steinbrueck said at a press conference that Hypo Real Estate was a "system relevant" bank, and the draft law was designed to help the government stabilise it.
The law is expected to be signed by ministers later. He also said the government would exhaust all the other possible options before deciding on taking over Hypo Real Estate.
'Crisis situation'
If the nationalisation goes ahead, it would be the first takeover of a bank by the government since the reunification of the country.
According to a recent survey, Germany top banks are still sitting on around $380bn of toxic debts Otto Fricke, German politician Commerzbank makes quarterly loss
"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," the draft says."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," the draft says.
The UK, Irish and some other governments have already fully or partly nationalised troubled banks to support their financial systems. The UK, Irish and some other governments have already fully or partly-nationalised troubled banks to support their financial systems.
The German government has stressed it will try to avoid nationalising its banks and will do so only if it sees a threat to the country's financial system.
BBC Berlin correspondent Tristana Moore says that while the German government is against the idea of a central "bad bank" for toxic assets, many German politicians support the idea.
Otto Fricke from the FDP party said: "According to a recent survey, Germany top banks are still sitting on around $380bn of toxic debts... and they've only written off a quarter of their likely losses."
On Wednesday, Commerzbank said it had made a 809m-euro loss in the final three months of 2008 amid write-downs on debt and more provisions for bad loans, including mortgages.