German bankers call for ‘bad bank’ to restore confidence

German bankers call for 'bad bank' to restore confidence
Merckel with Ackermann at the summit on Sunday. Photo: DPA
Several German bankers have called for the creation of a "bad bank" to buy devalued assets and risky loans in order to unblock interbank lending, a press report said on Tuesday.

Hundreds of billions of euros in fresh asset writedowns still threaten German banks, head Deutsche Bank Josef Ackermann told the Financial Times Deutschland.

Ackermann made the comments on Sunday during a crisis summit hosted by Chancellor Angela Merkel in Berlin, a source told the paper.

By allowing banks to dump bad assets and troubled loans, the proposed bank would help restore confidence between banks that was shattered by the financial crisis, leading to a squeeze on interbank lending and tighter credit to the economy at large.

But Germany’s ruling coalition pointed out that €400 billion ($550 billion) in loan guarantees for the banking sector were designed with the same aim in mind, to jumpstart lending between banks, the report said.

Ackermann and Klaus-Peter Mueller, president of the German federation of private banks, say those guarantees distort competition in favour of banks that have state-backed guarantees and make conditions harder for those that have not used the aid.