A plan to allow banks rid themselves of toxic assets, passed by the lower house of parliament last week, was approved by Germany’s upper house on Friday. In the Bundesrat’s last session before adjourning for the summer (and the last before parliamentary elections in September), lawmakers passed a plan to allow banks to trade bad assets for guaranteed bonds worth 90 percent of their value. Up to 230 billion euros of bad assets could be offloaded into separate entities, allowing the banks to clear their balance sheets and shift available funds from reserves used to cover the bad assets toward lending. Additionally, the government bonds the banks receive in exchange would be worth more on the open market and could raise capital themselves. Banks are to pay the costs of setting up the so-called “bad banks,” as well as a fee for the guaranteed bonds. The impetus for the measure is a perception that Germany risks a freeze in credit if banks’ debt burdens are not eased. Finance Minister Peer Steinbrueck, in an interview with the Frankfurter Rundschau newspaper, said “we must take seriously, very seriously, the threat of a credit crunch in the second half of the year.” Much… Read full this story
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