Germany's cabinet approved a "bad bank" plan today to relieve lenders of toxic assets, with the aim of boosting confidence in the troubled sector, a government source said.
The plan envisages creating special purpose vehicles to allow lenders to offload toxic assets.
Banks across Germany are burdened by billions of euros in such assets, hindering lending and aggravating the economy's most severe post-war slump.
The plan, aimed at commercial banks, must now be approved by parliament. Chancellor Angela Merkel's government is aiming to get parliamentary approval for the plan before the summer recess, starting in early July.
Highlighting the banking sector's woes, Commerzbank said last Friday it racked up an €861 million ($1.17 billion) net loss in the first quarter, weighed down by charges and writedowns of over €2.6 billion.
The managing director of Germany's BdB banks' federation, Manfred Weber, said earlier today German banks needed quick relief from pressure on their balance sheets.
"I understand politicians when they say we cannot load this onto the taxpayer, but we have to make sure the whole thing can function, otherwise we will have new problems later," Mr Weber told Deutschlandfunk radio.
"Everything banks have to carry in the future will weigh them down in a way in the eyes of capital markets and shareholders. This must be balanced, and it's no easy task," he added.
The cabinet also approved another plan outlining the development of a further "bad bank" model for Germany's publicly owned Landesbanks, the source said. The plan is aimed to be completed in the coming weeks.
Reuters