Page last updated at 11:46 GMT, Wednesday, 13 May 2009 12:46 UK

Germany agrees 'bad bank' scheme

German Chancellor Angela Merkel
Ms Merkel wants the banks to resume normal lending levels

The German cabinet has agreed a "bad bank" scheme, to enable the country's lenders to remove remaining toxic assets from their balance sheets.

Under the plan, the banks will be able to swap their toxic debt for government-backed bonds, in return for paying an annual fee.

The government hopes the move will encourage banks to start lending again, both to each other and consumers.

It still requires parliament to back the proposal before it can become law.

Reports have said that Angela Merkel's government wants to see this achieved before the summer recess starts in early July.

'Huge freezer'

Although the exact details have yet to be released, reports say banks that wish to take part in the voluntary scheme will be given bonds worth 90% of the value of the toxic assets.

The toxic debt will then be stored for up to 20 years.

Finance Minister Peer Steinbrueck said no German bank had made a concrete request so far, but that interest in the scheme was significant.

He added that it would be paid for through Germany's existing 500bn euros ($683bn; £450bn) bank rescue fund.

Andreas Schmitz, from the federation of German private banks, said the plan could be described as "a huge freezer in which each bank will have a shelf".

"Their problem assets will be stored there and frozen," he said.

"After the crisis, we will see if the merchandise can still be sold."



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