Germany approves new 'bad bank'

Regional banks were hit hard by their investments in risky debt

The German cabinet has approved a "bad bank" scheme to enable the country's regional banks to remove toxic assets from their balance sheets.

Berlin wants the country's seven troubled regional banks to consolidate into three by next year.

Under the plan, a new federal agency would take their toxic debt in exchange for sustainable business plans.

Germany established a similar bad bank for the country's private lenders earlier this year.

The Landesbanken, which are owned by Germany's powerful state governments and local savings banks associations, were hit badly by the financial crisis after they invested heavily in risky assets like US subprime debt.

The German bill for the regional banks would establish a new agency for the financial markets, the FMSA, based in Frankfurt.

Separately, the German federal statistics office said it had a record 7,712 business bankruptcies in the first three months of 2009, which is 10% higher than the same period last year.