GERMAN REACTION:THE GERMAN government does not see the need for an EU-wide solution to the banking crisis as proposed by Minister for Finance Brian Lenihan yesterday.
The German banking system is considered one of the world's most secure, with banks guaranteed through several levels of mandatory and voluntary guarantees and where individual bailouts rather than blanket protection remain the preferred solution of the federal government.
A spokeswoman for the federal finance ministry said: "It's clear that all European countries affected by the crisis need to communicate with each other but it is also clear at the moment that in each national case, the individual governments are the ones best suited to finding the correct solution."
All banks in Germany's three-pillar banking sector, of public, co-operative and commercial banks, are members of various Einlagensicherungsfonds or deposit protection funds to protect customers in the case of bankruptcy.
These funds cannot aid a bank directly should it experience anything like the liquidity facing many European banks in recent weeks. However, experts say the deposit protection can be of indirect benefit. "There is a reduced likelihood of liquidity problems caused by falling confidence in a bank because of the guarantee that, should it come to a squeeze, the money is safe," said Ben Fischer, a spokesman with the German banking supervisor BaFin.
German government sources say the need for a common EU standard of banking protection cannot be ruled out if the crisis deepens beyond what individual member states can handle.
Germany is doubtful, though, that a common solution could be found to every member state's satisfaction, considering the radically different banking systems in operation around the continent.
No German bank has gone bankrupt during the crisis so far, but there have been several close calls.
Last year the subprime crisis cost the Sachsen LB state bank its independence after multi-billion speculation by a Dublin-based subsidiary. Then the IKB bank, targeted at small and medium-sized companies, required an €8 billion state bailout.
Given that backdrop and the growing scale of the financial crisis, concerns are growing in Germany about whether the various deposit protection schemes contain enough money to bail out another large-scale bank failures or a series of bankruptcies.
The Lehman Brothers collapse could, because of its German subsidiary, cost the commercial bank protection fund up to €6 billion.
The Handelsblatt newspaper reported that the current value of the fund was estimated at €4.6 billion, after it contributed €950 million to the IKB bail-out.
Finance minister Peer Steinbrück assured parliament that the US "was the source . . . and focus of the crisis".
On Monday, however, he joined forces with commercial banks to offer a combined €35 billion line of credit to aid Hypo Real Estate, the country's second-largest commercial property lender, after its Dublin-based Depfa subsidiary experienced liquidity problems.
The German Banking Federation has rejected speculation about the health of its protection fund. "The fund is in no way in an emergency situation," it said. No decision had been made on compensation for Lehmans, while "a large portion of any pay-out is usually recovered during the sale of a bank's assets".