The German government may be forced to take further action to shore up, and ultimately restructure, its banking system following its rescue of Hypo Real Estate this weekend, warn bankers and analysts. HRE received a €50bn ($67.4bn) funding package after an earlier €35bn lifeline proved inadequate. The move was accompanied by an informal government guarantee on retail deposits. While most other German lenders may not suffer HRE’s multiple handicaps, they are nevertheless vulnerable to the same problem that got HRE and DePfa into difficulty, namely having much of their funding liabilities at a shorter-term duration than their assets. They are also highly leveraged. Many believe Berlin must take further action to support banks, including extending the state guarantee beyond retail depositors to institutional providers of funding in the money markets and requiring German banks to keep liquidity in the country. Bankers also expect the crisis to spur the government to respond to calls for publicly owned savings banks, or Sparkasses, to merge with the wholesale-funded Landesbanks. Separately, the FT reports that Germany on Monday rejected foreign criticism of its move to guarantee private bank deposits and denied comparisons with Ireland’s earlier move to underwrite all liabilities of six domestic banks.
