German parliament approves government plan for banks’ bad assets

Parliament OKs German bank assets plan

BERLIN — A plan to allow German banks to offload bad assets into special government-guaranteed vehicles cleared its final legislative hurdle on Friday.

The legislation passed the upper house of parliament, which represents Germany’s 16 states, after winning approval from the lower house a week ago.

Bank balance sheets in many countries have been weighed down by assets that have lost much of their value in the financial crisis. Tackling that problem is widely seen as a key to restoring confidence and easing borrowing for consumers and businesses.

The German plan allows lenders to set up vehicles widely known as “bad banks” into which they can move the soured assets.

Banks using the scheme would receive bonds to the tune of 90 percent of the offloaded assets’ last stated value on the bank’s books, which would be guaranteed by the government’s bank rescue fund.

Meanwhile, the fund would bring in outside experts to estimate the actual current value of the assets; and over the coming years, banks would pay back the difference between that and the face value.

The government would guarantee the assets for a maximum 20 years.

It remains unclear which banks might take advantage of the plan. The Finance Ministry has estimated that private-sector banks have assets of up to euro190 billion ($265 billion) that could be offloaded into the “bad banks.”