The German government on Wednesday adopted a “bad bank” scheme to rid the country’s institutions of their toxic assets in its latest attempt to tackle the crisis of confidence that is crippling the financial sector and weakening Europe’s largest economy. Yet mounting hostility against the plan from within the Social Democratic party, junior partner in the coalition of Angela Merkel, chancellor, means it could still undergo substantial changes before implementation. The draft bill – foresees the creation of several, institute-specific bad banks. Any bank that chooses to will be able to park its least liquid assets – and the risks associated with them – for up to 20 years. In exchange, these special-purpose vehicles would issue the bank with a bond whose value would be guaranteed by Soffin, the federal authority that manages the government’s bank rescue fund created last October. By pushing the text through cabinet on Wednesday, the government hopes parliament can turn it into law by early July at the latest, the last opportunity to pass the legislation before a summer recess and the September 27 general election.

Berlin backs toxic assets plan

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