Berlin revives crash-era Soffin bank bailout fund

BERLIN, Germany — The government here may not want to put up the money to expand the European bailout fund. But for its own banks, there's plenty of cash available.

That was the impression on Thursday after parliament voted to revive a domestic bank bailout fund in order to ensure Germany’s financial institutions get through the euro-zone debt crisis unscathed.

The German government insisted that the country’s banks are fine, but just in case, it has reactivated the Soffin fund, which will have 480 billion euros ($625 billion) at its disposal up until the end of the year.

Finance Minister Wolfgang Schaeuble took pains to insist that Germany’s big banks won’t need to avail of any state aid to meet new capital requirements due this summer. “It seems that German banks will manage that,” he told lawmakers Thursday. He said the reactivation of the fund was “preventative” but would “probably never be used” and would, therefore, cost the taxpayers nothing.

The new fund will be made up of 400 billion in guarantees, and the remaining 80 billion euros will be earmarked for recapitalization.

The opposition Social Democrats, Greens and Left Party voted against the fund. They argued that the financial sector had not contributed enough to solving the crisis, adding that the governing coalition had failed to force them to do so.

The first incarnation of Soffin was created in 2008 following the collapse of Lehman Brothers and was shut down at the end of 2010. The new Soffin II gives the financial regulator Bafin more powers, including the ability to act sooner. Banks will also be able to dump any kind of security — including bonds from crisis-ridden euro zone states — in a so-called “bad bank” allowing them to clean up their balance sheets.

Berlin’s move comes at a time when German banks are under increasing pressure. European banks have until June 30 to raise their core capital ratios — which establish a bank’s ability to weather financial shocks — to 9 percent.

And while Germany may have one of the strongest economies in Europe, its banks are seen as vulnerable. In fact the European Banking Authority (EBA) has estimated that six major German banks need to come up with another 13.1 billion euros ($17.2 billion) to meet the tighter capital requirements.

All of them have so far insisted they can do so without state help. However, the EBA found that Commerzbank, the country’s second biggest bank after Deutsche Bank, alone was lacking 5.3 billion euros in capital, and speculation has been rife for some time that the bank would need to be rescued.

Nevertheless, Commerzbank boss Martin Blessing has insisted that it will be able to plug this gap on its own. The bank was saved from collapse during the finance crisis, after it was forced to seek a government bailout of 18 billion euros.

Norbert Barthle, of Chancellor Merkel’s CDU party, said that the “emergency instrument” had been created to protect the German financial market and economy from the debt crisis. He said that it will protect taxpayers “from bigger burdens.”

Green party floor leader Juergen Tritten criticized the measure. He told the N-TV news channel that the government seemed to have enough money for German banks, but for “the rescue of our common currency, for the rescue of our shared Europe, they are tight-fisted.”