Germany reported to ponder compulsory cash infusions for banks

Jul 19, 2009, 17:45 GMT

   Munich - Amid mounting concerns about a shortage of long- term bank credit for the German economy, Berlin is considering compelling banks to accept state cash infusions, news reports said Sunday.

   Britain and the United States have forced several weak banks to accept state control, but only two major banks in Germany have accepted state control: Hypo Real Estate and Commerzbank.

Chancellor Angela Merkel did not confirm that compulsion was planned, but said in an interview with ARD television on Sunday, 'If we don't see any progress we'll be doing some tough talking with the banks.'

She called on the banks to use new legislation to dump their junk loans and to resume wider lending.

   In one report, to appear Monday, the Sueddeutsche Zeitung said Berlin was pondering a policy of compulsory loans to banks because of concerns that credit for industry might dry up this autumn.

   So far, Merkel and Finance Minister Peer Steinbrueck have insisted the banks must request aid. Many banks have avoided this, reportedly for fear of undercutting confidence in their operations.

   However the newspaper said Merkel and Steinbrueck aides were warning that the German economy was now in danger of a credit crunch and action was imperative. The newspaper did not name its sources.

   The news magazine Der Spiegel said the government was considering issuing special loans via the federal reconstruction bank KfW to avert a credit crunch.