The German finance ministry is still considering enlarging the support for the banking sector, according to market reports.
Commerzbank published a note on the ongoing German bank rescue package this week and noted that there are several possibilities being looked at.
In the report, Commerzbank analyst Michael Dunst said that one issue currently being considered is the possible increase of the maturities for guarantees that the state gives banks if they issue bonds in order to refinance via the capital markets, to five from three years.
The other issue is the possible introduction of a state-owned vehicle, which could hold toxic assets from German banks until maturity. Under such a scenario, Dunst said that banks transfer toxic assets to a financial vehicle owned by the state at market value. These assets are then held until maturity, and not only up to three years, in the vehicle. Any further losses related to the assets would not occur before these assets mature.
Banks have to pay for potential losses later if the toxic assets mature and write-downs are necessary, which are then paid by the taxpayer, according to this plan the state will be entitled to get a full compensation for these losses from the respective banks within a time frame of around 40 years.
The implementation of both measures would be materially supportive for the banking sector, Dunst said.