Toxic Assets

The German chancellor is meeting with representatives from Germany's central bank, the Bundesbank, as well as from the government's Financial Market Stabilization Fund, with hopes of taking a major step towards sorting out the problem of German banks' "toxic" assets.

Government spokesman Thomas Steg told reporters at a news conference that the plan will be based on a "decentralized solution," with individual banks setting up their own "bad banks" with government help. However, a final accord on methodology wasn't likely to come out of Tuesday's meeting, he said.

Plan for many "bad banks"

According to estimates by German Finance Minister Peer Steinbrueck, German banks are burdened with 853 billion euros ($1.1 trillion) in so-called toxic assets, the Frankfurter Allgemeine Zeitung newspaper reported him as saying.

In addition to Steinbrueck and Merkel, Vice Chancellor Frank-Walter Steinmeier and Economics Minister Karl-Theodor zu Guttenberg are to attend the meeting. Their goal is to have agreed a workable plan by the time the government takes its summer recess.

Steinbrueck's proposal includes setting up individual bad banks rather than one such central institution for Germany as a whole. Under the plan, the government would help banks clear their balance sheets of toxic assets with the help of guarantees.

Bankers' group calls for quick solution

The Association of German Banks, an institution that represents the interests of private commercial banks, called for a speedy solution to the banking problem.

"One bad bank is better than many bad banks," the association's president, Andreas Schmitz, told ZDF telefision early on Tuesday.

If the government doesn't create a bad bank, then small private banks will need to write off their bad loans, thus lowering their capital and reducing the chances for borrowers to get loans, he warned.