German lawmakers Thursday approved a bill to reactivate the country's bank bailout fund SoFFin to help banks weather the current debt crisis and improve their capital base.
The SoFFin will give up to €400 billion ($524.24 billion) in guarantees for banks and provide up to €80 billion for recapitalization. The fund, which for the first time will accept euro-zone government bonds, will be operational until Dec. 31 2012.
European regulators have demanded banks come up with new capital by June, with German banks alone having to come up with €13.1 billion.
German Finance Minister Wolfgang Schaeuble told lawmakers he is confident that banks won't need to tap the fund.
"It seems that German banks will manage," Mr. Schaeuble told lawmakers in a debate on the bill. "This law will probably never have to be used," he said, adding that SoFFin is a "preventive measure" to help make the euro more resilient against contagion risks.
Under the law, banks will be allowed to dump any kind of security—not just structured securities, as was previously the case—into a special-purpose vehicle, including soured government bonds from euro-zone countries.
This could help them to reduce their holdings of sovereign bonds from Italy and Spain, which have rapidly fallen in value due to concern about the countries' debt levels and the euro-zone debt crisis.
Commerzbank is seen as the most likely German bank that might have to tap the fund. Media reports have suggested that it might dump off its real estate subsidiary Eurohypo to SoFFin because the bank has to close a €5.3 billion capital gap the European Banking Authority has identified.
Commerzbank Chief Executive Officer Martin Blessing has said he aims to plug the gap without help from SoFFin.
read more: Olympus Wealth Management
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