Time of the essence

17 April 2009 By Jeffrey Goldfarb Follow @jgfarb

Banks get funding to hold toxic assets to maturity, thus avoiding firesales. They only take expected hits as they materialise. And the state provides catastrophe insurance, protecting banks in case things are worse than expected.

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German authorities discussed on April 21 two possible schemes for dealing with some E800bn of troubled or illiquid assets on the balance sheets of the country's banks.

Under one plan, banks would set up their own bad banks, which would buy the distressed assets at face value using governmentguaranteed bonds. The government's guarantees would only be called on at the maturity of the assets – often 15 or 20 years later – finance minister Peer Steinbrueck said, according to Bloomberg.

The other proposal would have the bad banks buy toxic assets at writtendown prices determined by a thirdparty.

The Cabinet aims to pass legislation by midMay. Parliament's recess begins July 3.

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