Germany plans on private 'bad banks'

BERLIN, Jan. 30 (UPI) -- The German government has proposed that banks set up their own repositories for toxic assets, rather than creating a national bank for the same purpose.

Under a plan, banks would sidestep the continuous downward spiral of write downs that have shattered investor confidence and crippled the credit market as they are forced to cling to the cash they have on the books, The Financial Times reported Friday.

The so-called "bad banks" would be allowed, under German accounting rules, to value the assets at book value -- the value of the securities on paper -- instead of "market to market" value, which relies on the current selling price.

"The proposals of the finance ministry definitely go in the right direction," said Albert Rupprecht, chairman of the parliamentary committee that oversees Soffin, the state agency set up to manage Germany's $639 billion financial rescue package.

The new plan lines up well with two conditions proposed by Finance Minister Peer Steinbruck, the Times reported. First, it would not involve new government expenditures. Second, the risks are borne by the banks, rather than the taxpayers.