Germany guarantees all personal bank deposits

As the $700-billion U.S. financial system bailout gets underway, Europe still is struggling to contain its own banking turmoil.

After European leaders on Saturday failed to agree on a comprehensive plan to deal with rising bad loans and crumbling banks, German Chancellor Angela Merkel on Sunday said the government would guarantee all personal bank deposits -- a bid to prevent a meltdown of consumer confidence.

"We want to tell savers that their deposits are safe,'' Merkel told reporters in Berlin, according to Bloomberg News. "The government will vouch for that.''  Read the full story here.

Later Sunday, the German government and the country's major banks and insurers agreed on a new $68-billion plan to rescue Hypo Real Estate Holding, the nation's second-biggest property lender, Bloomberg reported. An earlier rescue plan worth $49 billion had collapsed after banks pulled their support.

As in the U.S., banks across Europe have been tripped by rotting mortgage loans -- including many U.S. mortgage-backed securities on their books -- and by a virtual shutdown of short-term funding in the credit markets. But the piecemeal plans adopted by individual countries to deal with the crisis in recent weeks have had some presumably unintended consequences.

After the Irish government on Sept. 30 agreed to guarantee all deposits and other liabilities of the country's six major banks, British banks complained that depositors were pulling funds and sending them to Irish banks. Britain on Friday proposed raising its own deposit insurance limits.

The U.S. bailout plan passed by Congress on Friday also sought to boost protection for bank savers, by raising the basic federal deposit insurance limit to $250,000 per account from $100,000.

If the euro currency is another barometer of confidence, it's pointing to a continuing loss of investor faith in Europe: The euro on Sunday was trading at $1.364 in Asia, down from $1.377 on Friday and a 52-week low.

The euro has skidded from $1.477 just two weeks ago. It was near $1.60 in mid-July.

Can a European interest-rate cut be far behind?

Photo: German Chancellor Angela Merkel at Saturday's meeting of European leaders. Credit: Horacio Villalobos / EPA

Comments

[Iain Montford]

Remember where the problem originated, many foreign banks were duped
by wall streets loaded 'toxic' securities....your tone suggests otherwise!
The juxtaposition of this article with another about 'Oregon arrow makers' shows
the quality of financial journalism in the LA times.
Overall quality is very poor and misleading.... poor readers.
Read 'financial times', 'wall street journal' and 'NYT'!!!

[Tom Petruno]

Iain Montford: While it is true that many European banks are suffering from the garbage U.S. mortgage-backed securities they were sold by Wall Street, I'm sure you're aware that the British, Irish and Spanish real estate markets had their own massive booms in recent years -- booms that now are going bust as inflated home prices fall and cheap credit is no more.
The U.S. didn't corner the market on infectious greed in housing, unfortunately.
Tom Petruno

[Burt Getty]

German chancellor Angela Merkel shows who has the lead in Europe. Her move to guarantee 100 per cent of all private bank deposits shows Bush & Co were the real hammer hangs. With a clear “NO” to a US-style bank bail-out plan. She doesn’t want to save greedy investment bankers, brokers, dealers and speculators but small private households, savers and taxpayers. Ms Merkel promised to make bank managers at financial institutions accountable for their irresponsible behaviour. So folks, forget the mess, forget the Wall Street disaster, leave the trouble behind and enjoy the benefits of an unlimited government guarantee in Good Old Germany.