fundamental alert

Germany Issues Guarantee for All Bank Deposits as Hypo Real Estate (HRE) Rescue Package Fails

Monday, 06 October 2008 06:37:41 GMT  |  DailyFX Research

The German government has issued an effective guarantee for all bank deposits, after a new crisis at Hypo Real Estate further undermined confidence in the financial system. The official state deposit guarantee covered only a limited amount so far, but savers were backed by deposit guarantees of the German banking sector. However, this deposit insurance has come under pressure after the Lehman failure and doubts emerged if it could really cope with the breakdown of a major bank. The German decision comes after Ireland and Greece also issued guarantees and has already prompted Austria to consider a wider security net for savers in order to prevent a transfer of funds from Austrian to German banks.
Meanwhile, the rescue package for HRE failed on Saturday, after a new liquidity gap emerged. The government was eager to find a solution before the opening of the stock market in Tokyo and late yesterday announced that a new agreement with the private banking sector was found, which foresees a new EUR 15B credit guarantee on top of the EUR 35B already agreed. Up to a total of EUR 14B, the private sector is accounting for 60% of the guarantees. Meanwhile there are calls for a general solution and guarantees for the banking sector in order to avoid more public debate and uncertainty. The German government over the weekend argued against a European wide rescue fund.

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