As per the scheme, the participating banks will have to agree for an immediate cut on the value of their toxic assets while dividends may be used to pay for further losses. As a result, some bankers still believe that the painful restructuring scheme is unattractive to both the banks and their investors and will not recapitalise the battered financial system.
Speaking in defence of the €200 billion plan, Jochen Sanio, President of BaFin said that the scheme’s main aim was to rescue banks from further hits to their capital.
Mr. Sanio, while supporting the bad bank scheme, warned: German banks need to go into the coming difficult economic phase with the strongest possible capital. Any bank could be in for a rude awakening if it overestimated its capital strength. Sudden downgrades to some bank assets would dramatically raise the amount of capital needed by banks. Freedom from this … is the most important reason why German banks’ balance sheets should quickly be cleaned of toxic assets.”
