German Government to Fully Guarantee Private Accounts (Update2)

Oct. 5 (Bloomberg) -- Chancellor Angela Merkel said the German government will guarantee personal savings for account holders as political leaders scrambled to shore up confidence in the banking system rocked by the global credit crunch.

``We want to tell savers that their deposits are safe,'' Merkel told reporters in Berlin today alongside Finance Minister Peer Steinbrueck. ``The government will vouch for that.''

Merkel made her pledge amid government attempts to salvage a 35 billion-euro ($48 billion) bailout package for Hypo Real Estate Holding AG after the property lender said commercial banks withdrew their support for the plan. Every effort is being made to secure a rescue package before the markets open in Tokyo and German stocks ``torpedo,'' said Otto Bernhardt, finance spokesman in parliament for Merkel's Christian Democrats.

``Merkel had to do this to avoid panic account transfers,'' Bernhardt said in an interview. ``People are nervous, angry. We don't want a run on the banks as we saw with Northern Rock. We don't want confidence in the system to fall any further.''

Consumer deposits, including the accounts of small, privately held businesses which make up the backbone of Europe's biggest economy, added up to 568 billion euros at the end of 2007, Finance Ministry spokesman Torsten Albig said in a telephone interview. Merkel proposed the blanket guarantee at a meeting of European leaders in Paris yesterday, he added.

`Whatever it Takes'

The German government commitment follows similar verbal pledges made by French President Nicolas Sarkozy and Italian Prime Minister Silvio Berlusconi, both of whom have promised to prevent losses for depositors in their countries.

U.K. Finance Minister Alistair Darling told the British Broadcasting Corp.'s Sunday AM program that Prime Minister Gordon Brown's government is ``ready to do whatever it takes'' to help support the banking system. The U.K. government took Northern Rock Plc into public control in February after depositors lined up to remove their savings in the first run on a British bank in more than a century.

Until now, private savings accounts in Germany, including the accounts of smaller, privately held companies, have been guaranteed by 180 banks, the BDB private banks group said Oct. 2.

German banks fulfill minimum guarantee levels set by the EU and provide further security for unlimited amounts in agreements between themselves. The minimum guarantee covers 90 percent of an account's balance to a maximum of 20,000 euros, the BDB said.

`Important Signal'

``I want to emphasize that we are concerned that savers understand that they don't need to fear losing one single euro,'' Steinbrueck said. ``This is an important signal to promote calm and avoid a reaction that's out of proportion, making our crisis management and crisis prevention more difficult.''

No private account holder has lost money in a bank insolvency in Germany since the 1930s, Wolfgang Gerke, director of the Frankfurt School of Finance and Management, said in a telephone interview.

Merkel and Steinbrueck ``have offered psychological balm for worried savers,'' Gerke said. ``They're not writing the pledge in any law as Ireland has -- a sign that they're really relying on private bank guarantees.''

Irish Guarantee Law

Ireland's government on Oct. 2 signed legislation guaranteeing 100 percent of the deposits and debts of six banks. Banks in the U.K. say the Irish decision will distort competition just as authorities are struggling to cope with a seizure in global credit markets.

Neelie Kroes, the EU's top antitrust chief, said on Dutch television program ``Buitenhof'' that members of her staff were in Dublin on Friday and Saturday and came back with ``cheerful reports'' that a few adjustments could be made to the Irish plan to satisfy competition rules.

The U.K. government brought forward proposals to boost the backing for U.K. bank deposits Oct. 3 after Ireland's stronger guarantee prompted British savers to move funds abroad. The U.K. bank regulator raised the value of deposits it insures to 50,000 pounds ($88,500) from 35,000 pounds.

Merkel was among leaders of the EU's four largest economies who agreed in Paris yesterday to bail out their own nation's banks ``when faced with a crisis,'' while coordinating with their counterparts, seeking a consensus approach to the credit crunch.

At the summit, the governments of Germany, France, Britain, Italy and Luxembourg, the European Central Bank and the European Commission also agreed to ease accounting rules, seek tougher financial regulations and weaken enforcement of competition and budget laws.

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net.