Germany to Extend Bank Rescue Fund by Two Years, Reuters Says

German lawmakers plan to extend the Soffin bank-rescue fund by two years until a European bank restructuring entity can be established as the region’s debt crisis continues, Reuters reported.

Keeping the Special Financial Market Stabilisation Fund open through the end of 2014 will help fend off any potential fallout from the region’s sovereign-debt crisis, Reuters said, citing a draft law the government aims to put forward today.

The fund, backed by Chancellor Angela Merkel’s government and armed with 480 billion euros ($629 billion), is being extended following the European Commission’s proposal last month to make the European Central Bank responsible for oversight of the regions leaders. German lawmakers don’t expect implementation of the new mechanism before the start of 2015, Reuters reported, citing the draft.

Germany set up the bank-rescue fund in 2008 following the collapse of Lehman Brothers Holdings Inc., giving it 400 billion euros in guarantees and 80 billion euros in capital to buy stakes in banks. The move included provisions for creating bad banks that were taken up by WestLB AG and Hypo Real Estate Holding AG and buying stakes in lenders as in the case of Frankfurt-based Commerzbank AG.

Soffin’s reactivation shouldn’t be limited to one year given the unknown market circumstances, Bundesbank Vice President Sabine Lautenschlaeger said on Jan. 23 at a hearing of parliament’s Budget Committee, before the reactivation of the fund.

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