Berlin Preparing Safeguard for Banks

Germany is trying to protect its banking sector after Sunday's second bailout of Hypo Real Estate and its move to guarantee private savings

Germany said on Monday it was considering a nationwide "umbrella" to shield its banking sector from market turmoil.

"We must now try via the individual solution for

Hypo Real Estate to put up an umbrella for Germany as a whole so that we don't go from one case to the next," Finance Minister Peer Steinbrück told public radio station Deutschlandfunk.

He said the government was currently considering a bigger rescue package covering the banking sector. "At some point individual solutions are no longer enough," he told reporters in Berlin.

But he rejected France's proposal for a pan-European fund similar to the $700 billion plan agreed by the United States government and Congress last week. He said the German government was considering a "Plan B," but he declined to reveal details.

Merkel and Steinbrück had on Sunday announced a federal guarantee for private savings deposits, a move they said was meant to reassure a public unsettled by daily news of financial turmoil.

"It was a signal from the chancellor and me, that savers understand they mustn't be worried about their savings," Steinbrück said. "That's important in this situation because we don't want them to run to their banks filled with fear and withdraw money."

The Munich-based daily Süddeutsche Zeitung cited a Finance Ministry spokesman on Monday as estimating that the government's guarantee for all private bank deposits covered "well over a trillion euros."

The Finance Ministry had initially cited a figure of €568 billion.

Banking expert Hans-Peter Burghof told Bayerischer Rundfunk radio that the government's move amounted to "the biggest guarantee in world history."

No one had ever guranteed such a high sum of money in two simple sentences, the professor of banking and financial services at Germany's Hohenheim University said.

The idea behind giving the guarantee, he said, was to ensure that it would never be needed. Guaranteeing deposits would preclude a run on the banks, he said.