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Watchdog faces Berlin inquiry on banks bail-out

by Bertrand Benoit in Berlin and Ivar Simensen in Frankfurt

The German government will launch an inquiry into Bafin, the German financial services regulator, amid accusations that the watchdog took too long to address crises at two banks that had to be bailed out.

Torsten Albig, a spokesman for the finance ministry, which oversees Bafin, said on Monday, the ministry would look into “what reasons Bafin had to take, or not take, action”. The recent turmoil in the global credit markets, triggered by a weakening US mortgage market, has hit Germany’s financial sector particularly hard.

In the past month, IKB, a small cmpany lender, and Sachsen LB, the public Landesbank, had to be rescued after they were unable to provide credit facilities they had pledged to their own investment funds.

Both banks had promised back-up credit facilities that far exceeded their own size, making it highly unlikely they could provide the funds when prompted. The facilities were designed legally to avoid regulatory limits on credit exposure. . . .



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