German Government Prepares New €50B Rescue Plan for Hypo

Following Saturday night’s collapse of a €35 billion deal to rescue the Munich-based Hypo Real Estate Group, the German government has assembled a second and larger package valued at €50 billion (U.S.$68 billion). According to the Financial Times, a failure of the $550 billion Hypo would rank as the largest bank failure in modern Germany and shake the European financial system. This morning, Hypo issued a statement welcoming “the new agreement between the German Government, the German Central Bank, the Financial Regulator BaFin and senior representatives of the German banking and insurance sector regarding credit lines for Hypo.” In the statement Georg Funke, the bank’s CEO, said that the solution ensures that Hypo is stabilized, will have access to sufficient liquidity and can continue to operate. The first rescue package fell apart when Deutsche Bank, one of a consortium of banks assembled to provide Hypo with liquidity, announced that €35 billion would not be enough to solve Hypo’s liquidity problems. Some analysts speculated that the original rescue figure was sufficient last week, but Hypo’s financial situation had deteriorated substantially over the past several days, implying that the increasingly global financial crisis is spreading quickly.