German lower house approves "bad bank" plan

BERLIN, July 3 (Reuters) - Germany's Bundestag lower house of parliament approved a "bad bank" plan on Friday that aims to relieve banks by enabling them to shift billions of euros in troubled assets off their books.

The parliamentary parties in the ruling coalition earlier this week agreed to sweeten the plan to encourage banks to tap the measure and offload toxic assets that have hindered lending activity and aggravated Germany's deepest post-war recession.

Finance Minister Peer Steinbrueck said German banks needed to escape from a downward spiral of writedowns.

"With each of these steps downwards banks eat up more of their capital resources and that is extremely dangerous," he told the Bundestag.

"It is dangerous for two reasons: Either one day you have so little capital that you face insolvency," he said, adding: "What is a bigger problem is that this capital, which is being eaten up as assets are devalued further, is no longer available for what we urgently need in Germany: new business."

Under the German "bad bank" model, banks can place toxic assets in special purpose vehicles (SPVs) -- or "bad banks" -- once a book value has been calculated by a third party.

Under the deal reached between the ruling coalition experts, the cut-off point for valuation will now be June 30, 2008 and not March 31, 2009 as previously intended.

Fixing the date before the collapse of Lehman Brothers in September -- an event which greatly intensified the financial crisis, causing major declines in the value of assets -- allows lenders to put a higher value to troubled assets.

"No one can rule out that one way or another the banking sector will have further problems in the coming months," Steinbrueck added.

The Bundesrat upper house of parliament is due to vote on the measure in a week so that it can be approved before the parliamentary summer recess. (Reporting by Paul Carrel and Brian Rohan) (For a factbox with details of the plan, please click on [ID:nL171261])