Changes at the Bank

German bankers and politicians said they see the financial turmoil on domestic markets resulting from the subprime loan crisis in the United States as an opportunity to switch gears within the Germany banking system.

"The situation is serious," Finance Minister Peer Steinbrück told a banking conference in Frankfurt, in reference to problems that have hit German banks and financial institutions in recent weeks.

According to a survey commissioned by the German business daily Handelsblatt, 31 percent of the 791 German business managers polled are concerned about the reputation of German banks.

Two institutions, the SachsenLB regional bank and the IKB, which normally specialize in lending to small businesses, suffered heavy losses through defaults in the US high-risk home loan sector and had to rely on help from other German banks to stay afloat.

Turmoil should bring change

Steinbrück, however, said the current difficulties should prompt change.

"The Landesbanken (regional state banks) must use the opportunity to combine their strengths," he said, adding that "it is right that consolidation be on the agenda."

"Just holding on to the status quo and sitting it out will not be to the advantage of any of the institutions involved," Steinbrück said.

After thanking the institutions involved in securing funding for the IKB, Steinbrück also praised the Landesbank Baden-Württemberg's (LBBW) takeover of SachsenLB. Such buyouts would help protect German financial institutions from foreign investors, the minister added.

As the world's leading exporter, however, Germany did need to ensure it did not rely on just one or two banking heavyweights, Steinbrück added.

Fewer, stronger institutions

Consolidation was also the message that Deutsche Bank head Josef Ackermann brought to the annual bankers meeting in Frankfurt on Tuesday.

Ackermann called for Germany financial institutions to gather under fewer but stronger roofs as the financial storm appeared to be passing.

"There are many small banks, in a fragmented market," Ackermann said at the banking conference, adding that the smaller banks should "join forces, one way or another."

The next tie-up could bring together LBBW and WestLB, which was weakened by a crisis separate from last month's subprime lending turmoil, Heinrich Haasis, president of the German savings banks' federation, the DSGV, told the AFP news agency.

Risk ignored

Steinbrück said he agreed with Ackermann, who said banks ignored the risk involved in lending excessively to the subprime US housing sector, which threw international markets into turmoil last month.

"I share the evaluation of Mr. Ackermann," that such practices demonstrated a poor understanding of the risks involved, the finance minister said.

Ackermann, meanwhile, downplayed fears problems in the US housing market would set off a larger credit crunch in the coming months.

"In the last few days, there have been signs that markets have begun to stabilize," he said in a statement before the conference. "I'm optimistic about the environment globally for financial institutions."