Germany eyes shield for entire bank sector

 Germany has abandoned plans to handle its domestic banking problems on a case-by-case basis and is now considering a nationwide umbrella to shield its entire financial industry from damaging turmoil in the markets.
Speaking on Monday after pushing through a weekend rescue for German lender Hypo Real Estate <HRXG.DE> and announcing a federal guarantee of savings deposits, Finance Minister Peer Steinbrueck said Berlin was working on a new plan to protect the entire German bank sector.
"I am very much aware that at some point individual solutions are no longer enough," Steinbrueck told reporters at a conference of his Social Democrats (SPD) in Berlin.
He said officials were discussing a "Plan B" but made clear this would not be a Europe-wide solution that would mirror the $700 billion rescue package agreed in the United States.
Speaking on German radio earlier, Steinbrueck said Berlin was looking at putting up an "umbrella for Germany as a whole, so that we don't go from one case to the next."
As recently as this weekend, the government had advocated a case-by-case approach.
But concerns about the health of the European banking sector sent European stocks plunging 4 percent in early trading on Monday.
Hypo Real Estate stock tumbled 44 percent despite an agreement by banks and insurers late on Sunday to extend an additional 15 billion euros in liquidity to the Munich-based lender on top of the 35 billion ($47.57 billion) agreed last week.
Steinbrueck defended the new Hypo rescue, which came after financial firms threatened to pull out of the original scheme for Hypo, saying the firm's collapse would have meant a conflagration across the banking sector.
He attacked Hypo's management, which discovered new refinancing problems over recent days which made the initial 35 billion-euro rescue insufficient.
"I think it's unthinkable that work continues with the current management," Steinbrueck said, refusing to rule out a rise in the state's guarantee for Hypo.
Steinbrueck said new measures to protect savings, taken despite Berlin officials criticising a similar move from Ireland last week, were meant to give people a reassuring signal.
"It was a signal from the Chancellor and me, that savers understand they mustn't be worried about their savings. That's important in this situation because we don't want them to run to their banks filled with fear and withdraw money," he said. "That would just exacerbate the liquidity bottleneck."
Asked if the move could cause irritation among other countries that were sceptical about such guarantees, he said: "On the European level there is indeed a process underway where we need to watch out that all don't fall back to seeing things from a national perspective. Regrettably, the Irish started it, and others followed suit."
Steinbrueck said finance ministers from Europe and the Group of Seven (G7) leading industrialised nations would have to work together to reach a solution on this in the coming days.
He said he would be unable to attend a meeting of euro zone finance ministers on Monday in Luxembourg but was still aiming to get there for a wider meeting of his European Union counterparts on Tuesday.
Banks in Germany and elsewhere in Europe have been keen for governments to agree a general package of help along the lines of the bailout plan agreed in the United States, but Berlin has resisted pressure from other EU countries to agree such a package.