Last week, the German government announced and approved a package of financial rescue measures worth up to €500 billion in order to stabilize and create new confidence in the markets. The German package builds on the action plan endorsed on the weekend of October 11 and 12 by global financial leaders. Under the plan, the state would guarantee up to €400 billion in bank loans in order to revitalize the interbank lending market, although “the guarantees mean that the state will only step in if banks genuinely default on interbank loans.” The government allowed for 5% of the total guarantee, or €20 billion, of the national budget to cover potential losses from these loans, and earmarked an additional €80 billion to buy the troubled assets of distressed banks.

In the original version of the plan released last week, financial institutions seeking to avail themselves of state funds would be subject to various requirements, including a ceiling on executive salaries, a waiver on bonus payments and a waiver on dividend distributions. However, today, the German government issued a decree which relaxed some of these conditions, reportedly due to concerns that they would scare off banks that needed government assistance. According to news reports, the decree states that banks that apply for a government guarantee will only have to submit their business model for approval, and only banks requiring fresh capital or wanting to sell troubled assets to the fund would have to cap executive pay at €500,000 (approximately $665,000) and halt dividend payments. Additionally, according to the decree, the stabilization fund will be administered through a government agency, organized separately from the Bundesbank, which will be accountable to the German Finance Ministry and a steering committee.