HRE inquiry

Klaus-Peter Mueller, chairman of the supervisory board of Commerzbank and former banking association president, told the parliamentary committee on Tuesday that "the seriousness of the situation at (HRE) was unknown" to Germany's private banking sector.

He said that HRE had not presented any reliable figures, and that it kept revising the amount of financial aid it required, much to the sector's annoyance.

Mueller was testifying in front of a committee called into being by opposition parties the FDP, Greens and the Left Party looking into the details of the government's handling of the 100-billion-euro ($141 billion) bailout of HRE, which was recently placed under state control.

The committee's final three public meetings are being held from Aug. 18 - 20. Finance Minister Peer Steinbrueck and Secretary of State for Finance Joerg Asmussen are due to face questioning later in the week. An interim report is set to be issued by Sept. 18, although the committee's final report is not expected to be released ahead of parliamentary elections on Sept. 27.

Steinbrueck comment not to blame

Mueller was involved in the rescue of HRE at the end of September 2008 when an initial bailout of 35 billion euros was agreed by banks and the government. But only days later, this amount had to be massively increased in order to keep the bank afloat.

Mueller said that the government had been consistent in its handling of HRE, adding that the bank's downfall was exacerbated by a loss of market confidence, not as a result of a comment Steinbrueck made in which he suggested that the bank would be "liquidated in an orderly fashion."

The banker echoed the prevailing view that there was little alternative to saving the bank, as the consequences of allowing HRE to fail would have been too severe.

"An HRE bankruptcy would have hugely affected the German banking industry," Mueller said, adding that this would have likely led to a collapse of European markets.

dc/dpa/Reuters

Editor: Susan Houlton