Banks in Crisis

Amid the damaging fallout from the US banking crisis, German state development bank KfW has come under increased criticism from several of its own supervisory board members.

One lawmaker has called for the "total reform" of KfW in the wake of a major payment error, while another has raised doubts about the costly bailout of crippled subsidiary IKB.

Late Thursday, Sept. 18, the KfW board is slated to meet in Berlin for a formal vote to approve the sale of IKB Deutsche Industriebank, a subsidiary of KfW that was hit hard in by subprime mortgage exposure in the US, to US financial investor Lone Star.

Seeking explanation for transfer

The bank's supervisory board, largely composed of German parliamentarians, will use that meeting to hear an explanation of KfW's mistaken transfer of 300 million euros ($430 million) to New York investment bank Lehman Brothers on the same day that Lehman declared bankruptcy.

KfW declared the transfer, part of a swap arrangement, a "technical blunder." But critics said they should have held on to the money, knowing from Sunday news reports that Lehman was broke.

Swaps are often programmed in advance into computers so that they happen without human intervention.

Finance Ministry spokesman Torsten Albig said the remittance was "infuriating" and those to blame must be found, but an aide to Economics Minister Michael Glos -- who currently sits at the head the KfW supervisory board -- said it was too early to say if anyone would be punished.

Ahead of the meeting Thursday, opposition parliamentarian and KfW supervisory board member Juergen Koppelin called for a total reform of the German state development bank. He said he feared that losses through the faulty bank transfer could add up to far more than the 300 million euros already known.

Lawmaker: 'Total reform' is needed

"I think the consequence should be total reform," Koppelin told ARD television news on Thursday. The supervisory board should be made smaller, and a fact-finding commission should be established to explain the error, he said.

Another problem is that supervisory board members are not well enough informed by the KfW management board, he said.

That subject is also likely to be on the agenda at Thursday afternoon's final vote to approve the sale of KfW's troubled subsidiary IKB to US financial investor Lone Star.

While the deal is considered certain, Green Party politican and KfW supervisory board member Christine Scheel complained to the daily Sueddeutsche Zeitung that she and the other supervisory board members feel they haven't been adequately informed about the terms of the sale agreement.

20 questions for Michael Glos

"I cannot imagine that we can comprehend and decide upon such a complex deal in the form of a hand-out or, worse, a verbal explanation," she told the paper.

Scheel accused supervisory board leader Michael Glos of denying the supervisory board members any actual decision-making power by withholding the information. She demanded that Glos and KfW Chairman Ulrich Schroeder answer 20 detailed questions on the sale.

Set up in 1948 to administer Marshall Plan funds, KfW is the German federal government's in-house bank and lends to home-owners and industry.