European Commission officials are worried about the fragility of three regional banks in Germany, the weekly Der Spiegel reported Saturday.
A letter from the commission to junior finance minister Joerg Asmussen expresses concerns about the threat that WestLB, BayernLB and HSH Nordbank might pose to market stability.
"For the commission, it is indispensable to have the certainty that rescued institutions are viable in the long term and that they do not represent a permanent threat to the stability of the financial markets," says the letter, quoted by Der Spiegel.
Describing the three banks' latest results as "disappointing", the letter adds: "Given the good current conditions, these figures, in the three cases, are not convincing."
|The headquarters of German regional public bank WestLB in Duesseldorf, western Germany.|
The letter also says it cannot relax the current monitoring procedures, as Berlin and the German regions would like.
"The commission cannot give up on continuing monitoring if the advanced restructuring plans for these banks are up to the job of ensuring their viability once more," said the letter, Der Spiegel reported.
Germany's seven public regional banks, widely seen as the Achilles' heel of the financial system in Europe's biggest economy, have been hit hard by the financial crisis.
On Monday, BayernLB and WestLB announced they would decide on a possible merger by the end of the year.
The report came just a day after European Union competition commissioner Joaquin Almunia expressed doubts about the long-term viability of another German bank, Hypo Real Estate.
HRE, which last year narrowly avoided bankruptcy before being nationalised, was the only German bank to fail Europe-wide stress tests in July.