The authority for implementing these steps lies with BaFin, Germany's bank supervisor (which is assisted on the ground by Bundesbank staff).

ECONOMIST: The Bundesbank should not exert its new clout too zealously

However, there is a chance that BaFin, the German financial regulator, will not regard interbank lending within the public and co-operative sectors as risk-free.

ECONOMIST: German public-sector banks: Slow progress | The

Germany's financial regulator, BaFin, said on Monday that it had not found evidence that derivatives, otherwise known as credit default swaps, were being used to speculate against Greek government bonds.

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The initial retreating DAX losses were fueled by the rumor that the German financial watchdog (BaFin) had asked two high-profile German financial institutions to separate their retail and investment banking operations.

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This will change under new proposals to set up a joint committee, which will have representatives from the finance ministry and BaFin, but which will give the Bundesbank the leading role and enable it to push through binding directives.

ECONOMIST: The Bundesbank should not exert its new clout too zealously

As long as Germany's stock exchanges are supervised by their regional governments rather than the federal watchdog, BaFin, tougher questioning on such issues is unlikely to come from above, absent a state prosecutor as energetic as New York's Eliot Spitzer.

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