Who has the world’s worst banking system with many of its banks broke or on life support?

The banking problems in the US are notorious and from next Monday will dominate markets as the results of the stress test on the country’s 19 biggest banks become available. Ireland’s banks are all but dead; with the majors flailing as is most of the UK banking system.

France is relatively healthy, but Japan’s banks are stricken, needing government help in various ways and looking to merge in several cases to try and get stronger.

But what about Germany whose politicians and some bankers have criticised the UK and the US for their banking problems and blamed them for starting the problem?

Well, the usually prudent country is currently convulsed by the most explosive leak in years concerning the health of the country’s banks.

The leak emerged last Friday when it was published in a major German newspaper. It wasn’t until it was translated that the real impact of the story emerged.

According to a list leaked from the country’s main financial regulator, Bafin, Germany’s banks have a total of $US816 billion in toxic assets. That’s more than $US1 trillion. More importantly that’s more than the US in proportionate terms. The International Monetary Fund last week estimated the US banks had just over $US1.6 trillion in toxic assets. The US economy is more than three times the size of Germany’s and the financial system is larger still.

The list was made public by the Sueddeutsche Zeitung daily and now the regulator and the Government have criticised the leaker and started to try and find out and charge them.

Bafin claimed the list wasn’t up to date and that the composition of the figures had changed.

But the paper noted the list was as at February 26 this year and if anything Germany’s economy and financial position had worsened since then with the economy now tipped to contract by more than 5% this year, double the government’s estimate of 2.5% earlier this year.

The Government and business claim that banks aren’t lending and that credit is frozen. It is, and the figures in the list tell us why. Germany’s, like their counterparts in the UK, Japan and the US, have no lending capacity because they have yet to tackle their bad debts in a realistic way.

According to the list, the banks with the worst credit and asset problems include Hypo Real Estate, Commerzbank and several state or Landesbanks banks.

Commerzbank’s share of the toxic assets amounts to 101 billion Euros, with 49 billion of those coming from the recently acquired Dresdner Bank. Hypo Real Estate, which is looking at a likely 90% takeover by the German government, has 268 billion Euros in toxic assets on its books. Seeing it has around 440 billion Euros in assets, the high proportion of bad loans at HRE helps explain why proportionately it is the world’s most stricken financial group not to have collapsed.

It is being kept alive by 102 billion Euros of state and industry aid; that is more than the Americans have pumped into Citigroup.

The list names several German state banks among those with the most troubled assets, some 180 billion Euros. The Government was scheduled to meet with German state premiers overnight to discuss the growing black hole.

If the list is accurate, HSH Nordbank, controlled by the city state of Hamburg and the state of Schleswig-Holstein is the biggest basket case of all apart from the black hole known as HRE. It is said to have toxic assets of 105 billion Euros.

It was originally a bank set up to finance shipping and other businesses in northern Germany but was allowed to go after yield in subprime related debt and other dodgy deals. It has already had a capital injection from the two state governments of some 13 billion Euros which has exhausted their finances.