German bank crisis not over -rescue fund head

The financial sector faces big challenges even after governments intervened massively to prop up tottering banks, the head of Germany's nearly 500billion euro ($735 billion) bank rescue fund Soffin warned.

"It's too early to give the all clear. New challenges are onthe way," Hannes Rehm told Hamburg's business journalists' clublate on Tuesday in remarks for release on Wednesday.

The G-20 group of rich and developing nations and the EU Commission in Brussels were both setting up new rules aimed atboosting banks' capital requirements, he pointed out.

In addition, sluggish economic growth meant that banks mustadd to their "risk buffers" for bad loans, he said, adding thathe was surprised that more banks in Germany had not moved totake advantage of new rules allowing them to shift problemassets off their balance sheets and into a "bad bank."

Regional state-backed lender WestLB is preparingto set up a bad bank, sources familiar with the situation havetold Reuters, and other lenders are eyeing the move.

"We are seeing a certain reluctance at the moment," Rehm said, adding that Soffin was speaking to some banks but it was unclear what the outcome would be.

Banks appeared to require more information about Soffin's instruments and procedures, he said.

Soffin funds have also gone to stock-exchange listed lenderssuch as the country's No. 2 player Commerzbank and thenow nationalised Hypo Real Estate, but less than halfof the 500 billion euro pot has been used so far, Rehm said.

Banks have used 132 billion euros of the 400 billion euros available to back debt issues, while Soffin has also paid outabout 25 billion euros to bolster banks' equity capital, hesaid.

Germany's biggest bank, Deutsche Bank, has nottaken any government cash and insists it will not. ($1=.6802 Euro)