UPDATE 2-Steinbrueck raises pressure on German banks to lend

* Steinbrueck says banks have “particular responsibility”

* Banks association takes concerns seriously, ready to talk

* Trichet says may take time for lending to pick up

(Adds detail, background, economist comment)

By Paul Carrel

BERLIN, July 13 (Reuters) - Finance Minister Peer Steinbrueck has written to German bankers pressing them to supply the economy with ample liquidity, raising pressure on lenders to increase the flow of funds to businesses.

Steinbrueck is concerned that credit conditions could tighten later this year, throttling Europe’s largest economy just as it shows the first signs of emerging from its deepest recession since World War Two.

He has already floated the idea of the Bundesbank, Germany’s central bank, buying up corporate bonds to help ease a squeeze on credit markets and accused banks of not doing enough to pass on liquidity they have accessed from the European Central Bank.

“A sustained recovery of the real economy will only be possible when the credit sector is on a solid footing again,” Steinbrueck wrote in the letter to Germany’s banking associations, dated July 8, which was seen by Reuters on Monday.

“Credit institutions in Germany today face a particular responsibility for the overall economy,” he added.

“You are, and remain, urged to fulfil this responsibility by keeping up an ample supply of credit to the German economy at appropriate conditions.”

Steinbrueck, a Social Democrat, is eager for an economic recovery to take hold in Germany as he shifts into campaign mode ahead of a federal election in September.

His frustration stems partly from the fact that the ECB has poured 442 billion euros of low-interest one-year funds into money markets -- its biggest ever injection -- that is not trickling down to entrepreneurs.

ECB President Jean-Claude Trichet said earlier on Monday commercial banks may need time to digest the 12-month liquidity boost and pass it on in extra lending.

Trichet urged banks to remember their responsibilities to lend to firms and households but signalled that the ECB is prepared to give them time to adjust and is not poised to rush in new policy steps to force further lending.


A poll in the July 6 edition of business weekly WirtschaftsWoche found some 57 percent of companies surveyed in June were feeling a credit squeeze. In March, only five percent had reported having such difficulty accessing credit.

Steinbrueck said he would keep a close eye on credit issuance developments and discuss the issue with the Bundesbank. He said he wanted to discuss the situation with the banking associations and businessmen on Sept. 1.

Iris Bethge, communications director for the BdB commercial banks association, said in a statement: “It is in the interest of all banks to lend money so long as the risks are acceptable.”

“The commercial banks nevertheless take the concerns very seriously,” she said, adding that the BdB was ready to play a constructive role in any further talks Steinbrueck wants to hold with all concerned.

However, Thorsten Polleit at Barclays Capital said the main economic problem for Germany -- the world’s biggest exporter of goods since 2003 -- was weak foreign markets.

“German bank lending and borrowing cost data do not currently suggest we are experiencing a credit crunch in the domestic market,” Polleit wrote in a research note.

“Thus far, the problem for Germany is the global economic contraction rather than domestic credit shortage,” he added.