BERLIN - GERMAN banks can begin applying for state aid starting Monday under terms of a just-adopted bank support plan.

The 'law on the establishment of a package of measures to stabilise financial markets', voted under a fast-track procedure on Friday, created a fund and a 'financial market stabilization establishment' to manage it.

The new unit will be staffed by a small number of specialists and housed at the German central bank, or Bundesbank, in Frankfurt.

Starting on Monday, banks can make direct requests for guarantees on loans of less than 36 months from other banks, with the government setting aside 400 billion euros (S$794.3 billion) for the purpose.

Banks can also ask the state for fresh funds in exchange for equity stakes, from another fund worth a total 80 billion euros.

Accords between the banks and the state are to be established on a case-by-case basis and will only be made public if a bank's by-laws require it.

Otherwise, they will remain confidential, said Finance Minstry spokesman Torsten Albig.

Banks must accept certain conditions in return for the aid, with the state being given a say in bank strategy, the use of the funds, remuneration of state organs and dividend policy.

Other conditions are to be established during a cabinet meeting early Monday or on a case-by-case basis.

The finance ministry would like to set a limit of 500,000 euros on wages for top directors of banks that accept money and ban dividend payments.

The fund will exist until December 31 2009, at which point it is to be liquidated 'in the best interest of taxpayers'.

If the state still owns shares in banks, it will sell them at the right time for the best price.

It is only then that the total cost to taxpayers will be known. The charge is to be shared by federal authorities and individual states on a basis of 65 per cent to 35 per cent.

The states have nonetheless obtained assurances that their share will not exceed 7.7 billion euros. -- AFP