The transfer, which made KfW a laughing stock in financial circles, was made on Sept 15 as part of a liquidity exchange operation agreed before the US investment bank went under.

Economy Minister Michael Glos and Finance Minister Peer Steinbrueck said in a joint statement on Monday that the decision to fire the two managers would take effect immediately.

KfW said last week that the service responsible for the transfer had made 'an error in estimating the risk of Lehman Brothers insolvency.'

The German state-owned development bank has already been hit hard by the US financial crisis, owing to its holding in IKB. This specialist in loans to small- and medium-sized enterprises had invested heavily in securities backed by risky US mortgages.

That stake was finally sold to an investment fund for a fraction of its initial value. -- AFP