German banking system 'outdated': EU Commissioner

(BERLIN) - The European Union's top competition regulator hit out at Germany's "outdated" banking system on Wednesday, calling for urgent reforms to help get the European economy back on track.

"The German model of three pillars -- private banks, cooperatives and (state-owned) savings banks -- is outdated," EU Competition Commissioner Neelie Kroes told the Sueddeutsche Zeitung daily in an interview.

"It does not correspond at all to the role that the German economy plays and should play," Kroes told the German paper. "Europe badly needs a Germany that is back on form."

Germany's state-owned Landesbanken have been major casualties from the financial crisis, forcing many to tap a government rescue package worth 480 billion euros (685 billion dollars) for loan guarantees and emergency capital.

EU regulators stripped the Landesbanken in 2005 of state guarantees that had allowed them to borrow more cheaply than privately owned competitors, pushing many to invest in riskier areas of business that went sour last year.

The financial crisis has increased pressure on the Landesbanken, which play a vital role in the German economy, to seek mergers with other lenders in order to cut costs.