[Update 1: includes background on Germany's establishment of Pfandbrief.] A meeting this week among German government officials and bankers resolved to get commercial banks lending again. One option involves reviving securitization into a more active market through guarantees on portfolio assets, according to one of HousingWire's sources. The discussion this week centered on fears of a credit crisis in Germany next year, when equity constraints among small and medium enterprises (SME) may be aggravated by a scarcity of loans. The SME sector is interested in investing, but loans are scarce as bankers hold on to capital, the source said on condition of anonymity, since plans are not yet final. Regulators recognize securitization done under certain well-defined circumstances can be helpful to the overall financial system and broader economy. What remains unclear is the reason for the favoritism for securitization in the country that introduced Pfandbrief in the late 1700s. Germany historically shows a preference for covered bonds over structured finance counterpart securitization. Government-owned bank KfW Bankengruppe, which serves as an advisor to the German government, has been in discussions over what measures might be taken by the private sector to get banks lending, the source said. KfW may play a role in guaranteeing, for a fee, certain portions of a bank's portfolio for securitization. HousingWire's source indicated the lender, free to use the capital to make more loans, would keep some accountability for the performance of the pieces guaranteed by KfW. "It's not a question. It's common understanding the originator of the portfolio would remain with the first loss piece," the source said. No plans are yet final, but the discussions indicate the government and business sector's response to the consensus that the German public is fed up with seeing the state support banks. The source said banking firms know they need to gain back investor trust and continue lending outside of state aid. "The public at some point says, 'Let the banks do their job and lend.' So the banking industry is thinking of how to revive securitization" to facilitate higher lending levels, the source said. Germany's discussion mirrors a migration in the US and leading industrial nations toward less government funding in distressed financial markets and fewer taxpayer-funded bailouts. Write to Diana Golobay.