Germany’s banking sector stabilisation fund SoFFin said it would “increase the volume of guarantees (for Hypo RE) to an amount up to €40 billion”, adding that the additional guarantees would be available to the bank until the end of the year.

SoFFin said the new support should allow Hypo RE to avoid “any liquidity crises,” which Stern magazine reported this weekend could hit the bank as soon as later this month.

The specialist in property lending and municipal financing was the only German bank to fail Europe-wide stress tests in July, and has already received €7.85 billion in cash from SoFFin along with €103.5 billion in loan guarantees.

The bank has become heavily dependent on state guarantees to be able to refinance its debt on the financial markets at affordable interest rates.

Hypo RE began creating in July a “bad bank” to which it plans to transfer €210 billion in risk positions and non-strategic assets.

It is an “extremely complex process and certainly exceptional, given the volume” of assets to be transferred, but its success would mark “a decisive turning point in the restructuring of Hypo RE,” spokesman Hannes Rehm was quoted saying in the SoFFin statement.

Given recent unfavourable interest rate movements, and the possibility of unforeseen risks during the difficult talks on the transfer of assets to the bad bank, it remained possible that Hypo RE could face a liquidity crisis, he added.

Hypo RE collapsed in late 2008 amid a global crisis owing to investment mistakes made by its German-Irish subsidiary Depfa.

Hypo RE is highly exposed to potential losses from the purchases of bonds issued by troubled eurozone countries like Greece, Ireland, Italy, Portugal and Spain.

It was nationalised last year following a long flirt with bankruptcy.

The bank said last month it had trimmed its losses, but declined to say how much it expects to lose this year or to issue a forecast for 2011.