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Bill Radke: The euro fell this morning after Germany’s financial regulator was quoted in a British paper saying the toxic debts of German banks could explode like a grenade. From the European Desk in London, Stephen Beard has more.

Stephen Beard: The head of Germany’s main financial regulator warns that the country’s banks could blow up if they don’t seek the protection of the government’s bank rescue plan.

He’s quoted in Britain’s Daily Telegraph saying that rating agencies could be poised to downgrade the banks’ mortgage-backed securities. He says that will eat into the banks’ already depleted reserves. Markets could then “kill” any bank that does not have government backing.

Dan O’Brien is with the Economist Intelligence Unit. He says the regulator is warning that Germany faces an additional problem:

Dan O’Brien: The banks will have two hits. They’ll have a hit from toxic assets and they’ll have a hit from a very deep recession, from German companies going bust and individuals not being able to repay the loans.

The regulator’s warning coincides with news today that in the first quarter, the German economy shrank at its fastest pace since re-unification in 1990.

In London, this is Stephen Beard for Marketplace.