Germany’s financial regulator has rejected criticism of the country’s planned “bad bank” scheme and urged banks to take advantage of the chance to get rid of toxic assets before a possible wave of further hits to their capital.

Jochen Sanio, president of BaFin, said there was a “concrete risk “ that sudden downgrades to some bank assets would dramatically raise the amount of capital needed by banks. “Freedom from this ... is the most important reason why German banks’ balance sheets should quickly be cleaned of toxic assets,” said Mr Sanio.