Berlin - Germany is to create a special agency for its bank rescue after the country's central bank said its independence would be compromised if it became an arm of government policy, sources said in Berlin Thursday.

The move came as Chancellor Angela Merkel met with leaders of the 16 states to negotiate on the package, announced three days earlier. She aims to have the legislation in place by late Friday.

The government plans a 70-billion-euro (95-billion-dollar) fund, initially to inject equity into troubled banks and potentially to later acquire bad assets. Germany will also offer guarantees of interbank lending up to 400 billion euros.

The sources told Deutsche Presse-Agentur dpa that Berlin would create a special federal trust for the fund.

Instead of being a department of the Bundesbank, it would be a legally separate unit at the Bundesbank office.

The Bundesbank, which is one of the principal central banks underpinning the European Central Bank in Frankfurt, had earlier told Berlin it did not want to be seen taking instructions from the federal government. (dpa)