UPDATE 1-German lower house approves "bad bank" plan

(Adds detail, background)

BERLIN, July 3 (Reuters) - Germany's Bundestag lower house of parliament approved a "bad bank" plan on Friday that aims to relieve banks by enabling them to shift billions of euros in troubled assets off their books.

The parliamentary parties in the ruling coalition earlier this week agreed to sweeten the plan to encourage banks to tap the measure and offload toxic assets that have hindered lending activity and aggravated Germany's deepest post-war recession.

Finance Minister Peer Steinbrueck said German banks needed to escape from a downward spiral of writedowns.

"With each of these steps downwards banks eat up more of their capital resources and that is extremely dangerous," he told the Bundestag.

"It is dangerous for two reasons: Either one day you have so little capital that you face insolvency," he said, adding: "What is a bigger problem is that this capital, which is being eaten up as assets are devalued further, is no longer available for what we urgently need in Germany: new business."

Under the German "bad bank" model, banks can place toxic assets in special purpose vehicles (SPVs) -- or "bad banks" -- once a book value has been calculated by a third party.

A number of German banks, both stock-exchange listed and public sector lenders, could benefit from the plan.

The country's second-biggest lender Commerzbank (CBKG.DE) has shifted some 38 billion euros ($53.27 billion) in risky assets to an internal vehicle where a team of specialists will work them out over the next several years.