Merkel says won't let Hypo woes infect bank system

BERLIN (Reuters) - German Chancellor Angela Merkel said on Sunday the government would not allow problems at troubled lender Hypo Real Estate HRXG.DE infect the entire banking system.

Officials from the German government, Bundesbank and Bafin financial regulator met earlier on Sunday in an effort to save HRE after a Berlin-brokered deal to rescue it involving commercial banks and insurers unravelled.

Speaking at a joint news conference in Berlin with Finance Minister Peer Steinbrueck, Merkel said managers at financial institutions should be held accountable for what she termed irresponsible behaviour.

Steinbrueck said the government was working on an "institution specific solution" for HRE and expressed displeasure that new risks at the bank had apparently come to light in recent days.

(Reporting by Gernot Heller, writing by Iain Rogers, editing by Noah Barkin)