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Banks to get permanent state aid rules

Tuesday 24 January 2012 - by Karina Whalley

 The European Commission is to put forward a more permanent set of state aid rules for bank restructuring when the sovereign debt crisis subsides.  

During a speech in Paris, competition commissioner Joaquin Almunia said the new rules will be consistent with the future crisis resolution regime that the commission will introduce.

"These rules will continue to function as restructuring, resolution and coordination tools for state aid to the banking sector in the EU," Almunia said on Tuesday.

"When the situation stabilises, I will propose a more permanent set of state aid rules for banks, consistent with the future crisis resolution regime that the commission will introduce using its regulatory powers," he added.

In October, EU heads adopted bank restructuring rules to address the sovereign debt crisis. Banks have to comply with the European Banking Authority requirement of holding 9 per cent of the highest quality capital after marking their sovereign debt exposures to market.

If banks can't go to the market or draw on their own resources to reach the capital targets, they are allowed to turn to government support. Those that use the state aid for recapitalisation or impaired asset protection will have to submit a restructuring plan to the EC.


In the short-term, banks will also be assessed on whether they are short of capital because of a loss in confidence due to the sovereign debt crisis and if they are otherwise viable and haven't taken excessive risk in acquiring sovereign debt.

Almunia said banks who pass the assessment will not require further divestments and balance sheet reductions but will be handed "a package of behavioural constraints" by the commission.

If a bank is shown to need a radical change in its business model, Almunia warned that a "fully fledged restructuring" will be requested.

"Significant restructuring efforts will have to continue in the future", said the commissioner citing the recent successful overhauling of banks such as Hypo Real Estate, Kommunalkredit, Northern Rock, some German Landesbanken as well as ING and Commerzbank.

"We can report good progress in some countries - such as Ireland, but in others such as Greece, the situation is still very complex," he said, adding that Portugal, Austria, Germany, Spain, Belgium, France and some other countries still need adequate solutions for banks.

"We can no longer afford zombie banks as we struggle to generate growth," Almunia said.

"The restructuring of banks which benefit from state support will continue to be one of my top priorities, to make sure that they return to long-term viability and - when this turns out to be impossible - that they make an orderly exit from the market," the 68-year-old added.

The Spanish commissioner also said the EC is currently "intensifying" its antitrust scrutiny on wholesale financial markets. The commission recently clamped down on Thompson Reuters and Standard & Poor's for abuses in the licensing of financial information.


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