EC Published Guidelines on Restructuring Aid for Banks

The European Commission has published its guidelines on assessing restructuring aid given by Member States to banks.

The approach is based on three fundamental principles:

1. Aided banks must be made viable in the long term without further state support.
2. Aided banks and their owners must carry a fair burden of the restructuring costs.
3. Measures must be taken to limit distortions of competition in the Single Market.

Speaking in Ireland, competition commissioner Neelie Kroes said: “The financial crisis may not be over yet, but we need to start working seriously with Member States to restructure European banks. We need to make banks viable again without state support and to re-invigorate competition in the Single Market. The guidelines adopted today will be a useful tool for banks and Member States by explaining the criteria the Commission will apply to restructuring aid for banks in the current period. It complements our previous guidance on state guarantees, recapitalisation and the treatment of impaired assets.”

The guidelines, which are in force until 31 December 2010, explain in particular how the Commission intends to apply the principles in the context of the current systemic financial crisis, with a view to contributing to the return to viability of the European banking sector.

The Commission has to deal with a large number of individual cases of bank restructuring, which follow from bank rescue aid measures approved on the condition that a restructuring plan would be submitted within six months. In order to foster transparency, predictability and equality of treatment between Member States, the Commission has issued guidelines to clarify its approach, the criteria it will base its assessment upon and the type of information required to guide this assessment.

The communication makes clear that aided banks and their capital holders must bear adequate responsibility for their past behaviour and contribute to the restructuring of the bank as much as possible with their own resources. This requires, in particular, that the state is correctly remunerated for the aid it gives. Where this is not possible immediately due to market circumstances, such burden-sharing will be required at a later stage.

Finally, the communication analyses the distortions of competition resulting from the state aid to banks and presents measures to limit them. Distortions may come from prolonging the bank’s inadequate or excessively risky past behaviour and/or from maintaining its market presence to the detriment of competitors.

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