Brussels, 02/02/2011 (Agence Europe) - Reorganising the German regional banks (Landesbanken), making sure they are restructured in fair market conditions by putting them on the same footing as their competitors and preventing and eliminating competition distortion, involving their shareholders, in particular institutional, in the restructuring. These are the ideas put forward by European Commission Vice-President with responsibility for Competition Joaquín Almunia in his speech to the 9th Handelsblatt annual conference on strategies for savings banks and Landesbanken in Berlin on 2 February.
After giving a breakdown of the sums allocated by European governments to keep the financial system afloat and prevent the economy from collapsing (€2,340 billion used by member states in 2008 and 2009, with €827 billion in guarantees on bank liabilities, €141 billion in capital injections, €110 billion on the relief of impaired assets, and €29 billion in liquidity and bank funding support - a total of about €1,107 billion), he confirmed that - “market conditions permitting” - there will be a return to normal conditions as of 1st January 2012. He illustrated the approach taken by European authorities to overcome the lack of proper supervision (a new supervisory system brought in this January) and the weaknesses of the banks (new prudential standards to make them more robust), and insisted on their proposals, including regulation against excessive risk-taking (derivatives especially). These measures, he said, must put right the causes of the crisis and restore confidence in the markets.
He then turned to the German banking sector and the line the Commission intends to take to implement the rules on state aid for the banking sector, with particular reference to the Landesbanken.
“The crisis hit hardest where it found weak points. And some of those were here, given the exposure of a number of German banks to toxic assets”, Almunia said. He stated that Germany was one of the few countries in the EU where banks had to be rescued by the government even before the collapse of Lehman Brothers. The European Commission has taken more than 20 state aid decisions, worth almost €600 billion, since 2008. The funds actually used amounted to €192 billion in 2008 and €262 billion in 2009, equivalent to 7.6% and 10.9% of Germany's GDP for the respective years. The commissioner suggested that a good number of Landesbanken “were in need of restructuring even before the crisis. But now … this task has become unavoidable and urgent, especially for those under restructuring plans”. Cases still open are WestLB, HSH Nordbank, BayernLB and also Hypo Real Estate (see EUROPE 10222). The commissioner would like to adopt decisions on all pending cases before summer. WestLB has to provide him with a new restructuring plan by 15 February.
In discussions with the Landesbanken, the Commission, Almunia said, intends to use the same rules as it applies to other banks which receive state aid: preventing and eliminating competition distortion and putting all operators in the sector on the same footing. These banks have to be able to operate in a competitive environment without further public aid while abiding by the new rules on the composition of their capital and supply sources “which means putting an end to their overreliance on wholesale markets”. Restructuring plans must lead to viable solutions and it is only on that condition that the Commission will approve state aid.
Why should the cost of rescuing and restructuring these banks be shouldered only by taxpayers? “Institutional shareholders should be held responsible for their mistakes or their reckless risk-taking” Almunia stated, indicating that this sharing of costs was a constant in his policy, ensuring that taxpayers' money is not used to pay dividends on shares or interests on hybrid-capital instruments.
Commissioner Almunia said he agreed with the new German law on the restructuring of financial institutions which provides, among other things, for the establishment of a new fund paid for by German credit institutions without involving the taxpayer. (F.G./transl.rt)