Brussels, 01/12/2011 (Agence Europe) - On Thursday 1 December, the European Commission decided to update and extend the set of temporary state aid control rules to assess public support to financial institutions during the crisis. The main provisions explain how to ensure that the state is adequately remunerated if - as is increasingly likely in the future - member states decide to recapitalise their banks using instruments, such as ordinary shares, for which the remuneration is not fixed in advance. The new rules come into force on 1 January 2012 and will remain in place until the end of the sovereign debt crisis.
The new rules state that public bailout should more frequently take the form in the future of the purchase of ordinary shares, for which the dividends vary. In order to ensure sufficient remuneration for the injection of public funds, states should buy shares at a sufficient discount on the latest market price to account for the sheer number of shares being bought as a proportion of the bank's capital and the existence of voting rights. Hybrid capital in the form of preferential shares and the like should have alternative forms of coupon (dividend) payments to ensure that any dividends that cannot be paid in cash are paid for in shares.
Remuneration to states should ensure that when it comes to guarantees, banks are provided with the lowest amount of aid required to cover the risks to the state. The new rules decide minimum remuneration for national guarantees covering debt lasting between one and five years (seven for secured bonds), but make no changes to debt for shorter time periods.
The Commission will continue to require member states to submit a restructuring plan (or an update of a previously approved plan) for all banks which receive public support in the form of recapitalisation or impaired asset measures. The Commission will determine the need for restructuring through a proportionate assessment of the long-term viability of banks, taking full account of all relevant elements: whether the capital shortage is essentially linked to a confidence crisis on sovereign debt, the public capital injection is limited to the amount necessary to offset losses stemming from marking sovereign bonds of the EEA member states to market in banks which are otherwise viable. Banks which have not received public support in the form of recapitalisation or impaired asset measures, but benefit from state guaranteed funding, will not have to present restructuring plans. (FG/transl.fl)