Brussels, 04/03/2002 (Agence Europe) - Along the lines of the agreement on reform of the guarantee system for German public banks (see EUROPE of 2 March, p.11), German Secretary of State for Finance Caio Koch-Weser and Commissioner Mario Monti reached an understanding, on Friday evening, on the public credit establishment KfW (Kreditanstalt für Wideraufbau). A problem of non-conform public guarantees had also been identified for KfW. There are about twelve banks of the KfW type, but there is only one problem identified, that of KfW, where changes must be made, Spokesman Michael Tscherny had stressed on Friday before the meeting between his Commissioner and Mr Koch-Weser. The difficulty for the credit institutions of the KfW kind lies in the fact that they are as involved in promotional activities as in commercial activities. According to the Commission, these establishments could continue to resort to State guarantees only for activities that are not in competition with commercial activities. The agreement contains the following essential elements: "The use for special credit institutions of advantages covered by the State aid rules and inherent in Anstaltslast and other state guarantees is allowed for the performance of assistance tasks at the request of the State in promotional areas such as, for instance, financing of SMEs, infrastructure, investments for environmental protection, housing and cooperation with developing countries. The assistance tasks are to be specified by law". On the other hand, if these credit institutions wish to maintain commercial activities, they should create autonomous subsidiaries: - "Activities which fall outside the areas allowed under the State aid rules must be either discontinued (…) or hived off to legally independent subsidiaries without state support". The legislative structure establishing this principle should be established on 31 March 2004 and hiving-off must be achieved by 31 December 2007.