Brussels, 13/11/2002 (Agence Europe) - The European Commission has opened formal investigation procedure against five regional German banks that are said to have benefited from capital and asset transfers from the Länder on which they depend, according to preferential terms and conditions. During the nineties, these banks - Landesbank Schleswig-Holstein, Hamburgische Landesbank, Norddeutsche Landesbank, Landesbank Hessen-Thüringen and Bayerische Landesbank - received capital deposits in the form of transfers of Land assets, increasing the banks' own funds. As the amount of own funds determines the volume of funding that any bank can grant, these banks were able to considerably extend their lending capacity. Several private banks, that have to raise capital on the capital market on normal market terms, had complained that the Länder concerned made their own capital available on more favourable terms. German law requires that commercial banks operating in credit facilities should have minimum own funds equivalent to at least 8% of their risk-adjusted lending. If this requirement is not met, the bank is obliged to reduce its lending and hence its market presence. In the case in hand, the Land banks received own capital from Länder amounting to a total of over DM 7 billion, i..e. at least one billion DM per entity, thus giving each bank the possibility of increasing the volume of its operations by at least DM 80 billion. At this stage, the Commission seriously doubts that the Land banks have as yet paid a normal market remuneration for the capital transfers to the Länder making the transfers, as rules on this require. If the investigation were to confirm that payments made were indeed much lower than the normal market rates, then the difference will have to be regarded as aid. It would therefore be claimed that the Land banks in this case enjoyed a substantial competitive advantage over private banks.