Brussels, 08/12/2008 (Agence Europe) - Competition Commissioner Neelie Kroes announced, on Monday 8 December, the adoption of a communication on the recapitalisation of banks in the wake of the financial crisis. This communication, which was adopted last Friday, sets out the technical details for recapitalising “sound” banks, limiting competition distortions as much as possible. The Commission had to be sure that, “in solving one problem, we do not create more problems” Kroes said to press on Monday.
The document will complement the guidance already adopted on 13 October on national aid plans for banks in difficulty (see EUROPE 9760). The new point on “sound” banks seeks to respond to the development of the crisis in the meantime. “Under current conditions, triggered in particular by the collapse of Lehman Brothers, fundamentally sound banks may require capital injections to respond to a widespread perception that higher capital ratios are necessary in view of the past underestimation
of risk and the increased cost of funding,” says Paragraph 4 of the communication. In other words, it is as much about restoring confidence in the credit market as assisting individual banks that are experiencing difficulty.
“Sound” banks are to be identified, above all, by their “risk profile”, the communication says. The annex to the communication sets out how this risk is to be calculated, working, for example, from independent assessments of the bank before the crisis. For those banks which find themselves short of credit, not because of any poor management on their own part, but because of the global tightening of the credit market, the Commission proposes more targeted “safeguards”. This is in order to avoid giving the less efficient banks a competitive advantage. The communication published on Monday, which is the result of bitter negotiations concluded on Friday evening (see EUROPE 9795), lists a number of measures on which the parties agreed. Firstly, “in principle, banks with a higher risk profile should pay more” for their recapitalisation by the national Treasury, the document says in Paragraph 13. So, “sound” banks would pay lower premium rates and/or interest for their recapitalisation. Methods are also provided for these calculations, drawn up, the communication says, in collaboration with the European Central Bank. With this premium correction, “the Commission considers, in particular, that restrictions on payment of dividends are not needed where the level of pricing correctly reflects the banks' risk profile” (Paragraph 34). However, the communication advances, for use if necessary, a number of suggestions on restrictions to the payment of premiums, either by limiting them in time, or putting a cap on them, or by otherwise encouraging banks to withdraw from state support as soon as possible.
The communication is available on Europa at the following address: http: //ec.europa.eu/comm/competition/state_aid/legislation/specific_rules.htm (C.D./transl.rt)