Brussels, 21/01/2009 (Agence Europe) - On Wednesday 21 January, the European Commission approved a Finnish state guarantee accompanying a private sector arrangement to the benefit of depositors in the Finnish branch of the insolvent Kaupthing Bank. The measure guarantees the banks which ensured full compensation of Kaupthing's Finnish depositors against legal risks. The Commission found the measure to be in line with its Guidance Communication on state aid to overcome the financial crisis. In particular, the measure is necessary to preserve confidence in the financial markets and is limited to the minimum necessary to achieve this objective.
The failure of the Icelandic Kaupthing Bank h.f. triggered also the failure of its Finnish branch. As a result, the branch's depositors were unable to make immediate withdrawals or might have lost part of their deposits. Fearing a broader loss of confidence among Finnish depositors in general, the main Finnish banks offered to compensate depositors in full. In concrete terms, the three commercial banks involved - Nordea Bank Finland plc, OP-Pohjola Group Central Cooperative and Sampo Bank plc - and a special purpose vehicle took over the credit claims and other assets of Kaupthing Bank h.f. and settled all the deposit claims in Finland. The Finnish state provided a guarantee to the participants, to cover the legal risks, i.e. potential economic losses suffered from recovery claims or equivalent insolvency claims.
While this guarantee includes state resources, the measure clearly helps to implement a private arrangement to restore the confidence in the Finnish banking sector and more generally in the Finnish economy, says the Commission in a press release. It notes that, beside adequate liquidity, public confidence is one of the key conditions for the proper functioning of the banking sector. Hence, if the issue of lack of confidence were not addressed, it would result not only in difficulties for the banking sector, but also, due to the financial sector's pivotal role in providing financing to the rest of the economy, have a systemic and harmful spillover effect on the Finnish economy as a whole. In addition, the Commission notes, in the light of planned co-operation between the Finnish and Icelandic authorities, the risk of recovery claims materialising appears low. This, in turn, minimises the legal risk of claims and thus the amount of potential indemnity payments by the state. The Commission concluded, therefore, that the guarantee would not give rise to disproportionate distortions of competition within the Single Market. (O.L./transl.rt)