Brussels, 26/03/2009 (Agence Europe) - On Tuesday 24 March, the European Commission approved the Working Capital Guarantee Scheme, a United Kingdom scheme to encourage banks to provide new lending to businesses in the UK.
With the current global financial crisis, banks have become increasingly risk averse and are reducing credit ceilings. Under the scheme, the UK will offer banks up to £10 billion of guarantees in respect of portfolios of working capital loans to sound, credit-worthy companies. By virtue of this government guarantee, banks will obtain capital relief, which the banks have to redeploy to support further lending to businesses. The guarantees will be priced at a level designed to make the scheme self-financing. The Commission found that the measure is an appropriate, necessary and proportionate means of remedying a serious disturbance in the UK economy. In a press release, it says that the scheme is “non-discriminatory, limited in time (two years) and scope and requires a risk-based remuneration”. It is, therefore, compatible with the rules on state aid to remedy a serious disturbance in a member state's economy, as set out in the communication on how these rules apply to banks during the current crisis.
Competition Commissioner Neelie Kroes said, “The UK working capital guarantee scheme should provide an effective means to support lending to the UK real economy in the current economic and financial crisis”. She appreciated “the design of the scheme to make it self-financing and thus to reduce any potential aid to the minimum and limit distortions of competition. I also welcome the non-discriminatory character of the scheme as regards the sector and nationality of the borrower”. (O.L./transl.rt)