Brussels, 23/07/2009 (Agence Europe) - In a new communication adopted on Thursday 23 July, the Commission explained its approach on assessing restructuring aid given by Member States to banks. The approach is based on three fundamental principles: i) aided banks must be made viable in the long term without further state support, ii) aided banks and their owners must carry a fair burden of the restructuring costs and iii) measures must be taken to limit distortions of competition in the Single Market. The guidelines, which are in force until 31 December 2010.
Philip Lowe, the Director General at DG Competition informed the press in Brussels that in the event of a beneficiary bank not becoming viable again, it might become obliged to relinquish some of its subsidiaries or file for bankruptcy. Mr Lowe did not confirm whether certain banks were being targeted but his Commissioner, Neelie Kroes, had already suggested last week that the British Lloyds TSB and the Royal Bank of Scotland groups might be obliged to sell off certain agencies or subsidiaries. Banks that receive state support have six months to repay the money or submit a restructuring plan. Lowe confirmed that around 14 banks had already submitted their restructuring plans to the Commission and that around twenty others were current preparing to do so, often in consultation with the personnel from his DG. In total, more than 70 European banks have benefited from state aid since the beginning of the economic crisis.
The Commission's Thursday communication completes the orientations on assessing state aid adopted since the beginning of the financial crisis in the context of guarantees, recapitalisation and processing impaired assets. The new communication underlines that in the interest of long term viability, banks should proceed to stress tests. These tests allow for their commercial model performance to be evaluated in different scenarios. Best, better, average or worst case scenarios, according to Mr Lowe. According to the terms of the Commission press release, if an “assisted” bank does not pass the tests, the Commission could, “lead to revisiting the business model of the bank, disclosing and dealing with impaired assets, withdrawing from loss making activities or even considering absorption by a viable competitor or orderly winding up”.
Given the crisis, banks could stagger their restructuring plans over five years. He recognised that relinquishments could perhaps not be imposed in circumstances where the market was unable to absorb the subsidiaries in question and that behavioural restrictions might be appropriate in certain cases. He said that the Commission would, in any case see things very negatively if banks benefiting from financial state support continued with non competitive or non viable commercial practices or continue with strategies of expansion or acquisition.
In its communication, the Commission insists that assisted banks contribute to their restructuring as much as possible from their own resources. Finally, the communication analyses market distortion provoked by state aid and presents measures for limiting them. The full text of the Communication is available at: (http: //ec.europa.eu/competition/state_aid/legislation/specific_rules.html). (C.D./trans/rh).