EU extends crisis rules on bank aid, ahead of recapitalizations

Dec 1, 2011, 13:08 GMT

Brussels - The European Union's executive on Thursday extended a crisis regime that makes it easier for governments to bail out banks - ahead of a round of EU-mandated recapitalizations that is expected to need at least partial public support.

The guidelines presented in Brussels by EU Competition Commissioner Joaquin Almunia weaken the normally strict rules the bloc has against state aid. They were first introduced in the wake of the 2008 financial crash, which led to a first wave of bank bailouts.

'My ambition was to put an end to the crisis regime in December 2011 ... but last summer I was obliged to change my mind' due to the turbulence in euro area sovereign markets, Almunia told reporters.

As part of measures to tackle the crisis, EU leaders agreed last month that banks should raise their capital ratio to 9 per cent by June 2012, to compensate for the loss in market value of some of the eurozone bonds that lenders hold in their books.

Almunia stressed that banks should ask for government help to meet that capital requirement 'only as a last resort,' but accepted that some may have to, considering the tight lending conditions in the markets.

But he said he hoped 'not to have too many requests' to apply the special EU regime, and vowed to 'disconnect this life machine' as soon as 'conditions in the financial markets are back to normal.'

Governments can help banks either through guarantees or, in more serious cases, with capital injections. In return for approving state support, the European Commission normally forces beneficiaries to slim down, to prevent them from gaining an unfair advantage over non-bailed out competitors.

But Almunia said the requirement to present 'restructuring plans' would be waived for banks whose need for state guarantees is only dictated by the fallout from the eurozone crisis, and are otherwise sound.

Commenting on ongoing state aid cases, the commissioner said he expected to strike an agreement soon with German authorities over the restructuring of Bayern LB. 'We are not there yet, but we are closer to this day.'

Almunia also said he expected information to come 'quickly' on French, Belgian and Luxembourg plans to issue guarantees for Dexia, a bank and insurance group that was bailed out last month.

Belgian media said the three countries had agreed on a six-month, temporary guarantee worth 40 to 45 billion euros (54 to 61 billion dollars), rather than the 90 billion euro figure that was announced in October.

Belgium, which has since become embroiled in the eurozone crisis with a sharp rise in its debt refinancing costs, was keen to reduce the bill.

EU finance ministers on Wednesday ruled out issuing collective guarantees for banks, which would have provided cover to individual eurozone governments hard-pressed to help out private lenders while at the same time facing market pressure on their sovereign debt.

'We would have preferred clearly a mutualized system,' but there was 'a very clear majority against this avenue, so it is not possible to go down this road even though this road, in the European Commission's view, is much better,' Almunia commented.