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EU Commission extends relaxing of rules on state aid to banks

19 Sep 2011, 8:00 am

EU countries will be able to continue to operate rescue packages for troubled banks for longer than previously thought, EU Competition Commissioner Joaquin Almunia has said.

Almunia has said that he will not now end the relaxing of competition rules that have allowed increased state aid in 2011 as he had previously planned.

The announcement delays the introduction of stricter controls on how countries can help their banks. The delay is because economic recovery has not been as swift as Almunia had been planning for.

"Until the summer, my intention was to introduce the new regime at the beginning of next year, assuming that the markets would have normalised by then. However, considering current market conditions, it would not be safe to introduce the new rules too soon," Almunia told a financial conference in Poland.

"The situation we have been facing over the last few weeks calls for an extension of the existing State aid crisis regime for financial institutions beyond 2011," he said. "Next year, the rescue and restructuring of banks will continue to be assessed on the basis of the present rules."

"When the markets stabilise and the new rules are phased in, we will use the new regime to tighten the control of the public support given to banks in distress and of its impact on their competitor," said Almunia.

The Commissioner outlined the EU's plans to replace the current impermanent rules with a series of regulations.

"It is obvious that State aid control cannot replace a fully-fledged regulatory framework for crisis management. But until the new legislation comes into effect – and that may take quite some time – State aid control will continue to serve as a resolution tool," he said. "The banks that receive subsidies must be restructured effectively and those that remain on the market should be able to carry out their function of lending to the real economy. In this still uncertain juncture, we simply cannot afford to saddle the economy with more zombie banks."

"Let me be clear. By definition, the crisis regime for the control of State aid in the financial sector put in place in 2008/2009 must come to an end – and sooner would be better than later," he said.