15 September 2011

Almunia proposes an extension of the existing State aid crisis regime for financial institutions beyond 2011

Speaking at the Eurofi Financial Forum 2011, Almunia said that 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 the sooner the better. However, due to current circumstances it should be extended.

Alumina also presented the following points:

• 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.
• 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. At this still uncertain juncture, we simply cannot afford to saddle the economy with more zombie banks.
• 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.
• Therefore, to plan for the post-crisis environment they have been preparing a specific framework dedicated to the financial sector: the new guidelines for the rescuing and restructuring of financial institutions in difficulty.
• Until the summer, his 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.
• 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. This is what he will propose to the College of Commissioners.
• This means that, 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, the new regime will be used to tighten the control of the public support given to banks in distress and of its impact on their competitors.

Full speech

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