21 June 2012

Vice President Almunia: Restructuring the banking sector in the EU - A State Aid perspective

Almunia said that banks that have been involved in some form of public support fall under four categories:

• The first includes the banks that were affected by the initial stage of the crisis and are now implementing their restructuring plans;
• The second group comprises financial institutions in Greece, Ireland and Portugal – the so-called programme countries – where the action of public authorities is broader and aims at these countries’ macro-economic and financial stability;
• Next, there are the few cases regarded as unfinished business from the point of view of State aid control; and last but not least
• the situation of Spanish banks, ahead of the implementation of the new recapitalisation scheme agreed by the Eurogroup.

Since the beginning of the crisis, an enormous amount of public resources has been allocated to shore up the Europe’s banks. This has taken the form of capital injections, treatment of impaired assets, and state guarantees. Given the systemic risks associated to this crisis, the Commission found justified the adoption of a set of exceptional State aid rules for the financial sector, which was introduced on a temporary basis in 2008 and 2009. The Commission's main objective when implementing this framework is to return aided banks to long-term viability, which means that they must restructure so that they can conduct their business without the need of more public funds.

The new EU-wide rules for bank recovery and resolution adopted by the Commission on June 6 offers a more comprehensive solution, said Almunia. The Directive proposed by Commissioner Barnier is designed specifically to resolve banks in trouble – including large cross-border institutions – and to protect taxpayers from the impact of future bank failures. In parallel, the Commission is putting forward the idea of a banking union. This is one of the elements that should pave the way for deeper integration to complement the monetary union architecture.

Implementation stage

Although attention is often focused on the decision and the negotiations that led up to it, the implementation stage is crucially important. During restructuring, banks are prevented from undercutting their competitors on the back of the State aid received. This means that they have restrictions as regards the terms of business they can offer. For example, in some cases they are forbidden to be price leaders for certain products and markets. They are also forbidden from taking over other banks, since using taxpayers’ money to expand to the detriment of unaided competitors would be highly distortive.

Almunia stressed that the implementation of these restructuring plans is largely on track, and that the divestments are made within the set deadlines and the banks observe the constrains imposed on their business practices. "Moreover", he continued, "many banks have started paying back the capital support they received from their governments and continue to remunerate the impaired asset measures and liquidity guarantees. This is crucial not only to achieve a bank capital structure that gives no undue advantage to any institution and to keep a level playing field in the internal market; it also helps to gradually replenish the public coffers of our Member States.

We continue to monitor aided banks in the implementation stage. When certain divestments cannot be made by the set deadlines, we are open to negotiate alternatives. If national authorities show us that the delay is due to market conditions independent of the bank’s conduct, and the bank proposes alternative ways to achieve the outcomes specified in the restructuring package originally agreed with the Commission, we are open to adjust the original plan. Of course, the alternatives should have an equivalent effect as the measures that the bank and the Member States would have taken under our original decision. We have taken a number of amendment decisions, for example in the cases of KBC and Commerzbank."

Future prospects and conclusions: What is at stake

"I have given you an overview of the work we have been doing at the EU competition authority with the tools we have at hand and in conjunction with other instruments such as the EFSF. But more radical and comprehensive solutions are in order. I have already told you of the recent proposal put forward by President Barroso of a banking union. Advances like this are the sort of political breakthrough Europe urgently needs because they offer common European answers to problems that have come to affect the whole of the EU, and they will lay solid foundations for the truly integrated Economic and Monetary Union of the future."

Full speech

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