Banks face tougher conditions for state aid

 

Crisis-hit banks seeking state aid next year will have to overhaul their operations as part of a strategy to wean them off state support, the European Union's competition chief said today.

Competition commissioner Joaquin Almunia also said he was unable to "establish a general rule for burden sharing" of bondholders. Each decision had to be case by case depending on the bank, he said.

The tougher conditions came as the European Commission extended by a year a framework of rules set up in October 2008 allowing EU governments to bail out their lenders under looser terms.

"After almost two years of a specific crisis state aid regime, we need to prepare a gradual return to normal market functioning," Mr Almunia said.

"The remaining risk of renewed stress is a valid reason to proceed with care and caution in the exit process."

Under current rules, only distressed banks which had received support above 2 per cent of their risk-weighed assets needed to come up with a restructuring plan.

The EU executive also decided to keep measures facilitating access to finance for small- and medium-sized enterprises, but under stricter conditions.

It extended by another year to 2011 simpler rules for short-term export credit insurance and said governments could invest up to €2.5 million - a €1 million increase - in start-ups as private equity investors moved to less risky investments.

Reuters, Bloomberg