The European Commission approved on Tuesday state aid for WestLB that will result in the German public-sector lender focusing on less risky activities and halving its size.
"I am confident that the comprehensive plan they have submitted will ensure that the viable parts of the bank will be preserved in the best interests of WestLB's owners, personnel, and ultimately tax payers," Competition Commissioner Neelie Kroes said in a statement.
She said the decision would open possibilities for a wider restructuring of the German Landesbanks.
"First, the bank will focus on less risky activities. The rest will be divested, reducing the size of the bank by half. In particular, WestLB's investment management activities will be brought to an end," Kroes said.
The bank is also expected to change its ownership structure and amend its business model by the end of 2011, with the bank to focus on three independent core business areas.
Ms Kroes said WestLB's renewed focus on lending to SMEs, for example, would assist Germany's economic recovery while providing a more secure future for the bank.
The Commission, which monitors state aid in the 27-nation European Union, started an in-depth investigation last October into the €5 billion ($6.8 billion) risk shield provided for WestLB by the German government.
Reuters