THE EUROPEAN Commission has said it will force governments to wind down crisis-hit banks that cannot be restructured to make them viable in the long term.
It may also force banks to divest assets, hold back on acquisitions and exit non-core businesses, according to new guidelines on banks receiving restructuring state aid.
“The financial crisis may not be over yet, but we need to start working seriously with member states to restructure European banks. We need to make banks viable again without state support and to reinvigorate competition in the single market,” said competition commissioner Neelie Kroes yesterday, as the guidelines were published.
Ms Kroes, who flagged the new guidelines when she visited Ireland last week, wants to prevent banks in receipt of state aid from unfairly benefiting against competitors that have not had to rely on state support to weather the crisis.
Up until now 70 banks across Europe – including the three biggest Irish banks Bank of Ireland – Allied Irish Bank and Anglo Irish Bank, have received State support to keep them afloat during the crisis. But a senior commission official warned yesterday this number could rise as a result of the economic crisis, which has followed the financial crisis.
The official said there was less tolerance among governments to talk about winding down banks due to the fragile nature of the markets. But he said the commission would impose winding down of banks if the validity of the banks was not assured by the restructuring plans submitted by management or if it caused a competition problem.
The new guidelines stipulate that banks have to either pay back the state aid received within six months or submit a restructuring plan to the EU executive for approval. To give banks some breathing space, the implementation of restructuring plans could last up to five years, rather than the usual two or three years.
Banks can also be forced to divest assets under the guidelines to eliminate potential distortions of competition. Germany’s Commerzbank and WestLB both recently agreed to halve the assets on their balance sheet in order to get commission approval of their restructuring plans. The commission can also force banks to exit certain business lines if it feels the state aid it received gives it an advantage over rivals in these sectors.
The guidelines stipulate that plans developed by governments to rid banks of impaired assets, such as Ireland’s National Asset Management Agency, constitute restructuring. None of the three big Irish banks in receipt of State aid has yet reached the six-month threshold for submitting a restructuring plan to the commission.
