EUROPEAN COMPETITION commissioner Neelie Kroes has said the Government will have to follow new guidelines to be published next week on how it plans to restructure the three main banks, including a 2013 deadline for ending State support.
Under the guidelines, the Government must show how it plans to restructure Bank of Ireland, Allied Irish Banks (AIB) and Anglo Irish Bank, which have received State funds, by selling off non-core branches and operations.
The new guidelines on competition in the banking sector will apply to 70 other EU financial institutions which are relying on state bailouts. Under the rules, a 2013 deadline will be set for the end of all state subsidies to banks.
The banks will also be expected to contribute a significant proportion of the costs of restructuring and will be forced to change their activities to compensate for the distortion to market competition caused when they accepted financial support from government.
“Banks have to adapt to offset the distortion of competition caused by the state aid they receive,” said Ms Kroes.
“A rival bank doesn’t want to be faced with one that is getting a helping hand and doesn’t have a level playing field.”
Ms Kroes is pushing governments to ensure that banks in receipt of state aid implement restructuring plans and that any banks not found to be viable in the medium term are wound up.
“If state aid is needed in the future then we are making a big mistake,” she said.
The competition commissioner has called on British banks Lloyds and Royal Bank of Scotland, which owns Ulster Bank and First Active in Ireland, to slim down by disposing of non-core assets.
“It’s not size, it is your viability and your business model that should be competitive in the international market,” she said.
Ms Kroes was in Dublin yesterday to meet Minister for Finance Brian Lenihan for talks about the creation of the State’s “bad bank”, the National Asset Management Agency (Nama).
She described the Nama plan as “a good start”, but said she had to “find out how it is working”.
Ms Kroes has pressed other EU states to deal with toxic assets on the books of their banks. She said the introduction of the blanket guarantee for Irish-owned banks last September “wasn’t acceptable”, but the Government was later “very co-operative and constructive in finding a way out”.
Foreign institutions operating in Ireland had complained that the Government guarantee distorted competition in the sector and led to a flood of deposit transfers to the banks protected by the State.
The EU guidelines are likely to lead to further focus on the reshaping of the Irish banking sector. A restructuring of the sector is expected following the transfer of €80 billion in development loans and associated collateral to Nama, leaving some of the participating institutions with considerably smaller balance sheets.
Central Bank governor John Hurley said earlier this week that the creation of Nama would lead to the prospect of consolidation in the sector.
