The European Commission (EC) today confirmed that Competition Commissioner Neelie Kroes is in contact with the Government and will examine under state aid laws the move to guarantee all deposits in Irish banks.
“It [the Commission] will look at any state aid involved as a a matter of urgency. It expects notification from the national authorities and will take decision under the state aid rules soon afterwards.”
Viviane Reding, the Commissioner with responsibility for Information Society and Media said the Commission would "look in a very flexible way at national proposals to bring back confidence" in the banking system.
Speaking to the media at a telecoms industry conference in Dublin today Ms Reding said that when the full text of the Credit Institutions (Financial Support) Bill had been passed by the Oireachtais the Commission would look at it in a "flexible" and "forward looking" manner.
She pointed out that the current crisis in banking is not just an Irish problem, with the Dutch, Belgian, French and Luxembourg authorities all having to act to support local banks this week.
“The Commission is not there to be a bureaucratic roadblock,” said Ms Reding. “European solidarity is a fact not just some nice words.”
She also re-iterated yesterday's (Tuesday) calls from the Commission for the US to solve the problem. "This whole turmoil has come from the US and had an enormous effect on our banking system," said Ms Reding.
The EC said today it was doing its utmost to support solutions to stabilise European banks and would act quickly to review rescues but that EU state aid rules must be respected.
"The state aid rules are part of the solution and they are not part of the problem," Ms Kroes said, rebuffing French calls to reconsider European Union competition regulations in the light of the global financial crisis.
She said the entire EU executive agreed that the existing state aid rules were up to the task of coping with the crisis and would avoid distortions of competition by divergent national measures.
"I would like to plead to national governments today not to act but to continue their practice of consulting the Commission, that is a must," Kroes said.
EC president Jose Manuel Barroso today said there needed to be stronger European financial supervision and greater consistency in national deposit-guarantee schemes to stabilise the financial system.
Mr Barroso said the existing system of regulation, based largely on national governments and regulators, could cope with the current crisis, but that the EU needed to go further in co-ordinated action to restore full confidence.
The EC proposed today that banks must tie up more capital to cover risky operations by having limits on how much they can lend to one party.
EU Internal Market Commissioner Charlie McCreevy said: "These new rules will fundamentally strengthen the regulatory framework for EU banks and the financial system."
Banks that sell securitised products or repackaged debt such as those that turned toxic in the credit crunch would have to share the risk with buyers. This will be done by the bank retaining a stake of at least 5 per cent in the products, he added.
Mr McCreevy said he would also propose at a later date to reform EU rules guaranteeing people's bank deposits.
Under existing EU rules, all bank deposits are guaranteed for at least €20,000, and Mr McCreevy will propose improvements to speed up payouts and increase the level of coverage.
Britain wants Ireland to look closely at its guarantee of all deposits in Irish banks to make sure it complies with European Union competition law, a spokesman for Prime Minister Gordon Brown said today.
British banks compete with Irish banks both in Britain and in Ireland and have voiced fears they could lose out competitively to Irish banks that enjoy the full guarantee.
The Irish pledge on Tuesday to underwrite the country's banking system triggered a flood of cash from British businesses to Irish banks, a senior Irish stockbroker said.
"We just want the Irish government to look quite closely at the arrangements they are putting in place to make sure they comply with EU competition law," the British government spokesman said. He added Britain was in contact with Irish authorities at a high level over the issue.
In Dublin, a Department of Finance spokesman said Ireland was in contact with its European partners over the government's move.
"We have been liaising with our European partners since the decision was made," the spokesman said. "Brussels would have been notified just in advance of the decision being announced."
Ireland guaranteed all bank deposits on Tuesday in a bid to improve the industry's access to international funds frozen by the global credit crunch.
The pledge covers up to €400 billion ($575 billion) of liabilities - more than twice the country's annual gross domestic product - and includes retail, commercial and interbank deposits.
But the British spokesman said the issue was not just about Ireland. "A number of European governments are taking steps to deal with the current financial instability, and the key element is that ultimately the [European] Commission needs to approve those steps being taken across the EU," he said.
Mr Brown has said the British government plans to raise the guarantee for bank savings to £50,000 from £35,000 in a new banking law. But he appeared to rule out following the Irish example.
Additional reporting agencies