The new framework announced yesterday (23 July) will be applied only to institutions which obtained financial aid "exceeding 2% of the total bank's risk weighted assets," reads a note from the Commission.
Banks which have received only light aid but with a wide exposure to impaired and toxic assets will also be subject to the new rules. The EU executive has already approved 10 restructuring plans since the crisis hit Europe in October 2008, and another 30 banks are currently in the pipeline.
Banks participating in state-run guarantee schemes or benefiting from other support measures aimed at tackling the economic crisis will not be concerned by the new guidelines, the Commission said.
The scheme foresees that heavily aided banks will be checked in more depth by the EU authorities. "The restructuring plan will need to include a thorough diagnosis of the bank's problems, including a stress test and, where applicable, details on treatment of impaired assets," explains a note published by the EU executive.
As already anticipated (EurActiv 17/07/09), these banks might also be forced to sell assets and potentially narrow their geographical reach in order to become viable. Brussels underlines, though, that the guidelines are not aimed at seeing banks withdraw from foreign markets. On the contrary, the integrity of the internal market remains a priority.
In exchange for this tighter control regime, Brussels is ready to extend the duration of state-aid support from the current two to three years to a maximum of five years, reads the document approved by the Commission.
Individual stress tests are a key component of the guidelines, and Brussels is pushing for common principles to be defined to roll them out across Europe. "It is essential from our point of view that Europe begins developing a common methodology for establishing the best case, the average case and the worst-case scenario," a top EU official said.
He acknowledged that there are national specifics, such as a strong reliance on construction activities like in Spain, or "unsustainable credit-card use" like in the UK, but "we don't think it is impossible to define common criteria," the official added.
The test results should not be made available to the public due to the high market-sensitivity of the information, with only the methodology used to carry out the tests being disclosed, the official explained.
The Committee of European Banking Supervisors (CEBS) is currently coordinating an EU-wide stress test to be concluded in September. Although some specific banks are involved, the test will only provide an assessment of the viability of the banking sector as a whole. The banks involved will not to be named unless member states and the banks themselves decide otherwise.
