Brussels fast-tracks approval of bank bail-out plans

The European Commission yesterday (1 October) gave the thumbs up to a rescue plan for British mortgage lender Bradford & Bingley and is expected to do the same for Belgo-Dutch bank Fortis within days.

The Commission is flexibly interpreting its usually very strict rules on state aid to address the unprecedented crisis facing the banking sector. 

Competition Commissioner Neelie Kroes yesterday explained that the EU treaties allowed her to act in a flexible manner “in circumstances of extreme gravity”.  She was nevertheless quick to add that state aid rules are key to providing a level playing field for European companies and “are part of the solution, not the problem”.

The first application of the flexible approach saw the Commission approve, within 24 hours, an emergency plan presented by the UK authorities to salvage ailing lender Bradford and Bingley (B&B), which failed over the weekend due its high exposure to so-called “toxic” financial products. 

Kroes said the fast-track approval was “a record” for the EU’s competition services, which usually take much longer to rule over state aid cases. The British authorities now have six months to present the Commission with a restructuring or liquidation plan for B&B. Brussels will then evaluate the state aid involved and the possible distortion to competion it entails “as a matter of urgency”. 

In another decision announced yesterday, the Commission opened an investigation into the restructuring of German bank WestLB, which in April experienced turmoil similar to that currently affecting B&B and Fortis. At the time, the Commission approved a temporary rescue plan by the German authorities and it will now begin to scrutinise the plan submitted to review the bank’s structure. The evaluation will take some time in WestLB’s case, the Commission indicated.

On the other hand, a decision on the rescue of Fortis, which received a massive €11.2 billion bail-out package from Benelux governments on Sunday to avert a possible collapse, should be made in a matter of hours or days.

The Commission said it was waiting for notifications by the states involved but Kroes’s spokesperson already offered a conciliatory message: “We are confident that measures will be compatible with rules. Since we are in contact with the authorities and they show to listen to us, there is no reason to think that competition and state aid rules will not be respected,” he said on Tuesday (EURACTIV 30/09/08).

The EU executive is also waiting for notifications from national authorities on the rescues of Franco-Belgian bank Dexia and German Hypo Real Estate mortgage lender. The Irish government also has to explain measures taken to guarantee the deposits of six Irish banks.

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