EU to extend bailout rules until 'the end of next year'
States can fast-track bank guarantees and recapitalisations until 'normality returns'
Published 02/12/2011 | 05:00
THE EU has said it will extend emergency rules for bank bailouts and guarantees as the sovereign debt crisis continues to eat away at lenders' solvency.
The bloc's competition chief Joaquin Almunia said yesterday that the rules would apply at least until the end of next year, or until market conditions return to "normal".
"My intention had been to put an end to the crisis regime in December 2011, but since last summer I was obliged to change my mind given the stronger tensions in sovereign debt markets and the transmission of those tensions to interbank markets," Mr Almunia said.
"Hopefully the problems in the sovereign debt markets will be tackled and the tensions in these markets will recede."
EU governments have so far pledged €4.6trn to aid banks, using up €1.6trn by the end of last year, according to the European Commission.
Ireland tops the scoreboard, having used up a quarter of the EU's total. The UK and Germany came second and third.
However, they may be tapped for more money after eurozone leaders agreed last month that Europe's 70 largest lenders should build up a temporary capital buffer of 9pc to shoulder any losses they might incur after a second Greek bailout is implemented.
The new rules mean the State will continue to be able to fast-track guarantees and recapitalisations through the EU's traditionally strict competition watchdogs, as it has done since 2008.
They lay down new pricing rules, saying that governments taking a stake in banks in the form of ordinary shares should apply a discount when making the capital injection.
States taking shares without voting rights should apply a larger discount, while preference shares should be repaid in cash or by the bank issuing new shares.
Banks receiving state aid will still be required to submit restructuring plans but the EU may go easy on lenders that can prove their difficulties are linked to the sovereign debt crisis, or where the bailout is limited to the cost of marking their sovereign holdings to market prices, as required by eurozone leaders.
However, those banks will have to prove they did not take "excessive risk" when acquiring the debt.
Government guarantees should cover debt maturing between one and five years, or seven years for covered bonds.
Interest payments on the guarantees will be linked to the bank's solvency by examining the price of credit default swaps on the lender over the previous three years.
"We are not introducing anything new -- we are, rather, explaining in detail how to ensure member states are adequately remunerated in the future," Mr Almunia said.
He also admitted that a plan to mutualise bank guarantees across the 27 EU states fund had fallen by the wayside after finance ministers balked at the idea during talks this week.