BRUSSELS & BERLIN – The European Union has approved Germany’s €500 billion bank bail-out scheme following the European Commission’s confirmation on Tuesday (October 29) that it complies with EU state aid guidelines.
The Commission said the plan represented a comprehensive range of commitments to ensure against manipulation or threats to competitiveness among Europe’s struggling banks. The German rescue is divided into three measures, and is similar in its structure to the recently announced British support package.
Neelie Kroes, European competition commissioner, says: “The German rescue package is an efficient tool to boost market confidence, but at the same time is ring-fenced against abuses. I hope other member states will soon follow course.”
The first element involves the recapitalisation of banks and insurance groups in exchange for shares. This is reinforced by a government guarantee scheme for short- and medium-term lending. The final part is a ‘temporary’ state acquisition of risky assets, on the understanding they will be bought back within three years without loss to the government.
The government nationalisation of assets rests on the understanding that the state does not bear the risk, and that the firms will also provide a minimum premium and cover the costs of the necessary liquidity.
The German plan also includes a cap on remuneration packages, sets behavioural standards for banks receiving aid and bans ordinary dividends. Any bank or insurer taking state money must maintain a high solvency ratio and submit a long-term restructuring plan to Brussels within six months, subject to EU approval.
The German government also says it will report on the plan’s implementation to the European Commission at six-month intervals. The plan is the fourth from an EU member state to gain approval, following plans from the UK, Denmark and Ireland. Spain and Portugal have already submitted their own bail-out schemes, and the Commission is understood to be in talks over similar bail-outs with the Benelux countries.
The week on Risk.net,October 14-20, 2016Receive this by email