14 October 2008

Commission approves UK support scheme for financial institutions

The Commission approved the UK state aid package concluding that this is limited in time and scope and provides non-discriminatory access for financial institutions with substantial business in the UK.

The Commission approved the UK state aid package that would provide new capital to eligible banks and building societies, guarantee short and medium term debt to encourage inter-bank lending and offer liquidity to banks under strict conditions.

 

The package consists of:

• A recapitalisation scheme, making available new capital to banks and building societies in exchange for preference or ordinary shares, to allow them to strengthen their balance sheets against possible losses;
• A guarantee scheme covering the new issuance of short and medium term debt, in return for market-oriented remuneration, to support fundamentally sound banks that, due to the current crisis, are unable to access funding and
• An extension of the short term liquidity measures provided by the Bank of England.

The Commission concluded that the package is limited in time and scope and provides non-discriminatory access for financial institutions with substantial business in the UK. It caps the future lending activity of participating institutions with regard to their past balance sheets, in order to avoid abusive expansion, based solely on advantages derived from the state support. At company level, it limits managers' remuneration and requires the beneficiaries to respect good governance practices.

 

Companies that benefited from capital injections and that intend to maintain the state's shareholding beyond a certain timeframe have to submit a restructuring plan to the Commission. Debt guarantees on newly issued debt will be available only to financially sound beneficiaries that meet certain capital ratios.

 

The UK has committed to report to the Commission every six months on the execution of the scheme.

 

Press release

 

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