19 November 2009

Commission decisions on KBC, ING and Lloyds – frequently asked questions – better understanding of the restructuring plans

The questions include Commission's position as regards the bancassurance model, as the Commission has approved divestment of the insurance unit and back to basics model. The Commission is not against this model and asses on a case by case basis.

What criteria did the Commission use in its assessment of the three banks' restructuring plans?

The Commission's priority is to ensure that banks which have received state aid can operate in the future without such state support, and hence that they have sustainable long-term business models.

The Commission applies the same principles to all banks receiving restructuring aid. These are outlined in the bank restructuring Communication of 22 July 2009 (see IP/09/1180 ). The Commission requires:

              i.that the bank will be viable under reasonable stress assumptions without further injections of taxpayers' money in the future;

             ii.that the bank contributes a significant proportion of the costs of its restructuring via the sale of assets or other means; and

            iii.that competition distortions created through the aid are sufficiently addressed through relevant reductions of activities.

Why do the restructuring plans aim at creating a new competitor on the UK, Dutch and Belgian markets respectively?

The Commission's Restructuring Communication outlines that in its assessment, the Commission will examine the structure of the markets on which the banks operate. The three domestic markets in which the banks in question operate are concentrated, with the top five banks accounting for around 80% of each market. The divestments in question will therefore create opportunities for new entrants or an already present smaller player, and will therefore remedy any distortions of competition caused by the state aid.

What effect will the Commission's requirements have on the ability of the banks in question to compete in world markets?

This ability will be enhanced once the banks in question, as a result of the restructuring plans, have established stable core activites, solid finances and sound risk management methods.

Will there be sufficient market interest in the divested activities?

The divestments have been proposed by the banks themselves. The indications on the basis of consultations by the Commission are that there is a sufficient degree of market interest in the entities to be divested. The Commission will closely monitor the fulfilment of the relevant obligations.

What is the purpose of price leadership bans?

The price leadership bans ensure that, in line with the restructuring Communication, state aid that has been received cannot be used to offer terms which cannot be matched by competitors which have not received state aid. The specific form of any ban will depend on a case-by-case analysis, and will strike the most appropriate balance between distortions of competition caused by the state aid and the need to maintain competitive market conditions.

It should be recalled that for example in the case of ING where the most far reaching ban is foreseen, the restriction was just one option proposed to the Dutch authorities, which was acceptable to them and above all preferred over other measures.

 

 

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