Almunia: The role of competition policy on financial stability
05 November 2010
Commissioner Almunia stressed that the Commission still needs to ensure a proper exit strategy from the exceptional state aid régime of the last two years. It is essential to implement better regulation on the financial sector which will curb some of banks’ excesses.
From 2008 to August 2010, the Commission authorized interventions for a total of about €1 trillion, of which about 677 billion were used.
The Commission authorized a further €3.6 trillion in guarantees, of which about €1.6 trillion were used.
The Commissioner presented the following most difficult cases: Ireland and Germany.
- Ireland has been particularly hit by the financial crisis. Apart from the drying up of access to wholesale funding, Ireland and the Irish banks had to face the collapse of the Irish property market and a considerable downturn of the economy. All the banking system –with the exception of foreign owned entities- were affected. As the bill for the rescue of the Irish banks has increased, so has the pressure on Irish sovereign debt. The Commission is now in the process of assessing the restructuring plans of Allied Irish Bank, Anglo Irish, INBS and EBS. The restructuring plan of Bank of Ireland was already approved in July 2010.
- Unlike Irish banks, German banks suffered mostly from their exposure to foreign investments. This is mainly the result of the low profitability of their domestic retail and commercial banking activities –some of them with serious problems in their business models - which led them to venture into low margin high volume business at a large scale. Several public and private banks required bail-outs by the Government. Beside IKB, Commmerzbank and Hypo Real Estate, this concerned a number of Landesbanks: Sachsen LB, Bayern LB, LBBW, HSH Nordbank and WestLB.
What is next?
The Commission is working on defining the new rules for rescuing and restructuring aid for banks. Almunia's intention is for this work to be finalized and to change over to new normal rules from 1 January 2012, market conditions permitting.
A lot of work is being done in parallel. From the new regulatory regime – including Basel III integration in the Capital Requirements Directive - to the future resolution regime, that should provide a coherent framework for the future implementation of our restructuring rules.
On the 1st of January the new European supervisory authorities and the Systemic Risk Board will start working.
More generally, the new economic governance based on the Commission’s recent proposals and the conclusions of the Van Rompuy task force will improve the way the Economic and Monetary Union works.
© European Commission
