EU approves major state aid scheme for Spanish banks

Thu, 28 Jan 2010

Brussels - The European Commission has given six-month approval to a major Spanish government plan to help its banks weather the financial crisis, the European Union Competition Commissioner Neelie Kroes announced Thursday. The scheme allows a publicly owned institution - the Fondo de Reestructuracion Ordenada Bancaria (FROB) - to inject cash in the country's financial institutions in order to improve their balance sheets.

"The Spanish recapitalization scheme will strengthen confidence in the Spanish banking system and, above all, encourage lending to the real economy," Kroes said in a statement.

Her spokesman, Jonathan Todd, added that the scheme is set to apply to "50 per cent of Spanish credit institutions". Aid is targeted in particular towards non-listed savings banks, which have been badly hit by the collapse of the real estate sector.

The commission is the EU's executive arm and is the bloc's highest authority on antitrust and state aid cases.

In exchange for her approval, Kroes obtained a pledge by the Spanish authorities that before each FROB intervention the commission would receive a Bank of Spain's report on the risk profile of the recipient bank.

The EU executive will then "indicate the necessary follow-up," insisting for example that banks that receive help are subjected to a restructuring plan.

Spain is due to notify all recapitalizations "exceeding 2 per cent of risk weighted assets to banks that are not fundamentally sound," the press release added. Aid in these cases will be examined "on a case by case basis" by the commission, Todd stressed.

Brussels' approval is limited to June 30. Spain can ask for an extension, but it is also expected to present a biannual report on the functioning of the scheme which will influence the commission's decision.

Source: Earth Times.
Link: http://www.earthtimes.org/articles/show/306350,eu-approves-major-state-aid-scheme-for-spanish-banks.html.