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State aid: Commission extends crisis rules for banks

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The European Commission has updated and prolonged a set of temporary state aid control rules to assess public support to financial institutions during the crisis.

The main provisions consist in explaining how to ensure that the State is adequately remunerated if – as is increasingly likely in the future - Member States decide to recapitalise their banks using instruments, such as ordinary shares, for which the remuneration is not fixed in advance. A revised methodology was also agreed concerning the remuneration of guarantees for banks' funding needs – the bulk of the support to date – to ensure the fees that banks pay reflect their intrinsic risk, rather than the risk related to the Member State concerned or the market as a whole. The rules will apply as long as required by market conditions.

In 2008-2009, the European Commission adopted special state aid rules to allow Member States to support the banking system during the financial crisis for the sake of financial stability without undue distortions of competition in the European Union's single market. The crisis rules have proven their value in ensuring that banks restructure when changes to their business models are required to ensure their long-term viability, e.g. if they are heavily reliant on risky activities. By also ensuring that shareholders and hybrid capital holders bear a fair share of the burden, the Commission ultimately reduced the amount of taxpayers' money used to support the banks.

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