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Brussels, 14th November 2008

State aid: Commission authorises Italian scheme for refinancing credit institutions

The European Commission has authorised under EC Treaty state aid rules Italy's liabilities' guarantee and swaps scheme for credit institutions aimed at stabilising financial markets. The Commission concluded that the scheme is an appropriate, necessary and proportionate means to remedy a serious disturbance in the Italian economy, in line with the criteria set out in the Commission's Communication on support for banks during the financial crisis (see IP/08/1495), and is, therefore, compatible with Article 87(3)(b) of the EC Treaty). In particular, the scheme provides for non-discriminatory access, is limited in time and scope, and introduces proper safeguards for limiting distortions of competition. The recapitalisation measures notified by Italy will be the dealt with in a separate decision.

Competition Commissioner Neelie Kroes said: "The Italian guarantee and swap scheme is an effective instrument for boosting market confidence and the commitments we have secured from the Italian authorities ensure that distortions of competition are kept to a minimum."

On 13 October 2008 the Italian authorities adopted a decree establishing several measures for stabilising the financial markets[1]. Following contacts with the Commission, the scheme was notified on 17 October 2008.

The measures comprise:

  1. a state guarantee on new liabilities issued by banks for maturities longer than 3 months and up to 5 years
  2. a 6-months renewable swap between bank's debt certificates and Treasury bills, whose interest rate and maturity perfectly match, so as to ensure an identical cash flow and straightforward pricing, and
  3. a state guarantee for banks in favour of third parties (like insurance companies) lending them high-grade assets which are in turn used by the banks in the Eurosystem to get refinancing.

All three measures are open for solvent banks only. Their remuneration is based on European Central Bank (ECB) recommendations; the scheme also foresees specific top-ups for guarantees on liabilities longer than 2 years and for swaps between liabilities and Treasury bills.

In addition, the Italian central bank set up a one-month swap facility to allow a temporary exchange of government bonds held by the central bank with financial instruments held by banks and rated at least BBB; this facility is capped at €40 billion.

The Commission reached the conclusion that the Italian refinancing scheme was an appropriate means of restoring confidence on the financial markets, in line with EU state aid rules. In particular, it provides for:

  • non-discriminatory access for banks authorised in Italy, including the subsidiaries of foreign groups;
  • a market oriented pricing mechanism;
  • appropriate safeguards against abuses, including restrictions on advertising and balance sheet growth of the beneficiary banks.

The Italian authorities committed that the total amount of guarantees issued with a maturity of more than three years will not exceed 25% of the total amount covered. Likewise, Italy will monitor that the total amount to be received by a bank does not exceed certain pre-defined thresholds.

In any event, Italy has undertaken to re-notify the possible need to extend the measures beyond six months from the entry into force of the scheme, depending on developments in the financial markets.

The one-month swap facility introduced by the Italian central bank is also compatible with the state aid rules.

The non-confidential version of the decision will be made available under the case number N 520a/2008 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. The latest publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

[1] NB: besides this scheme, Italy notified further measures, notably for bank recapitalisation, for which the implementing provisions are in preparation. These measures will be the subject of a separate decision.

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