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State aid: Commission approves Austrian support scheme for financial institutions
Commission Européenne - IP/08/1933 10/12/2008
Brussels, 10th December 2008
The European Commission has approved, under EC Treaty state aid rules, an Austrian package of measures aimed at stabilising the financial markets by providing guarantees, capital and loans to eligible credit and insurance institutions. After intensive exchanges with the Austrian authorities, the Commission found the scheme as amended to be in line with its Guidance Communications on state aid to overcome the financial crisis (see IP/08/1495 and IP/08/1901). In particular, the measures provide for non-discriminatory access, are limited in time and scope, require market oriented remuneration and contain sufficient safeguards to avoid abuses. The Commission therefore concluded that the package was an adequate means to restore a serious disturbance of the Austrian economy and as such compatible with Article 87.3.b of the EC Treaty.
Competition Commissioner Neelie Kroes said: "After intensive negotiations, the Austrian scheme has become a comprehensive tool for stabilising the financial sector, with some innovative features such as the Clearingbank. It is now fully in line with the latest Commission guidance paper on recapitalisation. I am confident that the scheme will help providing credit to the real economy."
At the end of October, Austria informed the Commission about a support scheme for credit and insurance institutions, aimed at encouraging interbank lending and stabilising the financial markets. After a series of exchanges and discussions with the Commission on details of the scheme's implementation, an agreement was reached on 9 December.
The discussions were necessary to allow for an appropriate assessment of the measures and to ensure that they are in line with the relevant framework conditions, in order to avoid undue distortions of competition within the Single Market. These contacts also ensured that there would be an adequate remuneration for the capital injections and the necessary incentives for institutions to repay the state capital.
The Austrian package consists of two different legal measures. First, guarantee measures with a total budget capped at €75 billion aimed at stabilising the interbank market and set out in the Austrian law "Interbankmarktstärkungsgesetz": To this end a Clearingbank was created, which is guaranteed by the state. It will collect deposits from financial institutions and raise funds on the markets and distribute these funds to other financial institutions in need of funding. In addition, the state can give a guarantee for the issuance of financial instruments from financial institutions.
Second, the "Finanzmarktstabilitätsgesetz" law provides for additional measures, including state guarantees on the liability and asset side, loans and recapitalisations, with a total budget of €15 billion.
The major novel feature apart from the Clearingbank is a guarantee for the asset side of the balance sheet, thus protecting recipient banks from potential value adjustments of these assets, which must be remunerated properly. Two types of guarantees are possible: First, if the guarantee is granted for balance sheet items which are equal to the book (or a more recent) value, then the remuneration for the asset guarantee follows the remuneration for liability guarantees. Second, if asset guarantees are given which are higher than the book (or a more recent) value, then the difference between the guarantee value and the book value is interpreted as a capital injection and has to be remunerated accordingly and be accompanied by a restructuring plan. This system of remuneration reduces the incentive for using this type of guarantee and avoids abuses. Furthermore, the guarantee can only be called if the bank fails.
The adequacy of a recapitalisation is ensured by strict conditions such as a dividend restriction and a remuneration corridor which includes step-up clauses and a higher repayment of capital to the state in some circumstances. An even higher remuneration needs to be asked from distressed banks. The measure is fully in line with the newly adopted Commission guidance on bank recapitalisation (see IP/08/1901).
Also the conditions of the liability guarantees are in line with the Commission guidance. The Commission considers the pricing of the guarantees to be adequate especially since specific behavioural conditions apply, such as a ban on advertising the state support.
The Commission found the scheme and the commitments to constitute an appropriate means to restore confidence in the creditworthiness of Austrian financial institutions and to stimulate interbank lending. The measures are well-designed and interventions will be limited to what is necessary to achieve the stabilisation of the Austrian financial sector.
Finally, Austria has made the commitment to renotify the scheme for prolongation if it should be applied beyond a period of six months and to report every six months to the Commission on its implementation. This will enable the Commission to verify that the measures are not maintained beyond the end of the financial crisis.
The non-confidential version of the decision will be made available under the case number N557/2008 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.