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State aid: Commission approves UK Asset-Backed Securities Guarantee Scheme
Commission Européenne - IP/09/613 21/04/2009
Brussels, 21st April 2009
The European Commission has approved, under EC Treaty state aid rules, the UK's Asset-Backed Securities Guarantee Scheme, which forms part of UK measures to support the banking industry during the current financial crisis. The scheme was notified on 17 April 2009, and stressed the adverse development of the UK housing market as a consequence of the credit contraction. The measure is intended to expand the funds available to banks to promote lending to homebuyers and homeowners. Under the scheme, investors will benefit from the guarantee provided to securities issued by special purpose vehicles collateralised with residential mortgages. Guarantees allocated under the scheme will be limited to a total of £50 billion. The Commission found that current conditions on the financial markets justify the scheme, which aims at facilitating banks to acquire liquidity and underpin lending to the UK real economy. The Commission therefore concluded that the UK support measures are compatible with EC Treaty rules allowing aid to remedy a serious disturbance in a Member State's economy (Article 87.3.b), as explained in the Commission's Guidelines Communication on the application of state aid rules to banks during the financial crisis (see IP/08/1495).
Competition Commissioner Neelie Kroes said: "The Commission is satisfied that this measure will help to reactivate the UK Residential Mortgage Backed Securities market and facilitate the restoration of more competitive mortgages for UK borrowers whilst avoiding disproportionate distortions of competition".
On 17 April 2009, the UK notified its intention to setting up another scheme to alleviate the funding constraints that banks are currently suffering. The measure is focused on mortgage lending and intends to restore one of the main sources of leverage that UK banks used. The UK Residential Mortgage Backed Securities market is the second largest such market worldwide. By guaranteeing AAA rated notes issued by special purpose vehicles sponsored by a bank or building society, the UK Government will encourage the return of confidence in this important market for the UK economy.
The instruments eligible under the ABS Scheme are bonds issued by vehicles sponsored by UK banks and building societies that have a substantial business in the UK.
The Commission concluded that the scheme complies with the conditions laid down in its Guidance Communication on state aid to the financial sector during the crisis (see IP/08/1495). In particular, the Commission found that the scheme is well targeted to remedy a serious disturbance in the UK economy, proportionate to the challenge faced and designed to minimise negative spill-over effects on competitors, other sectors and other Member States. The scheme is non-discriminatory, limited in time (six months) and scope and with a market-orientated remuneration.
The non-confidential version of the decision will be made available under the case number PN 65/2009 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.