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State aid: Commission approves Finnish state guarantee for Kaupthing Bank
Commission Européenne - IP/09/82 21/01/2009
Brussels, 21st January 2009
The European Commission has approved under EC Treaty state aid rules a Finnish state guarantee accompanying a private sector arrangement to the benefit of depositors in the Finnish branch of the insolvent Kaupthing Bank. The measure guarantees the banks who ensured full compensation of Kaupthing's Finnish depositors against legal risks. The Commission found the measure to be in line with its Guidance Communication on state aid to overcome the financial crisis (see IP/08/1495). In particular, the measure is necessary to preserve confidence in the financial markets and is limited to the minimum necessary to achieve this objective. The Commission therefore concluded that the scheme was an adequate means to remedy a serious disturbance of the Finnish economy and as such in line with Article 87.3.b of the EC Treaty.
Competition Commissioner Neelie Kroes said: "The state guarantee combined with the Finnish banks' initiative will help to maintain depositors´ confidence and stability in the Finnish banking sector. The Commission decision demonstrates once again the value of state aid policy in this time of financial crisis."
The failure of the Icelandic Kaupthing Bank h.f. triggered also the failure of its Finnish branch. As a result, the branch's depositors were unable to make immediate withdrawals or might have lost part of their deposits. Fearing a broader loss of confidence among Finnish depositors in general, the main Finnish banks offered to compensate depositors in full.
The three commercial banks involved, - Nordea Bank Finland plc, OP-Pohjola Group Central Cooperative and Sampo Bank plc, and a special purpose vehicle took over the credit claims and other assets of Kaupthing Bank h.f. and settled all the deposit claims in Finland. The Finnish State provided a guarantee to the participants, to cover the legal risks, i.e. potential economic losses suffered from recovery claims or equivalent insolvency claims.
While this guarantee includes state resources, the measure clearly helps to implement a private arrangement to restore the confidence in the Finnish banking sector and more generally in the Finnish economy. Public confidence is, beside adequate liquidity, one of the essential conditions for the proper functioning of the banking sector. Hence, if the issue of lack of confidence were not addressed, it would result not only in difficulties for the banking sector, but also, due to the financial sector's pivotal role in providing financing to the rest of the economy, have a systemic and harmful spillover effect on the Finnish economy as a whole.
In addition, in the light of planned co-operation between the Finnish and Icelandic authorities, the risk of recovery claims materialising appears low. This, in turn, minimises the legal risk of claims and thus the amount of potential indemnity payments by the state.
Therefore, the Commission concluded that the guarantee would not give rise to disproportionate distortions of competition within the Single Market.
The non-confidential version of the decision will be made available under the case number NN2/2009 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.