Brussels, 30 September 2010
State aid: Commission approves Danish bank wind-up scheme
The European Commission has authorised under EU State aid rules a resolution scheme for the handing of distressed banks in Denmark. The Commission found the scheme to be compatible with EU rules that allow aid to remedy a serious disturbance in the economy of a Member State. In particular, the measure is limited in time and scope, ensures adequate burden-sharing and contains safeguards to avoid undue distortions of competition.
“A resolution scheme must bring swift and efficient support, when a failing bank needs to be wound up, so as to safeguard financial stability and minimise economic losses. At the same time, moral hazard and distortions of competition need to be limited in the interest of European consumers and taxpayers. I am satisfied that the scheme created by Denmark fulfils these conditions.", said Joaquín Almunia, Commission Vice President in charge of Competition Policy.
The objective of the scheme is to safeguard financial stability and minimise economic losses, when a bank becomes unable to meet the conditions set for its operation by the Danish Financial Supervisory Authority. It provides for an orderly winding up of the failing bank, transferring its assets and part of its liabilities to a bridge bank to be set up under the aegis of the Danish Financial Stability Company. The latter would provide capital, and, if necessary, liquidity to the bridge bank.
The Commission found the scheme to be in line with its Guidance Communications on state aid to overcome the financial crisis (see IP/08/1495). In particular, the aid is limited to the minimum necessary to ensure an orderly winding-up. Moreover, burden-sharing is ensured by excluding shareholders and subordinated debt holders of the failed bank from any benefit from the aid. Finally, strong limitations on the activities and the lifespan of the bridge bank will minimise distortions of competition that may arise from the state measure.
The authorisation is granted until 31 December 2010. Beyond that date, the Commission will reassess the compatibility of the measure on the basis of the evolution of the economic and regulatory context.
The scheme was set up by Law nr. 721 of June 25, 2010, which establishes the framework for the handling of distressed banks by the Financial Stability Company, set up by Denmark in the wake of the financial crisis. It supersedes a temporary winding-up scheme that was approved by the Commission until October 2010 (see IP/08/1483).
Also other countries are considering the creation of resolution schemes to handle future bank failures in an orderly way. On this topic, the Commission published a Communication on "Bank Resolution Funds" (see IP/10/610) in May as one of the tools to be used during the management of future crises.
The non-confidential version of the decision will be made available under the case number N407/2010 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.