Brussels, 9 th June 2009
State aid: Commissioner Kroes briefs June 9 Council of Economics and Finance Ministers on restructuring of banks and their r eturn to viability
European Commissioner for Competition Neelie Kroes briefed the EU's Council of Economics and Finance Ministers in Luxembourg on 9 th June on the restructuring of banks and their return to viability without state support. Commissioner Kroes underlined that financial stability and the preservation of competitive markets are complementary objectives and that those who pretend that we should forget about competition for the sake of financial stability are missing the point. This is the full text of her intervention:
"Governments and central banks have been instrumental in preserving financial stability in the recent months. However, temporary rescue measures will not take us out of the financial crisis.
"We need to start thinking about a return to viability without state support, which means the timely phasing out of the rescue schemes.
"In that context, let me underline that financial stability and the preservation of competitive markets are complementary objectives. Those who pretend that we should forget about competition for the sake of financial stability are missing the point.
"Without viable banks operating within well-functioning markets, we will not deliver financial stability, we will not restore market confidence and we will not re-start lending to the economy!
"This is why the Commission has already commenced a process of restructuring for banks that received state aid and that are not fundamentally sound. This is the necessary cure to return to long-term prosperity.
"By restructuring, I mean tackling the problem of impaired assets, the problem of insufficient capitalisation and the problem of banks' business models, risk management and governance in general. The Commission is providing a process whereby we will check with Member States that aided banks' long term viability is demonstrated before we give a final approval to state aid. Not every bank that receives state aid will need to change its business model. But we need to make sure that all of them will have a viable future. This is the first step in our analysis.
"Secondly, we also need to make sure that competition distortions are limited. Not all banks in the EU needed state aid. The crisis was due to the excessively risky behaviour of some banks, which actually expanded in the pre-crisis period as a result of these excessive risks. It would be disastrous that those banks that behaved imprudently would be rewarded through state aid, and could thrive to the detriment of non-aided rivals.
"To avoid encouraging moral hazard, and avoid the next crisis, we need to make sure that the banks that should have exited the market but were saved by governments (for reasons of financial stability), are not in a position to undermine the growth of their rivals. Long-term financial stability requires that banks are rewarded for being viable, not the contrary!
"Besides, it would also be unfair, and contrary to internal market principles, if the banks of Member States with deeper pockets could grow through state aid to the detriment of banks in poorer Member States.
"We also need to make sure that national interventions do not undermine the Single Market, by excessively focusing the banks' activities on lending to the national economy and preventing foreign entry.
"The Commission aims at finalising shortly some guidelines for restructuring banks and returning to viability. We are in the process of reviewing comments received from the Ministries of Finance through consultation of the Economic and Financial Committee. I hope that this process can be finalised rapidly, so that we can catch up with the US market, restructure our banks and overcome the crisis."