European Commission authorises extension of bank support schemes

The European Commission has authorised, under EU state aid rules, a six month prolongation of guarantees schemes for credit institutions in Ireland and Spain, until December 31.

The Commission said it considers the extension of the measures to be in line with its guidance on support measures for banks during the financial crisis. In particular, the extended measures are well targeted, proportionate and limited in time and scope.

The Commission has, therefore, concluded that the guarantees schemes represent an appropriate means of remedying a serious disturbance in the Irish and Spanish economies and as a such, are compatible with Article 107(3)(b) of the EU Treaty.

During the application of the crisis rules for state aid to banks, the Commission has been authorising guarantee schemes on banks’ liabilities for periods of six months in order to be able to monitor developments and adjust conditions accordingly.

The number of guarantee and liquidity schemes has gone from 16 at the end of 2010 to nine in the first half of 2011. The use of state guarantees has also decreased, as the financial situation improved somewhat, banks are being restructured and the conditions of the guarantees themselves were tightened in July 2010.