Nov. 9 (Bloomberg) -- The European Union may “gradually” tighten the terms for government banking-industry guarantees starting in mid-2010 as financial markets stabilize, according to a draft report by EU regulators.

EU governments, which have provided 920 billion euros ($1.3 trillion) in guarantees after the collapse of Lehman Brothers Holdings Inc. last year exacerbated the financial crisis, should begin making national plans “less attractive” by bringing the pricing of support “closer to market conditions,” according to the draft document obtained by Bloomberg News. The changes, which may be announced before year end, could apply to aid plans extended after June 2010, according to the paper.

“This could possibly imply the tightening of the conditions under the schemes and restrictions of the terms of use,” according to the document, prepared by the EU’s competition regulator. The paper will be discussed tomorrow at a meeting of EU finance ministers in Brussels.

Any phasing out of government support, such as $16.9 billion in French and Belgian guarantees last year for Dexia SA, should be done without putting financial stability or the “still fragile recovery” at risk, the regulator, the Brussels- based European Commission, said in the document. The paper doesn’t mention individual banks.

“A lot of banks still have a lot of write-offs to do because of companies not being able to pay off their loans,” Dutch Finance Minister Wouter Bos said today in Brussels. “As long as the situation isn’t stable, I don’t think we should withdraw stimulus packages from banks,” he said.

“A gradual process is required which takes changing market conditions into account and is tailored to the specifics of every case,” according to the draft paper.

Jonathan Todd, a spokesman for the commission, wasn’t immediately available to comment.

To contact the reporters on this story: Matthew Newman in Brussels at Mnewman6@bloomberg.net; Meera Louis in Brussels at mlouis1@bloomberg.net.

Last Updated: November 9, 2009 12:23 EST