European Governments Get 'Creative' on Bank Aid, Official Says

  • Governments' bank aid plans aim to avoid state aid reviews
  • Italy, Hungary programs for NPL loans weren't state aid

European governments are getting “extremely creative” with plans to aid banks and avoid a European Union probe into unjustified subsidies, a top European Commission antitrust official said.

Johannes Laitenberger, the EU’s director general for competition, said governments “are already pushing the boundaries” of state aid rules by devising special purpose vehicles, funding mechanisms, capital instruments and derivatives. These are designed to “circumvent the basic principle” that financial institutions receiving repeated subsidies should be wound up, he said.

“They will try to pretend that these measures are not aid by claiming” that they operate on the same terms as those a private investor would accept, that they don’t cost the state or by saying they don’t favor banks over others, Laitenberger said in a speech he gave in Lisbon on Jan. 25 that was published on the EU’s website on Thursday.

Laitenberger’s speech was published a day after the EU said Italian and Hungarian programs to support banks by buying non-performing loans don’t involve state aid that would require an EU review. Italy “intervenes as a private investor” with a bad-bank deal that allows lenders to offload soured loans after buying a state guarantee, while Hungary’s MARK asset-management company will buy loans at market prices, the EU said.

The EU “will continue applying a clear and consistent definition of state aid to preserve equality of treatment and a level playing field between all” EU nations, Laitenberger said.

“If we don’t do that, then the whole system of resolution, and consequently the whole banking union, will be undermined,” he said.

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