EC extends state aid rule as funding crisis worsens

LOOSER rules on state aid to troubled banks – introduced in 2008 – have been extended again as the European Commission (EC) fears banks would not survive without help.

“Stronger tensions in sovereign debt markets and the transmission of those tensions to interbank markets and to funding conditions for banks” persuaded competition commissioner Joaquin Almunia to take the action.

Lenders benefitting from support like recapitalisation will still be required to restructure before approval is granted, and heavy users must show they remain viable, but some changes to the regime will be made.

Banks will be expected to increase the use of shares rather than cash in remunerating the state for any support given, for example.