Bloomberg News

‘Huge’ Bank Bailouts Need to Be Probed by EU, Almunia Says

October 06, 2011

(Updates with EU comment on state support in fifth paragraph.)

Oct. 6 (Bloomberg) -- The European Union needs to examine any “huge” state recapitalizations of banks in the region as part of its oversight of government subsidies, according to Joaquin Almunia, the EU’s antitrust commissioner.

Almunia, who is responsible for checking that state handouts don’t distort competition in the 27-nation region, said governments should stand by to act “as the last resort” to help banks if the market won’t provide the level of capital they need.

“It is necessary to have state-aid control for this huge amount of public resources channeled in support of the banking sector through public capital injections” or help “for the treatment of impaired assets or guarantees for liquidity,” he said at a conference in Brussels today.

Signals that European politicians may step up efforts to aid banks and push investors to accept bigger losses as part of a Greek bailout reflect international pressure to end the debt crisis and domestic opposition to expanding rescues. Moody’s Investors Service followed its three-level downgrade of Italy on Oct. 4 by warning that euro-area nations rated below the top AAA level may see their rankings cut.

Almunia’s comments “in no way suggest huge public support to come” and he was “making the case for state aid control which is sometimes contested,” his spokeswoman Amelia Torres said in an e-mail.

Coordinated Capital Injection

German Chancellor Angela Merkel is hosting the heads of the International Monetary Fund and World Bank today as European bank shares gained for a second day as officials discuss a coordinated capital injection.

Almunia said that EU state-aid controls fill the gap left by the absence of region-wide resolution rules to allow the orderly winding down of lenders.

The European Commission has typically forced banks that received public support to restructure and shrink their balance sheets in return for the EU’s approval for handouts.

EU regulators are currently working on restructuring plans for 21 banks, Almunia said in a speech earlier this week. It has ruled on restructuring plans for 25 banks and the orderly liquidation of 11 lenders since October 2008.

EU governments have granted banks some 1.24 trillion euros ($165 trillion) in aid from October 2008 until the end of 2010, mostly in the form of guarantees, the commission says.

Almunia said earlier this week he would need to probe any new French and Belgian state aid for Dexia SA after shares of the municipal lender plunged the most since its creation.

--Editors: Peter Chapman, Anthony Aarons

To contact the reporter on this story: Aoife White in Brussels at awhite62@bloomberg.net

To contact the editor responsible for this story: Peter Chapman at pchapman10@bloomberg.net


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