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EU Commission clears Italy's banking aid scheme
The European Commission approved on Friday Italy's programme to help banks in the wake of the global financial crisis.
The European Union's executive, which monitors state aid across the 27-nation bloc, said the plan to offer guarantees for new banking debt and other aid was needed to remedy serious disturbances in the Italian economy. "The Italian guarantee and swap scheme is an effective instrument for boosting market confidence and the commitments we have secured from the Italian authorities ensure that distortions of competition are kept to a minimum," EU Competition Commissioner Neelie Kroes said in a statement. Many EU governments have adopted banking support schemes to help them survive the global financial crisis. Those should follow EU guidelines, which say they must not discriminate against foreign-owned banks and be limited in time and scope. Italy says its conservative banking system has been hit less hard than others but the government has offered to swap up to 10 billion euros ($12.5 billion) in government bonds in temporary exchange for other forms of debt held by banks. The Treasury will guarantee new bonds issued by banks until Dec. 31, 2009, with a maturity of up to five years. The Commission said it would deal separately with Italy's financial recapitalisation plan. It said the approved plan involved: * a state guarantee on new liabilities issued by banks for maturities longer than three months and up to five years; * a six-month renewable swap between a bank's debt certificates and treasury bills, whose interest rate and maturity perfectly match, to ensure an identical cash flow and straightforward pricing; * a state guarantee for banks in favour of other firms such as insurance companies lending them high-grade assets which are in turn used by the banks in the Eurosystem to get refinancing. The Commission said Italy had pledged that the total amount of guarantees issued with a maturity of more than three years will not exceed a quarter of the total amount covered. Source: reuters.com |
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