Banks helped by govt should be prudent, says EU

Proshare
By Agency Reporter
 

The European Union Competition Commissioner, Ms. Neelie Kroes, said banks that received government aid should have simpler structures and less-leveraged balance sheets to win EU approval for their restructuring plans.

The 27-nation EU needs lenders with “new business models” that can fit in with changes in the sector, Kroes said in prepared remarks at a conference in Frankfurt on Saturday.

The EU must replace “unsustainable, overleveraged structures with simpler, less-leveraged, more prudent and more transparent forms of banking,” she said.

Kroes, who reviews whether government aid harms competition, is waiting for restructuring plans for several dozen lenders, including the United Kingdom’s Northern Rock Plc, that received government loan guarantees and capital injections in the past six months.

On Friday, the European Commission said it had doubts about the “viability” of restructuring plans for Dexia SA, the world’s largest lender to local governments, Bloomberg News said on Saturday.

“We are aiming to clear balance sheets, either through restructuring or winding down of banks, so that the survivors have the best chance of a healthy future,” Kroes said. “This is the clearest path to stability in the sector, more lending to the real economy and a return to economic growth,” she added.

Kroes said she would welcome “new ideas” for cross-border banks, rather than governments’ plans that focus on national markets.

Kroes has approved government debt guarantee plans for several countries, including Belgian support for Fortis, and Germany’s recapitalisation and restructuring programme for Bayerische Landesbank, the country’s second-biggest state-owned bank. -punchng

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