* EU's Almunia says market tensions prompts move
* Looser guidelines designed to make it easier to assist
* Revisions come into effect from January
* Guarantee fees paid by banks expected to fall 0.2 pct
By Foo Yun Chee and John O'Donnell
BRUSSELS, Dec 1 European Union regulators
extended looser rules allowing governments to bail out troubled
banks until market conditions improve, citing the sovereign debt
crisis and banks' resulting funding difficulties for the move.
New guidelines, valid from Jan. 1, will make it easier for
governments to help struggling banks as the 27-country EU
grapples with a credit squeeze, a capital shortfall and the
sovereign debt crisis.
"My intention had been to put an end to the crisis regime...
this month," EU Competition Commissioner Joaquin Almunia told a
news conference on Thursday, adding the rules had already been
extended by 12 months until the end of 2011.
"But since last summer I was obliged to change my mind,
given the stronger tensions in sovereign debt markets and the
transmission of those tensions to interbank markets and to the
funding conditions for banks."
The rules were introduced during the credit crisis in 2008
for lenders that received a capital injection or transferred
loans into so-called "bad banks".
Under some revisions, the fees paid by banks for guarantees
on their liabilities will reflect their intrinsic risk, rather
than their country's risk or market conditions, the Commission
The average price for a guarantee will be about 1 percent,
including a minimum fee of 0.4 percent. The terms apply to bonds
with a term of 1-5 years or 7 years for covered bonds.
The Commission said it expected guarantee costs to fall
about 0.2 percent due to the new pricing policy, adding it also
expected banks would increasingly use shares rather than cash to
remunerate the state for support.
Lenders benefiting from recapitalisation or other support
will still need to restructure to win regulatory approval and
banks that are "heavy users" of state guarantees will need to
show they are viable.
Almunia said he would have preferred a mutualised or pooled
system of EU state guarantees for banks seeking to borrow.
But the bloc's finance ministers decided on Wednesday to
leave it to individual member states to back their banks alone,
a move that will do little to lift confidence in struggling
financial institutions based in countries too weak to help them.
EU governments injected 1.6 trillion euros ($2.15
trillion)into the financial sector via state guarantees,
recapitalisation and impaired asset and liquidity measures
between October 2008 and December 2010, Commission data showed.
That was equivalent to 13 percent of the region's gross domestic