EU approves German rescue package for banks
BRUSSELS (Reuters) - European Union competition authorities approved on Tuesday Germany's 500 billion euro ($626 billion) rescue package for banks stung by the global economic crisis.
The European Commission said the plan, one of many across the 27-nation bloc, would help Germany overcome "serious disturbances" in its economy while avoiding excessive distortion of competition.
"The German rescue package is an efficient tool to boost market confidence, but at the same time is ring-fenced against abuses. I hope that other member states will soon follow course," Competition Commissioner Neelie Kroes said.
Under the scheme, Germany is injecting new capital to banks and insurance companies in exchange for shares to strengthen their balance sheets against possible losses.
It guarantees some new short- and medium-term debt held by sound banks that are unable to access interbank funding.
The plan also provides for a temporary acquisition of assets under the condition that these assets are bought back after at most 36 months without the state incurring a loss.
Publicly owned regional bank BayernLB this week became the first bank to say it would tap the new fund, while WestLB and HSH Nordbank said on Saturday they would probably follow its lead.
The Commission, which monitors whether national decisions are compatible with the bloc's laws on state aid and competition, said it had cleared the German package after the country made strict commitments.
Those include a dividend ban, capping managers' wages, and measures to ensure the state would receive proper returns on the preference shares it receives in exchange for capital injections.
Banks benefiting from the fund must maintain a high solvency ratio during recapitalization and submit a restructuring plan within six months of any recapitalization.
"The Commission found the scheme and the commitments to constitute an appropriate means to restore confidence in the creditworthiness of German financial institutions and to stimulate interbank lending," the EU executive said.
(Writing by Marcin Grajewski, editing by Mark John and John Stonestreet)
