The European Commission has approved under EC Treaty state aid rules a Latvian support scheme to stabilise financial markets by providing guarantees to eligible banks to ensure their access to financing.
The European Commission has approved under EC Treaty state aid rules a Latvian support scheme to stabilise financial markets by providing guarantees to eligible banks to ensure their access to financing. The Commission found the measure to be in line with its Guidance Communication on state aid to overcome the financial crisis. In particular, the scheme ensures non-discriminatory access, is limited in time and scope, requires market oriented remuneration and contains sufficient safeguards to avoid abuses. The Commission therefore concluded that the scheme was an adequate means to remedy a serious disturbance of the Latvian economy and as such in line with Article 87.3.b of the EC Treaty.
Competition Commissioner Neelie Kroes said: "The Latvian scheme demonstrates again the great strength of the Commission in this crisis: the ability to supervise Member States' support schemes with enough flexibility to take into account national particularities, whilst ensuring enough coherence to maintain a level playing field for all European banks."
The guarantee will cover all liabilities with the exception of interbank deposits, subordinated liabilities and collateralised liabilities such as covered bonds which have a maximum maturity of three years. Instruments guaranteed under this scheme may be issued within six months following this decision. Moreover, in exceptional cases only, the Latvian measures also provide for the takeover of distressed banks. In the first instance, the scheme has a ceiling which corresponds to 10% of the Latvian GDP. Only solvent banks are allowed to enter the scheme.
The Commission decision covers a period of six months, following which Latvia should terminate the scheme or re-notify its extension to the Commission.
The scheme contains elements of state aid but foresees safeguards aimed at ensuring that the state intervention is proportionate, limited to what is necessary to stimulate interbank lending and adequate to reach this goal, in accordance with EU state aid rules, as outlined in the Commission's Guidance Communication.
In particular, the scheme provides for non-discriminatory access as it will be open to all solvent Latvian banks, including Latvian subsidiaries of foreign banks. To benefit from the guarantee, participating banks are required to pay a market-oriented fee, in line with recommendations from the European Central Bank.
Moreover, beneficiaries will be subject to behavioural commitments to avoid an abusive use of the state support. These include limitations on marketing and conditions for staff remuneration or bonus payments. In addition, Latvia made the commitment to notify restructuring or liquidation plans for each beneficiary that defaulted on its liabilities and as a consequence would cause the guarantee to be drawn. Finally, Latvia will report periodically to the Commission on the implementation of the scheme.
In light of these commitments and conditions, the Commission concluded that the scheme would be an adequate means to restore confidence in the Latvian financial markets and to boost interbank lending. The safeguards will ensure that the state support is limited to what is necessary to stabilise the Latvian financial sector and that negative spill-over effects are minimised.
The non-confidential version of the decision will be made available under the case number N 638/2008 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.