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European Commission sets stricter bank bailout rules

[JURIST] The European Commission (EC) [official website] on Thursday announced [press release] new rules including a number of specific criteria [communication, PDF] that European banks seeking government assistance must meet. Under the new guidelines, banks are required to show they will become viable without further state support, banks and their owners are required to pay a share of the restructuring costs, and the restructuring must limit distortions in the European single market. The restructuring of banks is permitted under Article 87.3b) [text] of the EC treaty, which allows governments to "remedy a serious disturbance in the economy of a Member State." Competition Minister Neelie Kroes [official profile] said:

The financial crisis may not be over yet, but we need to start working seriously with Member States to restructure European banks. We need to make banks viable again without state support and to re-invigorate competition in the Single Market. The guidelines adopted today will be a useful tool for banks and Member States by explaining the criteria the Commission will apply to restructuring aid for banks in the current period. It complements our previous guidance on state guarantees, recapitalisation and the treatment of impaired assets.

The new provisions are set to expire at the end of 2010. At that point the normal rules under Article 87.3c) will resume.

In June, US President Barack Obama [official profile] unveiled a plan [JURIST report] to steer US banks through the current recession. Obama's plan emphasized increased government oversight and regulatory powers. In February, Obama and US Treasury Secretary Timothy Geithner [official profile] announced increased regulations [JURIST report] of banks receiving federal bailout money.

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