State capital injections into banks hit by the credit crunch should be priced at central bank base rates plus a premium reflecting the riskiness of each case, the European Commission said today.
"Riskier banks will have to pay a higher rate of remuneration," the EU executive, under growing pressure from countries including France, Germany and Austria to clear national bank aid schemes, said in new guidelines.
"This ... strikes the right balance between keeping a stable flow of credit to the real economy, stabilising financial markets and preserving a level playing field for banks in Europe," EU Competition Commissioner Neelie Kroes said.
The news release did not set a specific guideline figure for the repayment rate of recapitalisation schemes.
The Commission has for weeks pushed for a higher figure than that proposed by several EU governments. However, French officials said last week they were confident of winning approval soon for Paris's €10.5 billion ($13.5 billion) plan.
Other main principles in the guidelines included:
- the pricing mechanism must carry sufficient incentive to keep the duration of state involvement to a minimum, for example through a remuneration rate that increases over time
- banks in distress that face a risk of insolvency should in principle be required to pay more for state support and to observe stricter safeguards
- the use of state capital for such banks can be accepted only on the condition of far-reaching restructuring "including where appropriate a change in management and in corporate governance"
- EU states should report on how their aid has been used six months afterwards. "The report must also include an exit strategy for fundamentally sound banks and a restructuring plan for distressed banks."
Reuters