The European Commission on Thursday said it won't punish banks that need government support after getting sucked into the sovereign debt crisis through no fault of their own when it examines the aid packages under European Union rules.
The commission, the EU's executive arm, outlined its approach for reviewing a new wave of support measures that are expected in coming months from governments to shore up Europe's banks.
The guidelines cover capital injections and debt guarantees, which officials have agreed will be their main tools to unthaw Europe's frozen wholesale funding markets and ensure that banks can absorb sovereign debt losses.
The EC will go easy on banks in several ways. First, there will be little or no restructuring requirements when governments inject capital into a bank that needs it to offset losses on sovereign debt and that didn't take excessive risks in acquiring the debt, provided the bank otherwise has a viable business model.
The commission will also adjust the fees that banks must pay to their governments for debt guarantees to account for the impact of Europe's government-funding squeeze on its banks. Banks based in weak countries will get a discount on their guarantees, an effort to give credit to intrinsically strong banks based in troubled countries and also to reflect the fact that a guarantee from a weak government is worth less.
"We want to isolate the risks of the bank asking for state guarantees and on the other hand the risk of the sovereigns," said Joaquin Almunia, the EU commissioner in charge of state aid. "A bank that is short of capital because of a loss of confidence due to the sovereign debt crisis should not be asked in principle for a normal restructuring."
The EC intended to tighten conditions under which banks can receive state support starting next year, but the debt crisis forced it to extend the more relaxed state-aid rules it has applied since 2008.