IMPLEMENTATION LEVEL

National

AFFECTED FLOW

Inflow

ANNOUNCED AS TEMPORARY

No

NON-TRADE-RELATED RATIONALE

No

ELIGIBLE FIRMS

all

JUMBO

No

TARIFF PEAK

No
← back to the state act
Inception date: 27 Mar 2009 | Removal date: 24 Feb 2010
Still in force

Capital injection and equity stakes (including bailouts)

On 12 October 2008 the UK notified a package of measures designed to ensure the stability of the financial system (State aid N 507 /2008).
 
In response to the ongoing exceptional turbulence in world financial markets, the British government proposed measures that fall into three parts:
A. Bank Recapitalization Scheme
B. Wholesale Funding Guarantee Scheme
C. Short-Term Liquidity Measures
 
Eligible institutions will be sufficiently capitalized UK incorporated banks including UK subsidiaries of foreign institutions.
 
The UK authorities accepted that the recapitalization scheme and guarantee scheme contain State aid elements. However, they claimed that the scheme is compatible with the Common Market because it is necessary to remedy a serious disturbance in the British economy pursuant to Article 87(3)(b) of the EC Treaty.
 
The Commission agreed with the position of the UK that the bank recapitalization and guarantee arrangements constitute aid to the institutions concerned pursuant to Article 87 (1) EC and gave the following assessment:
 
"The recapitalization and guarantee on the new issued debt allow the beneficiaries to get the required capital as well as liquidity at advantageous conditions. This gives an economic advantage to the beneficiaries and strengthens the position of these beneficiaries compared to that of their competitors in the UK and other Member States and must therefore be regarded as distorting competition and affecting trade between Member States. The advantage is selective since it only benefits the beneficiaries of the scheme and is provided through State resource." (par. 38 of the letter from the EC to the UK - Brussels, 13.10.2008 C(2008)6058).
 
Article 87(3)(b) of the EC Treaty enables the Commission to declare aid compatible with the Common Market if it is "to remedy a serious disturbance in the economy of a Member State." This aid has to be applied restrictively and must tackle a disturbance in the entire economy of the Member State. Therefore, despitethe measure constitute State aid pursuant to the Article 87(1) EC, the Commission decided that it is compatible with the Common Market according to the Article 87(3)(b) EC Treaty. (par. 45 - 69 of the letter).
 
Modification to the financial support measures to the banking industry in the UK - N650/2008
 
On 12 October 2008, the UK notified the European Commission of a package of measures designed to ensure the stability of the financial system. The package was approved on 13 October 2008. On 18 December 2008, the UK notified the Commission of changes to two parts of the scheme, namely "Credit Guarantee Scheme" and the "Bank Recapitalization Scheme" (State aid N650/2008).
 
The UK proposed the following changes to the Guarantee Scheme:
"The UK will, as of 1 January 2009, also guarantee debt instruments issued in Japanese Yen, Australian dollars, Canadian dollars and Swiss francs. Previously, the eligible debt was limited to instruments in sterling, US dollar or Euro.
 
The fee payable on guaranteed liabilities will be based on a per annum rate of 50 basis points plus 100% of the institutions' median five-year Credit Default Swap (CDS) spread during the period 2 July 2007 to 1 July 2008. This fee will apply retrospectively to all guaranteed issues under the original scheme since its launch on 13 October 2008. Previously, the median CDS spread for each institution was based on the 12 month period ended on 7 October 2008. The different reference period for the calculation of the median CDS spread has the effect of lowering the guarantee fee."
 
As in the original Guarantee Scheme, the initial duration of the instruments guaranteed will be no longer than three years. However, participating institutions will now be able to roll over the guarantee on individual instruments for an additional two years. The proportion of the guaranteed liabilities that can be rolled over in this fashion shall not exceed one third of the overall limit for allocations of guaranteed liabilities (or Ł88.33 billion).
 
The UK has proposed the following change to both the Recapitalization and the Guarantee Schemes.
 
"The requirement that the balance sheet growth of participating institutions be limited to certain thresholds, as set out in point 12 (g) of the original decision, no longer applies to those banks that can be considered as fundamentally sound."
 
Finally, the UK has proposed the following change to the Recapitalization Scheme.
 
"Participating banks that are fundamentally sound need not provide a restructuring plan but may instead provide a report that illustrates that they remain fundamentally sound and how they plan to repay state capital. In the original scheme all banks, which had benefited from structural measures which lasted beyond the duration of the scheme, had to provide a restructuring plan." (par. 6-13 of the letter the EC to the UK - Brussels, 22.12.2008 C(2008) 8984 final).
 
Similar to the original scheme, the Commission agreed with the position of the UK that the amended scheme for eligible institutions constitutes aid to the institutions concerned pursuant to Article 87 (1) EC. In its evaluation of the original state aid scheme the European Commission found that the implementation of the scheme would likely distort competition within the Common Market:
 
"The recapitalization and guarantee on the new issued debt allow the beneficiaries to get the required capital as well as liquidity at advantageous conditions. This gives an economic advantage to the beneficiaries and strengthens the position of these beneficiaries compared to that of their competitors in the UK and other Member States and must therefore be regarded as distorting competition and affecting trade between Member States. The advantage is selective since it only benefits the beneficiaries of the scheme and is provided through State resource." (par. 38 of the letter from the EC to the UK - Brussels, 13.10.2008 C(2008)6058).
 
However, the Commission concluded that the notified amended scheme is compatible with the Common market and has accordingly decided not to raise objections against it, since it fulfiled the conditions to be considered compatible with the EC Treaty
 

Prolongations (3) of the Financial Support Measures to the Banking Industry in the United Kingdom - State Aid N 193/2009,N 537/2009 & N 677/2009

 
On 27 March 2009, the UK notified a prolongation of the Scheme until 13 October 2009 which was approved on 15 April 2009. On 1 October 2009 the UK notified a second prolongation until 31 December 2009 which was approved on 13 October 2009. On 4 December 2009 the UK notified a third prolongation of its support measures to the banking industry.
 
The UK reports that the recovery in the wholesale markets remains fragile and patchy. The UK thus submits that the State guarantees and the recapitalisation facility which have as their objectives the maintenance of market confidence and the encouragement of healthy inter-bank lending will need to continue until 28 February 2010. The UK authorities consider that in view of the fragility of the emerging recovery in the financial markets it is necessary to prolong the schemes.
 
The Commission finds that the Schemes constitute State aid within the meaning of Article
107(1) TFEU. Since the Schemes satisfy the conditions for aid under Article 107(3)(b) TFEU, they are compatible with the internal market. The Commission has accordingly decided not to raise any objections to the prolongation of the Schemes.
 
 
A state measure in the GTA database is assessed solely in terms of the extent to which its implementation affects the extent of discrimination against foreign commercial interests. On this metric, the state aid proposed here is discriminatory.
 

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