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Inception date: 01 Jan 2009 | Removal date: 02 Jul 2009

Capital injection and equity stakes (including bailouts)

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.
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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