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European Law Monitor newsState aid: Commission approves UK rescue aid package for Northern Rock • frequently asked questions


What were the measures on which the Commission took a decision?

The Commission has taken a decision on all the measures which the UK authorities have taken since 14 September. As regards, the Bank of England's provision of emergency liquidity assistance on its own account, the Commission has decided that no state aid was involved. The guarantees to depositors provided during the period 17 to 20 September, and the revised and extended measures taken by the Bank of England on 9 October with the addition of a Treasury indemnity, are considered by the Commission to consitute state aid, but compatible with the rules on rescue aid.

Are the measures granted to Northern Rock state aid?

The initial provision of emergency liquidity assistance by the Bank of England on 14 September, which was provided against high quality collateral, bearing a premium interest rate and without a government indemnity, was not state aid.

Later measures, i.e. the deposit guarantees granted by the Treasury and further assistance provided by the Bank of England with a Treasury indemnity did qualify as state aid.

However, these measures have been found to be compatible because they comply with the relevant rules for rescue aid.

Were the measures notified?

The UK authorities provided detailed information on the measures in contacts beginning immediately after the measures were adopted. The full information about the measures was communicated formally on 26 November.

Has the UK provided all of the information which you require for your assessment?

The Commission has received what it needs to authorise the rescue aid. The UK has undertaken to send by 17 March 2008 either a restructuring plan for the bank, or confirmation that the aid measures have been brought to an end. If the restructuring plan involved any state aid then this would be subject to separate Commission authorisation and full details would need to be notified to the Commission.

What are the conditions to authorise rescue aid?

The conditions to consider an aid as rescue aid can in general be summarised as follows:

* The beneficiary has to be a firm in difficulty and it should not have received any rescue or restructuring aid during the past 10 years.
* The aid should normally consist of liquidity support and should be restricted to the minimum necessary to keep the firm in business for the rescue period.
* The aid must be granted in the form of loans or guarantees.
* The aid must be limited to a period of not more than 6 months.
* If the Member State communicates to the Commission within these 6 months a restructuring plan or liquidation plan, then the rescue aid can normally continue for the time needed by the Commission to decide on this plan.

Are the conditions for rescue aid met in full in this case?

Yes. The rules contain special technical provisions concerning the banking sector because of the need to fit with prudential rules. These special provisions apply in this case.

Does this Commission decision give the green light for the takeover of Northern Rock by Virgin?

This decision is about the measures taken by the UK authorities up to now to rescue the bank. As such it should provide legal security to all stakeholders including depositors, lenders and those developing long term plans for the company.

The Commission has not been informed officially of proposals for the bank's future. If state measures are involved we look forward to hearing from the UK authorities at the appropriate time. We do not of course have a view about the different possible bidders.

What if the buyer doesn't pay back all the Government's lending to Northern Rock?

The Commission will look at what is officially notified to the Commission. If there were state aid in the sale or restructuring of Northern Rock then this would be subject to separate authorisation as restructuring aid.


What are the conditions to authorise restructuring aid?

As regards the beneficiary, the conditions are the same as for rescue aid.

As regards the aid, unlike for rescue aid, a restructuring plan, capable of restoring the long term viability of the firm must be provided. The state aid must be limited to the minimum necessary in time and amount, and the beneficiary must significantly contribute to the cost of restructuring.

The aid must not distort competition to an extent contrary to the common interest. In this respect, the Commission may impose specific conditions and obligations on the beneficiary.

How has the Commission been able to reach a conclusion in only 8 working days?

Although the formal transmission of information took place on 26th November, the Commission and UK authorities were in close contact for some weeks before that. These prior contacts, combined with the completeness of the information given on 26th November, have helped to ensure that a rapid decision could be taken.

Could there be competition consequences of the takeover? Would a takeover by Virgin fall under the merger regulation?

It would be the responsibility of companies bidding for Northern Rock to verify whether they needed to notify the details under the terms of the EU Merger Regulation. If bids were notified under the Merger Regulation the Commission would have to verify whether there would be any adverse impact on effective competition.

What is the status of other banking cases? Sachsen LB, IKB?

The Commission is in close contact with the German authorities on these two cases.