EU approves Northern Rock rescue aid

by Richard Kilner

Story link: EU approves Northern Rock rescue aid

The government aid assisting struggling bank Northern Rock was formally approved yesterday by the European Commission.

Brussels competition policy enables the Commission to regulate the aid between governments and businesses. In this case, however, the Commission is of the opinion that the aid did not amount to state aid due to its punitive interest rate and because it was secured against collateral.

Later moves, made by Chancellor Alistair Darling, were said to constitute state aid. These moves include the guaranteeing of Northern Rock deposits, and liquidity provision guaranteed by Treasury indemnity.

The Commission added that the above changes could be recognised as rescue aid, provided to rescue and restructure a firm facing difficulties.

Rescue aid can include aid or loans, but these must not exceed six months in length. Despite this, the Commission allows for leeway in the banking sector in order for prudent action to be taken.

There is speculation that at present the Bank of England has loaned Northern Rock around £29bn, though that number is neither confirmed nor disputed in the statement.

The EU competition commissioner, Neelie Kroes, has said that this case provides a good example of how, through good co-operation, the EU can swiftly provide legal certainty for temporary rescue measures.

The bank’s shares finished on 100p, down 3p.