EU auditors warn of shortcomings in state aid rules for banks By Reuters

By Foo Yun Chee

BRUSSELS (Reuters) – The EU’s budget watchdog on Thursday called for a revamp of EU rules allowing governments to prop up troubled banks because of the lack of details on the conditions triggering public support and because they have failed to keep pace with the market.

EU countries pumped billions of euros into their banks during the 2007 financial crisis, with some still saddled with toxic debts and non-performing loans while a few continue to rely on state support.

The European Court of Auditors’ criticism comes as the bloc injects billions of euros into companies struggling with the fallout from the coronavirus pandemic, from airlines and the tourism industry to events organisers, with some questioning the validity and the rationale for the aid.

The watchdog in its report cited weaknesses in both compatibility assessment and performance monitoring from 2013 to 2018, saying that the rules had not been modified since 2013.

“The EU Treaties allow public support to banks on an exceptional basis to remedy serious disturbances in a member state’s economy. However, EU rules are not explicit enough on this point and do not define what a serious disturbance is,” the watchdog said.

“The Commission did not contest member states’ assertions that the threat to financial stability existed in individual cases. Moreover, while the Commission required measures intended to limit distortion of competition, it did not analyse the actual impacts of each measure on competition,” auditors said.

It said the Commission should evaluate by 2023 whether the current rules are still appropriate, revise them and improve performance measurement.

The EU executive in 2013 overhauled its state aid rules for struggling banks, putting the burden on shareholders and junior debt holders in the bank’s restructuring.