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The Danish Competition Authority The Danish Approach to state Aid and

The Danish Competition Authority The Danish Approach to state Aid and the financial and economic crisis CREDIT Package I and II and rescuing /restructuring of Financial institutions. The Danish Approach to State Aid. Less and better targetted aid

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The Danish Competition Authority The Danish Approach to state Aid and

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  1. The Danish Competition Authority The Danish Approach to state Aid and the financial and economic crisis • CREDIT Package I and II • and rescuing /restructuring of • Financial institutions

  2. The Danish Approach to State Aid • Less and better targetted aid • Horizontal purposes – Community interest • Market failure • Necessary and proportional • Temporary • Objective and non discriminatory • Transparent • Strict State Aid control

  3. State Aid - the Financial and economic crisis • Focus on financial stability – systemic difficulties • Common coordinated approach • Commission state aid control • Common rules • Prevent distortion of markets and trade

  4. Credit package I – October 2008 Lehman Brothers ++ Roskilde bank +? Funding Crisis – lack of confidence – no interbank lending Depositors and creditors Unlimited guarantee for depositors and creditors until 2010 The Banks finance 35 billion – top up by the state (3600) Only healthy solvent banks – Private Contingency Association Not solvent banks taken over by the Winding up company Behaviour requirements The Financial Stability Act

  5. Credit package IIThe financial market - the financial and economic crisis • The Credit squeeze and Crunch • Access to credit for undertakings and citizens • Credit to the real economy • Systemic problem for healthy institutions / companies • Solvency requirements: tier one capital /RWA • Increase solvency – tier one capital • Increase tier one capital 100 billion DKK • Gearing 1:7 – credit amount to 700 billion DKK • Percentage of tier one capital increased to 12 • Tier one = equity + hybrid capital

  6. Credit package IIAct on state capital injections in Credit institutionsAmendment of ACT on financial stability • Capital injection banks 75 BDKK – Mortgage 25 BDKK • Hybrid tier one capital – Average interest 10 percent (rating) • Only healthy solvent institutions – ECB rating • Risk evaluation • Exit clause – Exit very important • Percent of tier one capital up to 12 percent • Behaviour restraints – cap on salaries and upsides / options + • Individual loan guarantees – maturity after 31. 12. 2010 • Cash grant payment to take over banks in default • Export loans on 20 billion DKK • Export credit guarantee to short term export markets

  7. State Aid Rules • Covered by State Aid provisions 87 (1) + 88 (3) • State capital injection + guarantees • Systemic failure – 87 (3) b Aid to remedy a serious disturbance in the economy of a member state. • Commission Communication of 13 October and 5 December 2008. • Specific rules for guarantees, capital injection, liquidity • Definition of healthy and not healthy financial institutions

  8. Key questions • Definition: healthy – versus - unhealthy credit institutions • Individual notification of unhealthy banks - restructuring • Capitalisation vs. overcapitalisation – the 12 pct. • Arguments for necessity and systemic failure • AID = the minimum necessary • The premium on hybrid tier 1 capital – rating categories • The premium on individual guaranties – EBC rules • No cherry picking – between two types of guaranties • Individual guarantee scheme approved for 6 months • Individual notification of cash for take over • Export loans notified through OECD channels • Short term export credit approved

  9. The Process – Credit package II 14 January – 3 February 2009 • Task force structure • Objective: the package in conformity and approved • Interactive multi level game DK – EU • Notified 22 January 2009 approved 3 February 2009 • 4 batches of questions, one meeting, 25 mails • 120 hours – 16 days – 10 days

  10. Learning? • Difficult rules – difficult to lift burden of proof • Task force structure - all competences on board • Keep very close contact to Commission services • Multilevel game – flexible flow • Coeur, crâne et courage

  11. Roskilde bank, EBH bank, Fionia bank • Roskilde bank – Being winded up by the winding up company • Guarantee to depositors and creditors • First Danish bank in default • State Aid to rescue and restructuring • EBH bank – been taken over by Winding up company • Fionia bank • Solvency requirement – 13 percent of RWA – risk profile • Capital injection + liquidity – Winding up company • Call options • Rescue and Restructuring Rules • Arguments for necessity – systemic default – proportionality (minimum necessary aid), adequate instruments and behavioural restraints • Long term viability plan – after 6 months

  12. Questions?

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