Press Release: State aid: Commission provides guidance for the treatment of impaired assets in the EU banking sector

The European Commission provided guidance on the treatment of asset relief measures by Member States. Impaired assets correspond to categories of assets on which banks are likely to incur losses (e.g. US sub-prime mortgage backed securities). The Commission considered that a common European approach is presently needed to deal with the treatment of impaired assets, to make sure that foreseeable losses are disclosed and properly handled and banks can use their capital to resume their normal function of lending to the economy instead of fearing they would need this capital to cushion against possible losses. The Commission's Communication outlined various methods to deal with impaired assets, notably through asset purchase (including bad bank scenarios) or asset insurance schemes. It explained the budgetary and regulatory implications of asset relief measures and presented details concerning the application of the State aid rules to such measures. In particular, the guidance provided methodologies concerning the valuation of the impaired assets, the necessary remuneration of the State for the asset relief and the procedural steps that will be followed as well as the criteria that will be used to evaluate the State aid given to the banks as a result.