It is based on three pillars: banks which receive help must be given a viable future without further support, aided banks must pay some of the restructuring costs, and measures must be taken to limit distortions of competition.

“We need to make banks viable again without state support and to re-invigorate competition,” EU Competition Commissioner Neelie Kroes said.

The guidelines, which will be followed instead of normal rules until the end of 2010, come amid growing calls to clean up European bank balance sheets.

The European Central Bank warned last month that eurozone banks might have to take another US$283 billion (204 billion euros) in write-downs by the end of 2010, mainly to account for risky loans.

Credit rating agency Standard and Poor’s also warned that more than half of Europe’s biggest banks faced the prospect of a downgrade as they struggle to shoulder mounting credit losses.

“Aided banks and their capital holders must bear adequate responsibility for their past behavior and contribute to the restructuring of the bank as much as possible with their own resources,” the commission said in a statement.

“This requires in particular that the state is correctly remunerated for the aid it gives. Where this is not possible immediately due to market circumstances, such burden-sharing will be required at a later stage.”

The commission warned that some state aid might be made conditional on shares being sold off or limits being placed on pricing and marketing strategies receiving support.

Source: AFP