State aid facilitating Danish bank merger approved for 6 months

The European Commission has temporarily approved Danish rescue aid to facilitate the merger of Vestjysk Bank and Aarhus Lokalbank. The state aid is granted for reasons of financial stability; the measures were found to be “well-targeted, limited to the minimum necessary and foresee sufficient safeguards limiting distortions of competition.”

Following the merger, Vestjysk Bank is to be the continuing bank. The merger will improve the bank’s capital basis and liquidity through various measures. The Commission found that all the measures, with the exception of the bank raising a subordinated loan from private investors, include elements of state aid. These measures are: (1) a capital increase with participations from both the state and private investors; (2) selling Vestjysk Bank’s shares in a Danish mortgage institution to the Danish Central Bank, and; (3) individual state guarantees for new debt amounting to DKK 35.2 billion (approximately 4.7 billion euros).

The rescue measures are approved for six months, or until the Commission has adopted a final decision on a restructuring plan, if Denmark submits it within six months.

Full content: EC Press Release

Related content: Banking Regulatory Reform: “Too Big to Fail” and What Still Needs to be Done (Abel Mateus, University College London)

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