EC Admits UK's ABS Scheme As Revitalising Measure

The European Commission has approved, under EC Treaty state aid rules, the UK's Asset Backed Securities Guarantee Scheme, which forms part of UK measures to support the banking industry during the current financial crisis. The scheme was notified on 17

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The European Commission has approved, under EC Treaty state aid rules, the UK’s Asset-Backed Securities Guarantee Scheme, which forms part of UK measures to support the banking industry during the current financial crisis.

The scheme was notified on 17 April 2009, and stressed the adverse development of the UK housing market as a consequence of the credit contraction. The measure is intended to expand the funds available to banks to promote lending to homebuyers and homeowners. Under the scheme, investors will benefit from the guarantee provided to securities issued by special purpose vehicles collateralised with residential mortgages.

Guarantees allocated under the scheme will be limited to a total of GBP50 billion. The Commission found that current conditions on the financial markets justify the scheme, which aims at facilitating banks to acquire liquidity and underpin lending to the UK real economy.

The Commission therefore concluded that the UK support measures are compatible with EC Treaty rules allowing aid to remedy a serious disturbance in a Member State’s economy (Article 87.3.b), as explained in the Commission’s Guidelines Communication on the application of state aid rules to banks during the financial crisis.

“The Commission is satisfied that this measure will help to reactivate the UK Residential Mortgage Backed Securities market and facilitate the restoration of more competitive mortgages for UK borrowers whilst avoiding disproportionate distortions of competition,” says Neelie Kroes, competition commissioner.

L.D.

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