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EU approves Northern Rock restructuring

EU approves Northern Rock restructuring

The European Union on Wednesday approved the British government's plan to split off a "bad bank" to take over shaky assets from bailed-out lender Northern Rock.
It also approved the government rescue and nationalization of the mortgage lender, the first British bank to fall victim to the global financial crisis.
The spinoff of a "bad bank" is a way of handling assets that would otherwise compromise the survival of the "good bank."
EU Commissioner Neelie Kroes said the restructuring "will allow the bank to become viable in the long term and limit distortions of competition."
Northern Rock PLC, once the country's fifth biggest lender, saw the first run on a British bank since 1866 when its wholesale borrowing dried up during a credit crunch that saw customers lining up to withdraw their cash in September 2007.
The government gave Northern Rock 27 billion pounds in loans and assumed contingent liabilities of 29 billion pounds in an effort to keep it afloat, before resorting to nationalization on Feb. 22, 2008.
"The failure of Northern Rock would have had major detrimental effects on the UK mortgage market and the overall financial stability of the UK economy," said Kroes.
The Commission said in a statement it was "satisfied that the package of measures, including the split, will restore the long-term viability of the 'good' bank and will allow orderly liquidation of the 'bad' bank, without unduly distorting competition."
Because of the decision, the British government might go ahead with a partial sale of the bank's assets in the coming months.
The EU had deepened a probe into the bank after Britain made wide-ranging changes to a rescue plan. The EU only allows state aid when it is clear it is a temporary measure without excessively distorting the market.
Under the restructuring plan, BankCo would be the name of the "good bank" and hold the retail deposit business, wholesale deposits and the bank's branch network, among other things.
The British rescue of Northern Rock hardly stands alone as government intervention in times of financial crisis. Germany's Hypo Real Estate AG, Belgium's Fortis SA were also close to collapse when authorities came to the rescue.


Updated : 2021-07-24 01:17 GMT+08:00