The European Commission has approved under EU state aid rules a Lithuanian package intended to stabilise the markets as a response to the global financial crisis.

The European Commission has approved under EU state aid rules a Lithuanian package intended to stabilise the markets as a response to the global financial crisis. The package will provide eligible credit institutions with new capital, guarantees on newly issued short and medium term debt, and relieve them of troubled assets under strict conditions. The Commission found the measures to be in line with its guidance Communications on state aid to overcome the financial crisis. In particular, the package ensures non discriminatory access, is limited in time and scope, provides for a market-oriented remuneration and foresees adequate safeguards to minimise potential distortions of competition. The Commission therefore concluded that the scheme is an adequate means to remedy a serious disturbance in the Lithuanian economy and is as such compatible with Article 107.3.b of the EU Treaty.

Commission Vice President in charge of competition policy Joaquín Almunia said: “The Lithuanian scheme will strengthen confidence in the markets and provide support in a period of uncertainty, while at the same time establishing safeguards to limit distortions of competition”.

The package includes three measures designed to stabilise the financial markets:

an asset relief measure, whereby Lithuania will take over certain categories of bank assets from beneficiary banks in exchange for cash or government securities.

a recapitalisation measure, making available new capital to credit institutions in the form of subordinated loans, to strengthen their capital base against potential losses.

a guarantee measure covering, against remuneration, loans and other senior financial liabilities (except interbank deposits). The remuneration is aligned on the recommendations of the European Central Bank (ECB).

The Commission concluded that the support package comprises elements of state aid but contains several provisions aimed at ensuring its adequacy and proportionality, in line with the EU state aid rules. Hence, the scheme is an appropriate, proportionate and necessary means to maintain confidence in the Lithuanian credit institutions' creditworthiness.

In particular, the scheme is open to all credit institutions and branches operating in the Lithuanian market. It is limited in time and scope, with entry windows and budget caps. It requires beneficiaries to pay a market-oriented remuneration and aligns banks' incentives with public policy objectives.

Finally, Lithuania has committed to notify viability or restructuring plans for banks that rely on the support measures.