State aid to banks (IVOR nr. 109) 2018/8.4.2:8.4.2 Temporal scope of the guarantee

State aid to banks (IVOR nr. 109) 2018/8.4.2

8.4.2 Temporal scope of the guarantee

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

The principle that the aid should be limited to the minimum necessary requires that the guarantee should be limited in time. The temporal scope of the guarantee can concern two aspects: the maturity/duration of the guarantee and the time window of the guarantee scheme (issuance period).

Time window of the scheme/issuance period

With respect to the UK Guarantee scheme, the Commission noted positively that the scheme had a short issuance period (i.e. six months instead of two years).1 A time window of six months means that banks have only a window of six months to issue the new debt that would benefit from the guarantee. As a result of this short issuance period, the overall amount of debt covered is lower than if the guarantee would be given for newly issued debt over a two year period. The temporal scope is thus limited.

Maturity/duration

The duration of the guarantee should be as short as possible. In principle, this should be 3 years. Nevertheless, in justified exceptional cases, the guarantee may apply for five years. However, this may occur only up to a certain amount (up to one third of the debts of the bank). This precondition is also reprised in point 59(b) of the 2013 Banking Communication. In addition, the six-monthly reports must include an update on the granting of such guarantees and the justification in each case.2

In some decisions, some specific elements can be found. For instance, in the decision on the Hungarian guarantee scheme, it was noted that in the Hungarian market, funding to finance housing loans is an important part of the market. Since the duration of these loans usually exceeds 3 years, the Commission considered that it was justified that part of the guarantee budget could be used to cover loans of between 3 and 5 years duration.3

Another element can be found in the decision on the Swedish scheme. Under the Swedish guarantee scheme, covered bonds were guaranteed for a period for up to 5 years. This exceptional duration was justified by the fact that covered bonds were an integral part of the Swedish financial system.4

Deze functie is alleen te gebruiken als je bent ingelogd.