United Kingdom: Asset backed securities Scheme
Description
On 17 April 2009, the government of the UK formally notified its intention to establish a guarantee scheme concerning its domestic residential asset backed securities market.
The guarantee comprises an option between a credit guarantee and a liquidity guarantee. These guarantees are alternative and not cumulative. The maximum overall amount of guarantees to be granted within the scheme shall not exceed £ 50 billion .
The UK Authorities acknowledge that the Scheme contains state aid elements. However, the UK considers that the notified measure is compatible with the common market pursuant to Article 87(3)(b) of the EC Treaty as ‘aid… to remedy a serious disturbance in the economy of a Member State’.
The Commission found that the proposed measure constitutes aid in the meaning of Article 87(1) of the EC Treaty and gave the following assessment:
"The scheme will enable the issuer to sell UK residential mortgages back securities (RMBS) and therefore provide the necessary liquidity to the originating banks or building societies on more favourable terms that would have been possible under the conditions prevailing in the financial markets. Inasmuch as this will confer an economic advantage on beneficiaries and strengthen their position vis-à-vis their competitors in the UK and in other Member States, the aid scheme will distort competition and affect trade between Member States. The resulting advantage will be a selective one in that it will benefit only beneficiaries under the scheme and will be financed through State resources." (par. 52 of the letter from the EC to the UK - Brussels, 21.4.2009 C(2009) 3091 final).
Article 87(3)(b) of the EC Treaty enables the Commission to declare aid compatible with the Common Market if it is "to remedy a serious disturbance in the economy of a Member State." This aid has to be applied restrictively and must tackle a disturbance in the entire economy of the Member State according to the interpretation of the Article 87(3)(b) by the Court of First Instance.
The Commission referred to its Communication on the financial crisis (Temporary Framework) and concluded that the Measure complies with the conditions laid therein. Therefore, despite the measure constituting State aid pursuant to the Article 87(1) EC, it is compatible with the Common Market according to the Article 87(3)(b) EC Treaty. The Commission raises no objections against the measure at issue and authorizes it as emergency intervention in the face of the current financial crisis. (par. 57-79 of the letter).
A state measure in the GTA database is assessed solely in terms of the extent to which its implementation affects the extent of discrimination against foreign commercial interests. On this metric, the state aid proposed here is discriminatory.
Any Evidence-Based Deliberation:
| Question | Result |
|---|---|
| Is there anything in the public record to suggest that evidence of the effectiveness of the proposed measure was considered during official deliberations? | Yes |
| Is there any evidence that alternatives to the proposed measure were considered? | |
| Is there anything in the public record that suggests that empirical evidence informed the comparison across the alternatives available to government? | |
| Was such evidence identified? | |
| Is such evidence publicly available? | |
| Did the official decision-maker in question provide an explanation as to why a chosen measure was favoured over alternatives? | |
| Is there any evidence to suggest that potentially affected trading partners were consulted before the measures were taken? | |
| Is there any evidence that safeguards have been put in place to ensure that implementation of the initiative is transparent and non-discriminatory? | |
| Did the government state its intention to review the measure within one year of implementation? | Yes |
Date Discovered:
Implemented: Yes
Date of inception: 23 Apr 2009
Duration: 8 months
GTA Evaluation: Red
Source:
the letter from the EC to the UK - Brussels, 21.4.2009 C(2009) 3091 final. Avaliable from < http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=... >
Government Response:
- 118 reads
