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State Aid

PR(10)12: Formal investigation procedure opened with regard to a Mortgage Loan Scheme operated by the Icelandic Housing Financing Fund

10.3.2010

Today, the EFTA Surveillance Authority decided to open the formal investigation procedure with regard to possible state aid granted to financial institutions in Iceland by the Housing Financing Fund, under the Mortgage Loan Scheme.


A
s a result of turmoil in the global financial markets, the Icelandic financial institutions have been faced with shortage of credit. In response to this situation, the Icelandic State authorities decided to adopt measures aimed at securing the functioning of financial markets. One of such measures consists of authorising the Housing Financing Fund (HFF) to purchase mortgage loans from financial undertakings.

The Mortgage Loan Scheme takes the form of a permanent asset swap, according to which the financial institution receives the HFF's bonds in exchange for mortgage loans which are transferred to the HFF.

The preliminary conclusion of the Authority is that the asset swap under the Mortgage Loan Scheme involves state aid to the financial institutions. In the current market circumstances of financial crisis the Authority doubts that a private market investor would engage in a similar asset swap.

The Authority has doubts as to whether the Mortgage Loan Scheme may be considered compatible with the functioning of the EEA Agreement. The Authority has assessed the scheme under the state aid guidelines on Impaired Asset Relief. In today's decision, the Authority expresses doubt with regard to the valuation of the assets swapped, the adequacy of the remuneration for the state, and the limitation of the scheme as regards to scope and time.

A decision to open the formal investigation procedure is without prejudice to the final decision to be adopted by the Authority. The opening decision will be published in the EEA Section of the Official Journal of the European Union and the EEA Supplement thereto, inviting interested parties to comment within one month from the date of publication. The Authority will take its final decision after having reviewed comments from the Icelandic Government and from any other interested parties.    

For further information, please contact:

Mr Kjell-Arild Rein
Competition and State Aid Directorate
tel. (+32)(0)2 286 18 86

 

Brussels, 10 March 2010




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