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State Aid

State aid: Restructuring aid for Arion Bank and Landsbankinn approved



Today, the EFTA Surveillance Authority has approved the state aid that was granted for the restructuring of the two Icelandic banks Arion Bank and Landsbankinn.

These final Decisions on Arion Bank and Landsbankinn close two of the main cases that the Authority has dealt with following the collapse of the financial system in Iceland in 2008.

“With our earlier decision regarding restructuring aid to Íslandsbanki and today's two decisions regarding restructuring aid to Landsbankinn and to Arion Bank, the Authority brings to an end the comprehensive investigations regarding the restructuring of Iceland's three biggest commercial banks,” Ms Oda Helen Sletnes, president of the EFTA Surveillance Authority, said.

The Decision on restructuring aid to Íslandsbanki was adopted on 27 June this year.

“Challenges remain for the banks in their return to long-term viability, but I am pleased with the progress that has been made. Iceland has to a significant degree overhauled the regulatory and supervisory framework in which its banks operate, and has now provided commitments to the Authority that ensure that the country's financial markets can benefit from effective competition,”Ms Sletnes said.

Arion Bank and Landsbankinn (NBI) were established after their predecessors Kaupthing Bank and Landsbanki Íslands failed in autumn 2008. Most of the failed predecessors' domestic operations, assets and liabilities were transferred to the new banks. In this process, the Icelandic State granted certain support measures.

The aid measures for Arion Bank were in the form of capital injections, subordinated loans (Tier II capital contribution) and special liquidity facilities.

The aid measures in favour of Landsbankinn were in the form of capital injections, as the State became the majority owner of the bank.

For both Arion Bank and Landsbankinn, and indeed other commercial and savings banks, the State also provided aid in the form of an unlimited state guarantee of deposits in domestic commercial and savings banks.

The compatibility of the aid has been assessed under Article 61(3)(b) of the EEA Agreement, which allows for aid to remedy a serious disturbance in the economy of an EEA State.  In order for such aid to be compatible, a restructuring plan must be submitted. The plan needs to demonstrate that:

  1. the restructuring restores the long-term viability of the bank,
  2. the restructuring costs are shared between the owners, the bank and the State, and that the aid is limited to the minimum necessary, and
  3. measures are introduced that limit distortions of competition to a sufficient degree.

As the aid granted to both Arion Bank and Landsbankinn was implemented before it was notified to the Authority, the Authority later initiated a formal investigation into these measures, on 15 December 2010. Iceland provided the first restructuring plans for Arion Bank and Landsbankinn in March 2011. An updated restructuring plan for Arion Bank was submitted in April 2012. An amended restructuring plan was submitted for Landsbankinn in May 2012.

After thoroughly assessing the final restructuring plans, the Authority today concluded that the aid measures taken in these two cases constitute state aid compatible with the EEA rules.

With regard to the long-term viability of the banks, the Authority emphasises in the Decisions that while challenges remain for the banks and the Icelandic economy in general, both Arion Bank and Landsbankinn have addressed the weaknesses of their predecessors. The banks both have strong capital ratios and have made progress regarding the restructuring of loans to over-indebted customers. The Authority has also taken note of numerous legislative amendments that Iceland has made since the collapse of the financial system in 2008. Those amendments have strengthened the regulatory framework for financial institutions in Iceland, and contribute to the resilience of financial institutions.

Furthermore, as the previous owners of both Kaupthing Bank and (old) Landsbanki lost their share capital, and their creditors also had to take significant losses, the Authority considers that the criterion of burdensharing is met and moral hazard has been addressed.

Finally, Arion Bank, Landsbankinn and Iceland have provided a range of commitments that limit distortions of competition. During the restructuring period the two banks are not permitted to acquire other financial institutions without the Authority´s approval. Furthermore, the banks will continue to divest a number of businesses and shareholdings. The banks will also provide information on their websites on the process of switching banking services to another financial institution, and will make available the necessary documentation thereto.

In assessing the impact of the aid on competition in Iceland, the Authority has cooperated closely with the Icelandic Competition Authority.

It shall be noted that the Authority´s approval under the state aid rules of the unlimited state guarantee of deposits in domestic commercial and savings banks is temporary and will expire at the end of 2014.

Non-confidential versions of the Decisions will be published in the register of state aid decisions on the Authority's website, normally within a month from the date of the Decisions.


For further information, please contact:


Mr. Trygve Mellvang-Berg
Press & Information Officer
tel. (+32)(0)2 286 18 66
mob. (+32)(0)492 900 187


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