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State Aid

PR(09)27: State support to Icelandic savings banks in line with state aid rules


The EFTA Surveillance Authority declared today the Icelandic State’s support to the savings banks compatible with the rules governing state aid of the EEA Agreement. Iceland undertook the measure mid 2008 in view of shortage of liquidity in the financial markets, thereby addressing a serious disturbance in the Icelandic economy.

The savings banks normally finance themselves through deposits and loans from larger Icelandic banks. Due to their moderate scope of operations and lack of credit rating, the small banks do not have access to international financial markets or to liquidity from the Central Bank of Iceland. In order to ensure the operations of the small savings banks, the Icelandic authorities therefore decided to intervene through the Icelandic Housing Financing Fund (HFF). The measure has taken the form of an asset swap between the HFF bonds and a portfolio of mortgage loans of the beneficiary bank. This has enabled the beneficiary banks to exchange the HFF bonds against liquidity in transactions with the Central Bank. The measure thus has the effect of a guarantee, which provides the beneficiary banks with collateral that can be accepted by the Central Bank.

The Authority assessed the notification on the basis of its guidelines on the application of state aid rules to measures taken in relation to financial institutions in the context of the current global financial crisis (PR(09)05). In particular, the Authority found that the aid has a non-discriminatory character and is appropriate in terms of being well targeted.

For the sake of clarity, the Authority adds that this decision does not relate to any other support to the savings banks currently under discussion in Iceland.

For further information, please contact:

Per Andreas Bjørgan
Director, Competition and State Aid Directorate
tel. (+32)(0)2 286 18 36

Agnieszka Montoya-Iwanczuk
Competition and State Aid Directorate
tel. (+32)(0)2 286 18 59

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


Brussels, 27 March 2009

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