EU moots nationalisation to exit toxic bank assets

26 February 2009

Nationalising banks is an option for governments to clean the balance sheets of financial institutions, the European Union said yesterday.

''This is one of the options to solve the problem of banks in distress,'' EU monetary affairs commissioner Joaquin Almunia said at the European Commission meet in Brussels.

The executive arm of the 27-member EU unveiled guidelines on how to deal with 'toxic assets'. The guidelines also called for the setting up of two bodies to coordinate oversight of financial institutions across Europe.

Toxic assets are typically securitised products linked to the US subprime mortgage market that have become untradeable as homeowners defaulted on the underlying home loans. Banks have been forced to write down billions of euros in losses on such assets. Anticipation of more hidden losses to come has frozen lending among banks and push panic buttons.

On pondering over the issues, the commission noted that the EU nations have several other alternatives, such as asset purchase, including 'bad bank' scenarios, and asset-insurance programmes.

''We have not taken an option here in favour of bad banks, in favour of good banks, or in favour of insuring assets,'' Almunia told reporters. It is up to each member state to decide what is the best way to clear the toxic assets, he pointed out.