European Commission – Communication from the Commission on the Treatment of Impaired Assets in the Community Banking sector, February 25, 2009.

News release: “The European Commission has provided guidance on the treatment of asset relief measures by Member States. Impaired assets correspond to categories of assets on which banks are likely to incur losses (e.g. US sub-prime mortgage backed securities). The Commission considers that a common European approach is presently needed to deal with the treatment of impaired assets, to make sure that foreseeable losses are disclosed and properly handled and banks can use their capital to resume their normal function of lending to the economy instead of fearing they would need this capital to cushion against possible losses. The Commission’s Communication outlines various methods to deal with impaired assets, notably through asset purchase (including bad bank scenarios) or asset insurance schemes. It explains the budgetary and regulatory implications of asset relief measures and presents details concerning the application of the State aid rules to such measures. In particular, the guidance provides methodologies concerning the valuation of the impaired assets, the necessary remuneration of the State for the asset relief and the procedural steps that will be followed as well as the criteria that will be used to evaluate the State aid given to the banks as a result.”