BRUSSELS: The EU has demanded four European states to provide information over the possible illegal funding of their banks, officials stated.
“We can confirm that administrative letters have been sent to Spain, Italy, Portugal and Greece,” European Commission spokeswoman Lucia Caudet stated, adding that a formal investigation would only be formally opened depending on the states’ answers. What is especially in the EU’s crosshairs consists in the Deferred Tax Assets (DTA) — a loss of money that the bank can then claim against their future profits in order to reduce their tax bill.
The EU authorities suspect the four governments to have allowed their frail banks to count DTAs as part of their core capital, despite the fact they are not considered as “high quality” assets in the rest of the Eurozone.
After the 2008 economic crisis, governments internationally raised the amount of core capital a bank needs to hold in order to avoid bankruptcies in the future. However, EU regulations “already envision that DTA cannot be considered part of core capital and should be phased out by 2019,” Caudet said, adding that the regulations nevertheless did not clearly state that use of DTAs by the banks amounted to state aid. “That is exactly what we are trying to find out now,” she explained.
If found guilty, the banks would need to repay the state aids and force governments to find other solutions to avoid bankruptcy of their banks and another major economic crisis, while they are still struggling to recover from the previous one.
