Britain won swift clearance from European Union regulators on Wednesday for rescue aid to support stricken mortgage lender Northern Rock, a casualty of the global credit crunch.
The European Commission, which has broad powers to regulate state aid to business under EU competition policy, said the Bank of England's initial September 14 emergency liquidity assistance to Northern Rock did not constitute state aid because it was secured by collateral and was interest-bearing.
However, subsequent government moves to guarantee deposits in the Newcastle-based building society after a run on the bank and to provide liquidity and guarantees secured by a Treasury indemnity did constitute state aid, the EU executive said.
These aid measures can be authorized as rescue aid in line with Community guidelines for rescuing and restructuring firms in difficulty, the Commission said in a statement.
Under those rules, rescue aid must be given in the form of loans or guarantees lasting no more than six months, although certain exceptions in the banking sector to allow for prudential requirements, have been applied in this case, it said.
The statement put no figure on the state aid measures but said the British government had undertaken to give Brussels a plan for Northern Rock's future going beyond the short-term rescue by March 17.
London was in touch with the Commission from the outset but only formally notified the state aid on November 26, so the clearance was granted in just eight working days.
This case shows that, with good cooperation from the member state concerned, the Commission can move very fast to provide legal certainty for temporary rescue measures, EU Competition Commissioner Neelie Kroes said in a statement.
Her spokesman said it was one of the fastest approvals on record.
Northern Rock and government advisers have selected a consortium led by Richard Branson's Virgin Group as a preferred bidder for the ailing mortgage bank, but U.S. buyout firm J.C. Flowers has made a revised offer and wants to compete with Virgin and other suitors also remain interested.
Asked whether the Commission decision gave the green light for a takeover of Northern Rock by Virgin, the Commission said it should provide legal security to all stakeholders including depositors, lenders and those developing long-term plans for the company.
The conditions for rescue aid are that the firm in difficulty must not have received rescue or restructuring aid during the previous 10 years, and aid should be restricted to the minimum necessary to keep the firm in business for the rescue period.
The Commission said it would look separately at any state aid in the sale or restructuring of Northern Rock, which would be subject to a separate authorization.
(Editing by Darren Ennis)