The European Commission today announced that the nationalisation of Bradford and Bingley by the British government, with the sale of some of its assets to Spanish banking firm Santander, would go ahead.

The government announced on Monday that they would nationalise the failing company and take over responsibility for £50 billion in mortgages. It was also announced that Santander would buy the banks deposits and branches.

Co-operation

The plan was submitted to the Commission only 24 hours previously and was the culmination of nearly a weeks contact between the government and the regulators. The decision was taken in record time and is a sign of strong co-operation between member states and the governing body in an attempt to limit the damage caused by the current financial turmoil.

Neelie Kroes, The EU Competition Commissioner was clear that given full co-operation the EU was well able to move “extremely quickly to provide legal certainty for rescue measures”. But she also made clear the need for it to be a co-operative process not a unilateral one

"I would like to plead to national governments today not to act but to continue their practice of consulting the Commission, that is a must," She said.

It has been estimated that Santander, who own Abbey National, has paid £20 billion for the deposit book and a further £612 million for Bradford and Bingley's 197 branches countrywide. The government agreed to submit a final restructuring or liquidation plan within six months, which will likely see the end of all parts of the bank not bought by Santander.

In a statement the Treasury argued that nationalisation was essential to maintain the integrity of the British economy and "to maintain financial stability and protect depositors, while minimising the exposure to taxpayers. [We have] worked over the weekend to bring about the part public, part private solution which best meets those objectives."

Following news in the last week that the commission had criticised the Irish Governments response to the crisis many were relieved with the result, arguing that the speed of the conclusion was good news for the European banking market. In a statement the Commission pointed out that:

“The measures described can be authorised as rescue aid in line with the EU guidelines on state aid for rescuing and restructuring or liquidating firms in difficulty. Under these rules, rescue aid must be given in the form of loans or guarantees lasting no more than six months, except when structural measures are urgently required, which was the case for B&B.”

Regulation strengthened

The acceptance of the provisional plan also coincided with new proposals by the EU to strengthen banking regulation throughout the union to prevent a repeat of the serious failures of oversight seen in recent months and intervene before banks spiralled into debt. The new regulations would entail closer supervision of the major trans-national banks, which make up a large percentage of the total market.

Each bank would be monitored by a college of supervisors drawn from the countries they operate in and would measure various risk factors associated with large-scale lending

“The colleges would exchange information on a bank’s financial position, organise on-site inspections, look at its solvency and liquidity and have a very good overview of how the bank is run,” Said a EU spokesman.