No bank 'too big to restructure' for Kroes

ING is one in a long line of European Banks currently being constrained by the European Competition Commissioner. Banks receiving state aid often have to restructure. But the decision to hive off its insurance arm was made by ING itself.

ING is far from the only European bank to restructure its activities under pressure from Neelie Kroes, the European Commissioner for competition. Since US investment bank Lehman Brothers collapsed in September 2008, about 50 banks across the 27-member European Union have called upon their national governments to bail them out, in part or as a whole. Every country had its own way of dealing with the malaise, but each faced the scrutiny of Kroes. Her officials have reviewed the state aid on a case by case basis to ensure that banks rescued by the national governments were not given an unfair advantage over banks that weren't.

In dozens of cases, including ING, Kroes issued a more in-depth investigation. A number of those, including ING, Lloyds, Royal Bank of Scotland, KBC, Dexia, German LBBW and a few Irish banks, were faced with mandatory reorganisations.

ING is one of a number of banks that are well underway to implement her edict. RBS, of which the British government now owns 70 percent, will close 312 of its 2,279, offices outside Scotland, for example. And Belgian KBC is working on a plan to sell the profitable KBC Lux.

In every country, including The Netherlands, complains have risen that Kroes is unreasonably strict and "out to get us". All fail to hear the strong language she uses to urge other member states to speed up the pace.

Kroes, a former Netherlands' transportation minister, has collided with Dutch finance minister Wouter Bos over ING on a number of occasions. But on Monday the European Commission responded mildly to the announcement that ING will hive off its insurance arm and plans to repay half the capital injection as soon as possible.

Kroes referred to the move as "very good progress" and said she will give a definite verdict within weeks.

Experts say the problem with the banking sector is that small fish are disappearing and the big fish are becoming more and more powerful. It is harder to supervise the large financial companies, as supervision is organised nationally.

What if another one of such banking giants, with activities in dozens of countries, falters. More cash will be needed than the country of origin can come up with. As there is no international or European mechanism to deal with this, a race could develop where every nation will panic and try to rescue what it can for its own taxpayers.

Melvyn King, governor of the Bank of England, last week urged banks to scale down by separating utility aspects. Kroes seems to agree with his plea for so-called "narrow banking". In her view, some banks may be 'too big to fail', but not 'too big to restructure'.

It is not up to Kroes, however, to run a pro-active industrial policy for multinational banks. Her mandate is only to conduct a reactive competition policy. "She can't force big banks like Barclays, Deutsche Bank or Santander, which have not received government lifelines, to restructure," says Karel Lannoo, the director of the Centre for Policy Studies in Brussels. "Only when governments bail out troubled banks, or when a merger leads to complaints from other banks about unfair competition, can Kroes impose restructuring."

Each case on Kroes' plate has been different. One of the problems she had with ING's aid was that the state guarantee for toxic mortgages portfolios were to high – higher than in some other countries at least. Brussels ordered the Dutch conglomerate to sell its American operations in ING Direct, its online savings bank, but Kroes did not demand the separation of the insurance and the banking arm. That was a strategical choice the bank seems to have made on its own.