Today, the European Commission (EC) announced its approval under EC Treaty state aid rules of Finland’s “support scheme to stabilise financial markets by providing capital injections to eligible financial institutions.” The support scheme is specifically “aimed at strengthening the solvency of deposit banks in Finland to allow them to ensure proper financing of the economy and to better cope with expected financial difficulties.”

The Finnish government notified the EC of the draft measure on May 9, 2009. Under the scheme’s framework the Finnish State will “subscribe non-cumulative and unsecured subordinated loan instruments issued by eligible banks up to ¼ of the required amount of their own funds." The subordinated loans will then be "reimbursed after three years and upon the approval of the Financial Supervisory Authority.”

The support scheme includes elements of state aid but also incorporates “various safeguards aimed at ensuring that the state intervention is proportionate, limited to what is necessary to stimulate interbank lending and adequate to reach this goal,” as set forth in the EU state aid rules.

Under the scheme, which is capped at €4 billion, only solvent banks (including subsidiaries of foreign banks) will eligible to participate. To benefit from the recapitalization, however, participating banks will be "required to pay a market-oriented fee, in line with recommendations from the European Central Bank.” Additionally, the scheme envisions imposing “substantial behavioural commitments for the participating institutions regarding executive pay and shares buy back.”