The European Commission has approved, under EC Treaty state aid rules, the prolongation of the Credit Guarantee and Recapitalisation Schemes, which form part of the UK's support measures to the banking industry during the current financial crisis. The Commission's investigation found that the circumstances on the financial markets justify the extension which aims at underpinning lending to the UK real economy.

The original measures were approved by the Commission on October 13th 2008 and modifications were approved on December 23red 2008. Due to the severe stress in the global and UK financial markets that required the original Credit Guarantee and Recapitalisation schemes continue to exist, the UK notified an extension of the schemes until October 13th 2009 .

With this notification, the UK also provided the Commission with a report on the operation of the Credit Guarantee Scheme, demonstrating the success of the scheme in its early stages and the need to extend the window for issuing new debt under the UK Government guarantee.

The UK considered that the original limit on guaranteed issue of £250 billion remained appropriate. The amount set aside for recapitalisation remained £50 billion. The eligible beneficiaries remained fundamentally sound banks, with eligible liabilities of above £500 million. A capital injection into a bank that has already accessed the recapitalisation scheme, however, will be subject to individual notification and approval.

Banks who benefit from the schemes have to agree in turn to provide loans to companies in the real economy and to individuals. The Commission therefore concluded that the UK support measures, as amended, are compatible with Article 87.3.b of the EC Treaty as explained in the Commission's Guidelines Communication on the application of state aid rules to banks during the financial crisis.

In particular, the Commission found that the amendments are well targeted to remedy a serious disturbance in the UK economy, proportionate to the challenge faced and designed to minimise negative spill-over effects on competitors, other sectors and other Member States. The modifications are non-discriminatory, limited in time (six months) and scope and with a market-orientated remuneration.