December 09, 2008

BRUSSELS -- European Union regulators on Monday cleared France's multibillion-euro fund to shore up banks and ease lending, and set out new rules requiring banks with riskier investments to pay higher fees for government cash bailouts.EU Competition Commissioner Neelie Kroes said she expected Germany to toughen the terms of a financial rescue plan for Commerzbank AG before the EU could clear it. A spokesman for the German Finance Ministry said his country doesn't intend to change its plans to aid Commerzbank, which has been a source of contention between the EU and the German government for several weeks.

European governments are eager to strengthen their banking sectors through massive government capital injections to keep credit flowing to industry. But regulators, who monitor state aid, say bailout packages need to be structured so banks receiving state aid won't benefit over rivals that cope without.Ms. Kroes said EU countries can give money to financially sound banks to encourage lending as long as certain measures are taken to maintain competition.Possible steps include lending money to banks at slightly higher interest rates than those set by central banks, after a "risk premium" reflecting the bank's risk profile is added to it, she said.