EU investigating UK Northern Rock plan after Danish banks complain

The European Commission is investigating the UK government's plan for the recently nationalised mortgage lender Northern Rock to see whether the plan falls afoul of EU state aid rules.

Commission spokesperson Ton van Leirop said on Tuesday (18 March) that European officials had received the plan from Westminster, as well as a letter from Danish banks complaining about the nationalisation.

Danish banks are complaining that with government guarantees for the bank's deposits, Northern Rock, which operates in Denmark, becomes very attractive to customers who are looking for a safe place for their savings in a time of global financial volatility.

"We have received the notification of the restructuring plan ... and we will study it carefully," said Mr van Lierop.

Northern Rock, the UK's fifth largest mortgage bank, was nationalised last month by the UK government following a run on the bank in the wake of the fall-out from the sub-prime lending debacle in the United States last summer.

The aim is to have the state hold onto the bank only as long as it takes to get Northern Rock in shape to look attractive to a private sector buyer.

However, Danish banks are complaining in a letter to the commission that the situation is "highly problematic", according to a report from Reuters.

Denmark is the mortgage bank's only operation outside the UK, and competitors there have complained that with government guarantees for its deposits, the bank becomes very attractive to customers who are looking for a safe place for their savings in a time of global financial volatility.

The Danish banks say that this gives Northern Rock an unfair advantage. While private banks can run out of money, it is much more difficult for governments to do so.

EU state aid rules permit member states to offer emergency aid to companies in dire financial straits to prevent bankruptcies, but any such aid may not distort competition.