On 19 October, the EFTA Surveillance Authority (ESA) granted clearance to the acquisition of Byr HF, the Icelandic financial institution, by its competitor Islandsbanki, despite Islandsbanki having previously received state aid.
The ESA approved aid to Byr (in the form of capital and loan) of some €40m in April, in order to allow it to meet the relevant capital adequacy requirements. An investigation into aid granted to Islandsbanki is still under way. Byr was put up for sale when it became clear that it needed further capital. Islandsbanki subsequently won the bidding process.
State aid rules usually prohibit institutions from acquiring competitors following the receipt of state funds. These provisions have been applied to many European banks that have profited from the provision of state funds. However, the ESA waived the application of these rules to the acquisition of Byr. It noted that a waiver can be granted in the interests of promoting financial stability within the financial system, provided that the transaction does not unduly distort competition. Nevertheless, it imposed restrictions on Islandsbanki: within 3 months, it must submit to ESA a restructuring plan for the merged entity. The ESA stated that "this plan will have to include measures that ensure an effective competition in the Icelandic banking market after the merger.
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