Page last updated at 10:28 GMT, Thursday, 7 May 2009 11:28 UK

EU broadens Northern Rock probe

Northern Rock branch
Two years ago people queued to take their money out of Northern Rock

The European Commission has widened its investigation into whether UK government aid for Northern Rock breached EU competition rules.

It said that the UK had introduced a substantial change to its rescue package by splitting it into a "good" and "bad" bank.

The EU executive arm began its investigation in April last year.

It said it wanted more information from the UK on the plan so it could assess whether the move breached EU rules.

Competition questions

The government wants to separate Northern Rock's past housing loans and allow the rest of the business to survive without having to bear the burden of huge potential losses on bad loans.

"The main change introduced is the split of Northern Rock into a 'good' bank, which would continue commercial activities, and a 'bad' bank with most of the previous mortgage loans, which would be wound down," the Commission said in a statement.

"The Commission has to examine whether the changes will enable Northern Rock to return to long-term viability while avoiding undue distortions of competition," it said.

Northern Rock, now nationalised, saw the first run on a UK bank in more than a century after it was forced to seek emergency funds from the Bank of England in September 2007.

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