The EU competition Commissioner says banks which are bailed out by the taxpayer cannot go on as they are and will be restructured. Neelie Kroes said this would include forced sales and break-ups of banking groups.
The commissioner is on a visit to Dublin, where she has met Finance Minister Brian Lenihan ahead of the publication of new EU rules on state aid to banks to be unveiled next week.
Trillions of euro of taxpayers money is being used to prop up the banking sector in Europe. But the European Commisson says there has to be a price to be paid for this state aid, which it says is damaging competition in the banking market, which in turn is bad for ordinary businesses.
Leaked drafts of tough new rules to be unveiled by Mrs Kroes in Brussels next week suggest the Commission may order bank groups to be broken up, or forced to sell subsidiaries, or even forced to merge with other banks. Lloyds HBOS in the UK is already under pressure to sell off its Halifax business.
Banks helped by schemes like the Irish bank guarantee or NAMA may also be banned from paying dividends to shareholders or interest to bondholders, and will have to pay back the state aid within a few years.