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The measures include a split of Northern Rock into two different entities. A so-called "good" bank that will be in charge of providing lending to the real economy and a "bad" bank, the asset management company, will be in charge of running down the past loans over a longer period of time and eventually be liquidated.
"Important structural changes, including the split of the bank into two entities and a significant reduction of its market presence will allow the bank to become viable in the long-term and limit distortions of competition," Competition Commissioner NeelieKroes said.
The approval of the package comes in the wake of an in-depth investigation launched by the commission in April 2008, which has now concluded that the aid is compatible with the EU rules on state aid.
Under the EC treaty state aid rules, state aid is generally prohibited. However, the treaty leaves room for a number of policy objectives for which state aid can be considered compatible. The EC has established a worldwide unique system of rules under which state aid is monitored and assessed in the European Union.
Before the credit crunch, Northern Rock was the fifth largest mortgage bank in Britain with a balance-sheet total of 150 billion euros (about 200 billion U.S. Dollars) as of Dec. 31, 2006. Its core activity is residential mortgage lending, which represents more than 90 percent of all outstanding loans made by the bank.