The European Commission opened an investigation Wednesday into Britain's nationalization of Northern Rock PLC, the mortgage bank that collapsed at the beginning of the global credit crisis.Neelie Kroes, the EU antitrust chief, said a broad look at how the British government plans to save Northern Rock was merited given the financial market turmoil, the sizable amount of money involved and the risk of an unfair advantage over other banks. "The commission needs to open a formal investigation into U.K. measures to restructure Northern Rock to ensure legal certainty," Kroes said in a statement.

EU spokesman Jonathan Todd said turmoil in the banking sector underlines the importance of determining what governments can and cannot do to support troubled banks.



"The advantage of doing an investigation ... will be that it will give guidance to others as to how these things should be handled," he said.

The U.S. Federal Reserve stepped in last month to back up to $30 billion in troubled assets as JPMorgan bought Bear Stearn's in a shocking Wall Street fire sale.

Late last year, the EU authorized Britain to provide emergency aid to Northern Rock for six months. Since then, it has filed a costly, long-term restructuring plan that the European Commission will investigate to determine if the aid will make the bank viable again without distorting the banking sector.

Under the plan, Northern Rock will slash one-third of its staff by 2011 and cut home loans while remaining reliant on state aid. The bank now has some 6,500 employees.

Northern Rock was nationalized in February after exposure to short-term money markets forced it to seek emergency funding from the Bank of England, leading to Britain's first bank run in more than a century.

Taxpayers have so far funded subsidies to the stricken mortgage lender to the tune of 55 billion pounds ($107 billion).

"Rescue aid must be temporary and reversible," Kroes said in her statement.

Todd insisted that putting a limit on the funding did not imply that the EU believed government support so far has been too high.

"We simply need to make sure that the money is used, amongst other things, to ensure proper restructuring," he said.

Under EU rules, if a government gives such aid for longer than six months, it must file a longer-term restructuring that limits new funding to the bare minimum and sets out how the company would become profitable again.

"Not all details of the plan have been communicated to the (European) Commission," Kroes said.

She called on the British authorities to provide more information and said she would invite "third parties" — including banking sector representatives — to "comment on whether the plan's proposals for avoiding undue distortions of competition are adequate."

Todd said EU regulators had received complaints, but declined further comment. Danish banks have written to the Commission to protest the rescue plan. Northern Rock plans to close its Danish savings banks but maintain others in Ireland and Guernsey.

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AP Business Writer Aoife White contributed to this story.

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