The European Commission (EC) has approved a package of measures to support the restructuring of UK mortgage bank Northern Rock.

The bank will be split into a ‘good’ bank that will continue the economic activities of Northern Rock and a ‘bad’ bank, an asset management company which will run down the remaining assets.

Following an in-depth investigation, the EC has concluded that the aid is compatible with the EU rules on state aid, and with the Commission’s Communications on the application of the state aid rules to banks in times of crisis.

The EC is satisfied that the package of measures, including the split, will restore the long-term viability of the ‘good’ bank and will allow orderly liquidation of the ‘bad’ bank, without unduly distorting competition. The Commission’s investigation found that the aid package in the UK’s revised restructuring plan was kept to a necessary minimum.

Competition Commissioner Neelie Kroes said: “The failure of Northern Rock would have had major detrimental effects on the UK mortgage market and the overall financial stability of the UK economy. Important structural changes