Recital (24)

Precautionary measures should be limited to the amount that the entity would need to maintain its solvency in the event of an adverse scenario of a stress test or equivalent exercise. In the case of precautionary measures in the form of impaired asset measures, the receiving entity should be able to use the amount granted to cover losses on the transferred assets or in combination with an acquisition of capital instruments, provided that the overall amount of the shortfall identified is not exceeded. It is also necessary to ensure that precautionary measures in the form of impaired asset measures comply with existing State aid rules and best practices, that they restore the entity’s long-term viability, that State aid is limited to the minimum necessary and that distortions of competition are avoided. For those reasons, the authorities concerned should, in the case of precautionary measures in the form of impaired asset measures, take into account the specific guidance, including the Commission’s blueprint for how national asset management companies can be set up and the communication of the Commission of 16 December 2020 on tackling non-performing loans in the aftermath of the COVID-19 pandemic. Precautionary measures in the form of impaired asset measures should always be subject to the overriding condition that they be temporary. Public guarantees granted for a specified period in relation to the impaired assets of the entity concerned are expected to ensure better compliance with that condition than are transfers of such assets to a publicly supported entity.