The European Commission will next week present guidelines on how European Union (EU) member states can deal with banks' toxic assets, the EU's top antitrust official said on Thursday.

"Next we must deal with impaired and toxic assets, and move forward with restructuring banks and the sector at large," EU Competition Commissioner Neelie Kroes said in a speech to a European Parliament group.

Kroes said the increasing size and breadth of write-downs borne by financial institutions, and the immediate infections to the real economy is testing policy-makers.

After EU countries poured billions of euros into financial bailouts, banks remain reluctant to lend to the real economy because they hoard government cash in preparation for further potential losses from securitized debt based on bad loans such as US subprime mortgages.

Kroes said she preferred to "take structural measures that clear balance sheets, restructure or wind down banks and allow the survivors to resume lending without looking back."

"This is the clearest path to both financial stability of the sector and viability of its major players," she said.

Kroes said cleaning balance sheets of impaired assets would be necessary to address the root problem of lack of confidence in the financial market, urging governments to press banks to tell the true amounts of the toxic assets they are holding.

(Xinhua News Agency February 20, 2009)