European Investment Bank (EIB)

What Is the European Investment Bank?

The European Investment Bank (EIB) is a nonprofit European Union institution based in Luxembourg that makes loans, guarantees, and provides technical assistance and venture capital for business projects that are expected to further EU policy objectives. While almost 90% of EIB lending occurs within the EU, most of the remaining lending occurs in outside markets such as Southeast Europe and Iceland. 

Key Takeaways

  • The European Investment Bank (EIB) is a nonprofit EU institution that was founded after the Treaty of Rome in 1958.
  • The EIB is owned by all of the countries of the European Union, who make contributions to the bank in proportion to their GDPs.
    The EIB issues grants and loans on favorable terms to projects that further EU policy objectives, particularly in relation to infrastructure and climate action.
  • In 2021, the EIB signed loans for €65 billion euros, supporting 795 different projects.
  • In 2019, the Board of Directors approved a new environmental action plan that would invest €1 trillion euros into climate action by 2030.
  • The EIB also plans to spend up to €200 billion euros to support coronavirus recovery.

Understanding the European Investment Bank (EIB)

The European Investment Bank is owned by the EU member states and exists to fund projects that further the EU's policy objectives. All the member states contribute to the bank, in proportion to their respective gross domestic products.

In order to fund loans, the EIB borrows money from capital markets and lends it out at favorable rates to projects that further EU goals. Many of these projects are aimed at mitigating climate change, or fostering economic growth. 90% of them are located within the EU.

EIB loans also support less-developed European countries, environmental improvement and sustainability, energy security, trans-European networks, and knowledge economy projects. Borrowers often use EIB financing in conjunction with third-party financing. The commitment of the EIB often attracts additional financing from other parties.

European Investment Bank (EIB) Services

In addition to providing medium- and long-term loans to other financial institutions, the EIB also invests in the equity and debt instruments of other institutions, including microfinance institutions or funds.

The bank also offers grants intended to help the bank's borrowers strengthen some of these weak points. These grants are largely intended to provide technical assistance to loan recipients, in order to improve their management or performance efficiency.

Although 90% of bank-funded projects are located in the European Union, the EIB also provides funding to projects in Africa, Asia, and the Americas.

European Investment Bank (EIB) Projects

Projects supported by the EIB go through a seven-step process, where the bank first reviews and approves the successful proposal, and then monitors their progress until the loans are repaid. These projects must also conform to the EIB's standards for procurement and environmental impact.

The bank signed 795 projects in 2021, with a total monetary value of €65.3 billion. More than half of this amount went to projects in the area of transportation, energy, or credit lines to smaller finance facilities. Smaller amounts went to areas like agriculture, health, or infrastructure. Altogether, the bank has lent out the equivalent of nearly €1.6 trillion since its founding in 1958.

Another major goal for the EIB in 2021 was financing the recovery from the COVID-19 pandemic. In 2020, the bank's directors approved a €25 billion Pan-European Guarantee Fund. These funds will support companies that are viable in the long term but are struggling to survive the economic downturn that accompanied the pandemic. Altogether, the bank plans to spend or lend up to €200 billion on coronavirus recovery.

€200 billion

The amount of financial support the EIB expects to provide to financial institutions, companies, and projects to help aid their recovery after the COVID-19 pandemic.

The European Investment Bank and Climate Change

Climate change is another important aspect of the bank's work. In 2019, the bank's board of directors approved a new roadmap that would align all of its financing activities with the carbon reductions set out in the Paris Climate Agreement.

Altogether, the bank expects to invest €1 trillion in projects related to climate action or environmental sustainability between 2021 and 2030, and expects that 50% of its financing activities will relate to climate by 2025.

The Structure of the European Investment Bank

The EIB is an EU entity and a bank. Therefore, it must adhere to both public and corporate governance principles. The institution has three decision-making bodies: the Board of Governors, the Board of Directors and the Management Committee.

The Board of Governors sets the direction of the EIB, the Board of Directors oversees the strategic direction and the Management Committee supervises the daily operations of the EIB. The bank has 27 shareholders who are the Member States of the EU. As of 2021, Dr. Werner Hoyer is the current president and has held the position of director and chair since Jan. 1, 2012.

The History of the European Investment Bank

The European Investment Bank was founded in Brussels in 1958 when the Treaty of Rome was signed. At the time, the bank had just 66 employees. In 1968, the bank relocated to Luxembourg in 1968.

The EIB Group was formed in 2000 and was composed of the EIB and the European Investment Fund (EIF), the EU's venture capital organization that provides finance and provides guarantees for SMEs. The EIB is the EIF's majority shareholder and holds 61.3% of the shares. In 2012, the EIB Institute was created to promote European initiatives in EU Member States.

European Investment Bank Lending

In 2020, the EIB Group approved EUR 95.4 billion to support infrastructure, SMEs, and innovation and climate-related projects. The EIB Group is among the largest multilateral climate financiers in the world and has a AAA credit rating.

In 2012, in addition to the EUR 50 billion annual lending and following the Global Financial Crisis, the EIB and its Member States unanimously approved a EUR 10 billion capital increase. for economically viable projects across Europe, particularly for the four priority sectors of innovation and skills, SMEs, clean energy, and infrastructure.

What Is the Role of the EIB?

The European Investment Bank (EIB) provides financing and grants for projects that advance the policy goals of the European Union. Many of these projects relate to supporting energy infrastructure, transportation networks, or other investments that will improve employment and trade between European economies.

What Is EIB Funding?

Funding for the European Investment Bank (EIB) comes from EU member states, or from previous loans that have been repaid. The EIB is funding projects that advance EU policy objectives, such as climate action, environmental sustainability, or the economic recovery from the COVID-19 pandemic. Altogether, the bank signed 795 projects in 2021, with a combined value of 65 billion euros.

Is the EIB Regulated?

Like other banks, the European Investment Bank (EIB) must comply with all EU regulations on protecting user data, preventing fraud and money laundering, and maintaining minimum reserves. It must also abide by the principles set out by the Basel Committee on Banking Supervision and the European Banking Authority.

Is the EIB a Central Bank?

The European Investment Bank (EIB) is not considered a central bank, in that it does not issue currency or set monetary policy. This role is occupied by the European Central Bank. However, as a financial arm of the EU, the EIB makes investments that support and promote the European Union's policy goals.

Article Sources
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