European Union regulators said Tuesday that they would allow Austria a 550 million ($783 million) euro capital injection and a 400 million euro loan guarantee to lender BAWAG.
They said their approval was limited to six months and that Austria has to draw up a restructuring plan within three months to show how the bank will repay the state aid and provide a detailed valuation of the asset portfolio covered by the guarantee.
EU Competition Commissioner Neelie Kroes said in a statement that the European Commission could allow the aid to "limit the adverse impact of the current financial crisis on BAWAG and improve the capital base of the bank."
BAWAG, or Bank Fuer Arbeit und Wirtschaft AG, is Austria's fourth largest bank, with some 150 branches and a balance sheet of 40.8 billion euros on June 30.
Last year, the longtime former director of Austria's BAWAG bank, Helmut Elsner, was among nine people convicted of criminal charges in a major fraud case linked to the 2005 collapse of New York-based commodities brokerage Refco Inc.
A Vienna court found them responsible for 1.4 billion euros in losses at BAWAG which loaned Refco's CEO several hundred million dollars just before the brokerage filed for bankruptcy protection in October 2005.