The Belgian-French bank Dexia will shrink by a third in the coming years. The bank has reached an agreement with the European Commission to reduce its size in exchange for approval of the state funding Dexia received in 2008.

Belgium, France and Luxembourg pumped 6.4 billion euros into the bank and gave it 150 billion in guarantees when it got into difficulties during the early days of the economic crisis. However, the European Commission says the emergency package amounted to improper state funding and demanded that the bank be reduced in size.

The bank will not be allowed to pay dividends to its shareholders in cash over 2009 and 2010. Dexia will now focus on the home market in Belgium and France. Activities in Spain, Italy, Slovakia and Turkey have been halted. EU commissioner Neelie Kroes is satisfied with the deal.

Photo: Dexia bank - Flickr