(BRUSSELS) - The European Commission launched on Wednesday a probe into state aid provided to German banks IKB and Sachsen LB which were hit by investments made in US subprime mortgage markets.

The commission said that state development bank KfW provided a "risk shield" of about nine billion euros to IKB last year, and that a group of regional banks granted liquidity assistance of about 17 billion euros to SachsenLB.

"Without these and several subsequent measures the banks would not have been able to continue their business," the commission, the European Union's top competition regulator, said in a statement.

"The commission has to assess whether these measures constitute state aid and, if so, whether they can be found compatible with EU rules for rescuing and restructuring firms in difficulties," it said.

"It is generally acknowledged that public authorities might need to react to threats to the stability of the financial markets. For its part, the commission has to ensure that such interventions do not unduly distort trade in the markets," said Competition Commissioner Neelie Kroes.

"Otherwise it is hard for European citizens to understand why they have to suffer from the economic downturn, while taxpayers' money is poured into once profitable banks that took excessive risks and might now avoid paying for their risky strategies."

Germany, which notified the commission of the measures last month, maintains that the measures do not constitute state aid.

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