LONDON, Oct 27 (Reuters) - The European Union's tough line on restructuring at ING dragged down shares at other European banks which could face a harsh fate for taking state aid.
By 1038 GMT shares in Royal Bank of Scotland fell 5.5 percent and UK rival Lloyds Banking Group lost 3.7 percent, KBC fell 6 percent and Dexia dipped 4.7 percent.
ING shares dropped 2 percent to add to an 18 percent tumble on Monday, triggered by news the Dutch bancassurer ING is to split up and retrench to become a retail bank. It launched a 7.5 billion euro rights issue to repay state aid.
"Forced divestments, larger balance sheet reductions and restrictions on pricing are all more penal than we had expected and could potentially have a negative readacross for some other European banks," said Andrew Stimpson, analyst at Keefe, Bruyette & Woods.
RBS, Lloyds and KBC were the banks most in the European Commission's firing line, Stimpson said.
The remedies on ING were the most striking example yet of the deep changes that EU policymakers are forcing on banks that received state aid, and went far further than analysts had expected.
The shake-up will cut ING's balance sheet by 30 percent. The bank will dispose of its insurance and asset management operations, split off some Dutch mortgage operations and sell ING Direct USA, its American online banking business.
RBS and Lloyds were already expected to have to sell hundreds of branches, sell other assets and shrink their balance sheet. Belgium's KBC and Franco-Belgian Dexia are also awaiting rulings from the Commission.
Commerzbank, which has agreed to sell assets and slash its balance sheet, fell 7 percent. (Reporting by Steve Slater; Editing by Jon Loades-Carter)