Public funding of failing banks in the European Union (LBF vol. 19) 2020/5.3.5.1:5.3.5.1 No assumption of EPFS in the resolution plan

Public funding of failing banks in the European Union (LBF vol. 19) 2020/5.3.5.1

5.3.5.1 No assumption of EPFS in the resolution plan

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The resolvability assessment of a bank should lead to the situation that it is feasible and credible for the resolution authorities to either wind up a bank (and its group entities) in normal insolvency proceedings, or to resolve the bank (or its group) by applying resolution tools and powers without the assumption of EPFS, besides the use of the national resolution funds or SRF.1 If the resolvability assessment reveals that winding up the bank in normal insolvency proceedings or putting the bank in resolution likely involves the use of EPFS – other than national resolution funds or the SRF –, this should lead to the outcome that there are substantive impediments to the resolvability of the bank or group involved. In that case, measures should be taken to improve the resolvability of the bank or group involved before the resolution plan can be adopted or updated. The resolution plan has to identify how resolution actions could be financed without assuming EPFS.2 Only contributions by the national resolution funds or SRF may be assumed as an available funding means, once the resources from shareholders and creditors are exhausted.3

Against that background, it can be concluded that, if liquidation or resolution of a bank does in fact involve the use of EPFS (other than the national resolution funds or SRF); this was not foreseen. 4 Of the ten resolution cases notified by the SRB and the national resolution authorities to the EBA at the time of writing this dissertation, seven involve a decision by the Commission on the compatibility of State aid granted to the bank in resolution, albeit that this is often granted through the national resolution funds. The overview in Table 6 only covers aid measures granted in resolution. In many cases, this aid was preceded by other aid measures, such as State guaranteed ELA support, recapitalisation by a Member State or Member State guarantees, that were awarded prior to the introduction of the resolution framework.

Table 6: Overview of State aid measures in resolution cases

Bank

Resolution measure

Member State support

National resolution fund contribution

Deposit guarantee scheme contributions

Heta Asset Resolution AG (HETA)

Bail-in tool5 (preceded by asset separation and sale of business tool prior to introduction of resolution framework)

Guarantee granted by Austria for bonds issued by the Carinthian settlement payment fund under a settlement agreement with creditors of HETA that held senior and junior debt guaranteed by the Land of Carinthia (the guarantee was considered by the Commission to be covered by the existing aid that was approved by the Commission prior to the resolution, i.e. the guarantee by the Land of Carinthia)6

Jadranska Banka d.d. Sibenik (Jadranska Banka)

Asset separation tool / sale of business tool / bail-in tool

Subscription by the national resolution fund of new shares in the capital of Jadranska Banka7

Subscription by the deposit guarantee scheme fund of new shares in the capital of Jadranska Banka8

Panellinia Bank S.A. (Panellinia Bank)

Sale of business tool

Contribution by the national resolution fund covering the funding gap related to the transfer of activities of Panellinia Bank to Piraeus Bank9

MKB Bank Zrt. (MKB Bank)

Sale of business tool / asset separation tool

Financial assistance granted by the national resolution fund as a result of which the transfer of problematic assets of MKB Bank to an asset management company could take place at a price that exceeded the market value of those assets12210

Banca delle Marche, Banca Popolare dell'Etruria e del Lazio, Cassa di Risparmio di Ferrara, Cassa di Risparmio della Provincia di Chieti (Banca Marche, Banca Etruria, Carife, Carichieti)

Bridge bank tool / asset separation tool

Capital injections from the national resolution fund in the bridge banks, financial assistance from the national resolution fund as a result of which the transfer of assets from the bridge banks to asset management vehicles could take place above market prices, guarantees from the national resolution fund for the benefit of the buyer of the bridge banks12311

Banco Espirito Santo (BES)

Bridge bank tool

Extension of the maturity of government guaranteed bank bonds transferred to the bridge bank and provision of capital backstop if the total capital ratio of the bridge bank falls below the SREP total capital requirements12

Capital injection from the national resolution fund in the bridge bank, underwriting of tier 2 instruments issued by the bridge bank, guarantee from the national resolution fund for the benefit of the buyer of the bridge bank13

Banco Internacional do Funchal, S.A. (BANIF)

Sale of business tool / asset separation tool

Capital injection and subscription of CoCos issued by BANIF (granted prior to the resolution and re-notified and requalified as liquidation aid in the context of the resolution)

Direct contribution by Portugal covering the funding gap related to the transfer of a set of assets, rights and liabilities of BANIF to a private sector purchaser14

Contribution by the national resolution fund covering the funding gap related to the transfer of activities of assets, rights and liabilities of BANIF to a private sector purchaser

Financial assistance granted by the national resolution fund as a result of which the transfer of problematic assets of BANIF to an asset management company could take place at a price that exceeded the market value of those assets15

At the time of writing this dissertation, there were no examples of State aid measures granted in resolution that were not approved by the Commission.

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