Public funding of failing banks in the European Union (LBF vol. 19) 2020/7.2.3.1:7.2.3.1 Applicable restructuring processes

Public funding of failing banks in the European Union (LBF vol. 19) 2020/7.2.3.1

7.2.3.1 Applicable restructuring processes

Documentgegevens:

M. Louisse-Read, datum 01-06-2020

Datum: 01-06-2020
Auteur: M. Louisse-Read
JCDI: JCDI:ADS214005:1
Vakgebied(en): Financieel recht / Europees financieel recht
Staatssteun (V)

Table 11 shows that the restructuring processes under the State aid regime for the banking sector and the resolution framework are partly overlapping, but also differ.

Table 11: Applicable restructuring processes

Restructuring process	Resolution framework	State aid regime for the banking sector
Ex ante restructuring	Yes, on the basis of the recovery plan the competent authority may as an ultimum remedium direct the bank to take any measures it considers necessary and proportionate. In addition, the resolution authority has the power to require the bank to take alternative measures on the basis of the resolution plan.	N/A
Restructuring planning	Yes, a business reorganisation plan has to be prepared, but onl y in case the bail-in tool is used as a ‘going concern’ tool	Yes, a restructuring plan has to be prepared when rescue aid is not reimbursed within two months and/or more structural aid (restructuring aid) is required. In addition, a capital raising plan has to be prepared before or as part of the submission of a restructuring plan.
Obligation to take capital raising measures, burden-sharing measures and safeguards preventing the outflow of funds	The second resolution condition requires that the failure of the bank cannot be prevented by alternative private sector measures or supervisory actions. If a bank is failing or likely to fail, it should therefore first turn to alternative sector measures or supervisory actions in order to return to viability. Only, if these measures cannot prevent the failure of the bank, can it be put in resolution or wound up in normal insolvency proceedings. The second resolution condition therefore has the same effect as the capital raising measures and safeguards preventing the outflow of funds included in the capital raising plan. Moreover, the recovery and resolution plan can contribute on an ex ante basis to limiting the burden when a bank is failing. The burden-sharing measures are taken by the resolution authorities through exercising the PONV conversion power and the bail-in tool.	Yes, on the basis of the capital raising plan.
Obligation to take measures to restore the long term viability of the bank	Yes, on the basis of the business reorganisation plan	Yes, on the basis of the restructuring plan.
Obligation to take measures that will limit the distortion of competition	N/A	Yes, on the basis of the restructuring plan. These measures could be structural measures, corporate governance measures, behavioural measures and/or government measures.
Monitoring arrangements	Although monitoring arrangements do not form part of the business reorganisation plan, the management body or the person or persons appointed by the resolution authority has to submit a report to the resolution authority at least every six months on progress in the implementation of the plan.	Yes, as part of the restructuring plan.
Removal or replacement of management body and/or senior management	Yes, the resolution power to remove or replace the management body and senior management should normally be exercised as part of resolution, unless the retention of such management body and/or senior management is considered necessary for the achievement of the resolution objectives	Yes, on the basis of the restructuring plan. If recourse to State aid could have reasonably been averted through appropriate and timely management action, any entity relying on State aid for its restructuring or winding up in an orderly manner should normally replace the CEO, as well as other board members, if appropriate.
Continuity arrangements	The resolution authorities can require a bank in resolution, or any of its group companies, to provide any services or facilities that are necessary to enable a recipient to operate effectively the business transferred to it.	The State aid regime for the banking sector does not provide for similar continuity arrangements.

There are a number of cases in which State aid was granted after the introduction of the resolution framework. In section 6.4.4, four examples were discussed of the award of State aid in resolution. In addition, section 5.3.2 discussed examples of precautionary recapitalisations and guarantees. The applicable restructuring processes in these cases are summarised in Table 12.

Table 12: Applicable restructuring processes in examples of State aid awards

Example	Restructuring process under resolution framework	Restructuring process under State aid regime for the banking sector
In resolution
Capital injection from a resolution fund to a bridge bank (e.g. Carichieti, Carife, Banca Marche, Banca Etruria and BES)	N/A	Winding up plan has to be submitted and approved prior to award of the aid
Sale following the application of the bridge bank tool (e.g. Carichieti, Carife, Banca Marche, Banca Etruria and BES)	N/A	Integration plan has to be submitted and approved prior to award of the aid
Contribution by national resolution fund / Member State under sale of business tool (e.g. Panellinia Bank and BANIF)	N/A	Integration plan has to be submitted and approved prior to award of the aid
Transfer of non-performing assets to AMC under asset separation tool (as part of restructuring process) (e.g. MKB Bank)	N/A	Restructuring plan has to be submitted and approved prior to award of the aid
Transfer of non-performing assets to AMC under asset separation tool (as part of liquidation process) (e.g. Carichieti, Carife, Banca Marche, Banca Etruria and BANIF)	N/A	Integration plan has to be submitted and approved prior to award of the aid
Outside of resolution
Precautionary guarantees (e.g. BES, Attica Bank, MPS, Banca Popolare di Vicenza, Veneto Banca, Banca Carige)	N/A	Restructuring or a winding up plan has to be submitted within two months of the granting of the guarantees (unless the aid is reimbursed within two months)
Precautionary recapitalisation (e.g. Piraeus Bank, Alpha Bank, Eurobank, National Bank of Greece, MPS, LCUU)	N/A	Restructuring plan has to be submitted and approved prior to the award of the aid (unless it concerns rescue recapitalisation)

The table shows that in none of the cases a restructuring process was triggered under the resolution framework. Restructuring is, in all cases, solely covered by the State aid regime for the banking sector.

This can be explained by the fact that the restructuring process under the State aid regime for the banking sector actually only applies in addition to the restructuring process under the resolution framework when resolution involves the award of State aid and the bail-in tool is used as a going concern solution; e.g. when the GFST are used.

At the time of writing this dissertation, the bail-in tool had not yet been applied as a going concern solution. Section 4.4.3.4 discussed the application of the bail-in tool. It mentions the cases of HETA, Andelskassen and Jadranska Banka. In all these cases, the bail-in tool was applied in support of a transfer tool. In the case of HETA, the asset separation tool and sale of business tool were applied prior to the introduction of the resolution framework.