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Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.4.1.1
4.4.1.1 The determination that the bank is failing or is likely to fail has been made
M. Louisse-Read, datum 01-06-2020
- Datum
01-06-2020
- Auteur
M. Louisse-Read
- JCDI
JCDI:ADS213827:1
- Vakgebied(en)
Financieel recht / Europees financieel recht
Staatssteun (V)
Voetnoten
Voetnoten
Article 32(4) BRRD. The cases in which EPFS can be granted without triggering resolution are discussed in section 5.3.2. This entails the so-called precautionary recapitalisation and precautionary guarantees.
Hadjiemmanuil, 2015, p. 243.
EBA Pillar 2 Roadmap 2017, p. 4.
Hadjiemmanuil, 2015, p. 243.
ECB, ‘Failing or Likely to Fail’ Assessment of Banco Popular Español, 6 June 2017.
ECB, ‘Failing or Likely to Fail’ Assessment of Banca Popolare di Vicenza Società per Azioni, 23 June 2017.
ECB, ‘Failing or Likely to Fail’ Assessment of Veneto Banca Società per Azioni, 23 June 2017.
Depending on the division of tasks set out in the SSMR.
Article 18(1) SRMR.
Article 18(1), second paragraph SRMR.
ECB, ECB determined ABLV Bank was failing or likely to fail, 24 February 2018.
SRB, Notice summarising the decision taken in respect of ABLV Bank Luxembourg S.A.
GC, 6 May 2019, T-281/18, ECLI:EU:T:2019:296 (ABLV Bank v ECB), par. 34-36. Louisse JOR 2019-1. ABLV Bank lodged an appeal against this order (C-551/19 P), inter alia¸ because the GC would have based its order on an incorrect interpretation of Article 18(1) SRMR.
Article 32(2) BRRD.
A bank is deemed to be failing or likely to fail (FOLTF) in one or more of the following circumstances (i) the bank infringes or there are objective elements to support a determination that the bank will, in the near future, infringe the requirements for continuing authorisation in a way that would justify the withdrawal of the authorisation, (ii) the assets of the bank are or will, in the near future, be less than its liabilities, (iii) the bank is or will, in the near future, be unable to pay its debts or other liabilities as they fall due, (iv) extraordinary public financial support (EPFS) is required, except in certain cases.1
FOLTF does therefore not mean only actual or impending balance-sheet insolvency or inability to pay debts as they fall due (illiquidity), in harmony with the usual criteria insolvency law. It may also include vaguely defined situations, such as raising the need for public financial support as well as, situations involving the actual or impending infringement by the bank of its regulatory requirements for continuing authorisation.
The BRRD does not include a specific numerical indicator for violation of the regulatory requirements for continuing authorisation, to serve as a clear quantitative trigger.2 It can however be derived from the EBA Pillar 2 Roadmap that a breach of the Pillar 2 capital requirements, other than Pillar 2 non-legally binding capital guidance, is considered a potential condition for meeting the FOLTF condition.3
The criteria are hence rather fluid and imprecise, but they certainly mean that the trigger for resolution can be crossed at a point well before the bank has reached the financial state of balance-sheet insolvency.4 In other words, resolution can take place at a point when a bank is still solvent.
For Banco Popular, the ECB considered that it was likely in the near future to be unable to pay its debts or other liabilities as they fall due, because of excessive deposit outflows, the speed at which liquidity was being lost from the bank and the inability of the bank to generate further liquidity.5 The ECB considered that Banca Popolare di Vicenza was failing or likely to fail, because it infringed the requirements for continuing authorisation in a way that would justify the withdrawal of the authorisation by the competent authority.6 It came to the same conclusion in relation to Veneto Banca.7
Within the SRM, the assessment whether or not the FOLTF condition is met, is made by the ECB (or the national competent authority)8, after consulting the SRB (or the national resolution authority).9 The SRB (or the national resolution authority) may also make this assessment, but only after informing the ECB (or the national competent authority) of its intention and only if the ECB (or the national competent authority), within three calendar days of receipt of that information, does not make this assessment.10 The division of tasks between the SRB and the national resolution authorities is further discussed in section 4.5.1.
In the case of ABLV Bank and ABLV Bank Luxembourg, the ECB determined that they were failing or likely to fail.11 In particular, the ECB considered that there were objective elements to support a determination that the banks would, in the near future, be unable to pay its debts or other liabilities as they fall due.12 ABLV Bank brought an action before the CI to annual the decision of the ECB that ABLV Bank and ABLV Bank Luxembourg are FOLTF. In an order of 6 May 2019, the CI decided that the action of ABLV Bank is inadmissible. It assessed that the FOLTF assessment by the ECB is a mere assessment, which does not in any way bind the SRB. Therefore, the FOLTF assessments for ABLV Bank and ABLV Bank Luxembourg must be considered to be preparatory measures in the resolution procedure, which are designed to allow the SRB to take a decision regarding the resolution of the banks in question, and cannot, for that reason, form the subject of an action for annulment.13
Under the BRRD, the FOLTF assessment is made by the national competent authority, after the national resolution authority is consulted.14 Member States may also provide that the assessment can be made by the national resolution authorities, after consulting the competent authorities.15