Public funding of failing banks in the European Union
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Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.4.3.2:3.4.3.2 State aid measures
Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.4.3.2
3.4.3.2 State aid measures
Documentgegevens:
mr. M. Louisse-Read, datum 01-06-2020
- Datum
01-06-2020
- Auteur
mr. M. Louisse-Read
- JCDI
JCDI:ADS213687:1
- Vakgebied(en)
Financieel recht / Europees financieel recht
Staatssteun (V)
Toon alle voetnoten
Voetnoten
Voetnoten
Quigley 2009, p. 300, 302.
2004 R&R Guidelines, point 16.
Restructuring Communication, footnote 1.
2008 Banking Communication, points 43 – 50.
2008 Banking Communication, points 19-23.
2004 R&R Guidelines, point 15. Laprévote and Coupé 2017, p. 110.
2008 Banking Communication, points 17 and 34. See Iftinchi 2017, p. 69 about the use of hybrid instruments for recapitalisation.
Impaired Assets Communication, point 23.
2013 Banking Communication, point 23.
2013 Banking Communication, point 50.
Deze functie is alleen te gebruiken als je bent ingelogd.
The State aid measures that are in scope of the State aid regime for the banking sector are rescue aid, restructuring aid and liquidation aid.
Rescue aid
Rescue aid is by nature temporary and reversible assistance. Its primary objective is to make it possible to keep an ailing firm afloat for the time needed to work out a restructuring or liquidation plan. The Member State concerned should notify rescue aid to the Commission before it actually grants the rescue aid. Because of urgency this appears to be a rule that is rarely observed in practice.1 One of the conditions for the temporary approval of rescue aid, is that it is accompanied, on notification, by an undertaking given by the Member State applying for the approval of the aid to communicate to the Commission, a restructuring or liquidation plan or proof that the rescue aid has been reimbursed in full and/or terminated.
Restructuring aid
Once a restructuring plan for which aid has been requested has been established and is being implemented, all further aid will be considered as restructuring aid.2 This includes aid which was already temporarily authorised by the Commission as rescue aid.3 Restructuring is, in many cases, the follow-up of rescue aid.
Liquidation aid
The 2008 Banking Communication introduced the concept of liquidation aid. Liquidation can take place as a second step, after rescue aid to a bank when it becomes clear that the latter cannot be restructured successfully, or in one single action. Liquidation aid can be required in order to safeguard an orderly liquidation procedure.4 If the liquidation of the bank involves the sale of (parts of) this bank, the liquidated entity, the economic activity to be sold or the buyer can be the beneficiary of the State aid.
Rescue, restructuring and liquidation aid can be granted in the form of:
1. Liquidity measures: Liquidity assistance can be provided in a number of forms, such as credit lines or loans.
2. Funding guarantees: Funding guarantees can be used to protect retail deposits (and debt held by retail clients), certain types of wholesale deposits and even short and medium-term debt instruments.5
Liquidity measures and funding guarantees are considered by the Commission to be non-structural in nature, because their aim is to temporarily support a company confronted with an important deterioration of its financial situation reflected by an acute liquidity crisis or technical insolvency. This non-structural aid support should allow time to analyse the circumstances which gave rise to the difficulties and to develop an appropriate plan to remedy those difficulties by stabilizing the liability side of the balance sheet of the bank.6 Rescue aid normally takes the form of liquidity measures or funding guarantees.
3. Recapitalisation: Recapitalisation implies the provision of public funds so as to strengthen the capital base of the banks directly or to facilitate the injection of private capital by other means. Recapitalisation measures take the form of the purchase by a Member State of equity (voting or non-voting), other Tier 1 capital or Tier 2 capital.7
4. Asset relief measures: Asset relief measures (or impaired asset measures) include aid in the form of guarantees or asset purchases. Asset relief measures are State aid inasmuch as they free the beneficiary bank from (or compensate for) the need to register either a loss or a reserve for a possible loss on its impaired assets and/or free regulatory capital for other uses. This would notably be the case where impaired assets are purchased or insured at a value above the market price, or if the price of the guarantee does not compensate the State for its possible maximum liability under the guarantee.8
Recapitalisations and asset relief measures are considered to be structural, because they are designed to address deficiencies in the recipient’s balance sheet. During the GFC, the Commission also approved recapitalisations and impaired assets measures on a temporary basis as rescue aid in order to meet the desire of Member States to act quickly. Under the 2013 Banking Communication, the Commission restored the principle that recapitalisation and asset relief measures are in principle only authorised once the bank's restructuring plan is approved.9 However, these measures can still exceptionally be authorised by the Commission to be granted by a Member State on a temporary basis as rescue aid before a restructuring plan is approved, but only, if these measures are required to preserve financial stability.10 This dissertation refers to these recapitalisations and asset relief measures as ‘rescue recapitalisations’ and ‘rescue asset relief measures’ (as opposed to recapitalisations and asset relief measures that are granted as restructuring aid).