Public funding of failing banks in the European Union (LBF vol. 19) 2020/6.6.1:6.6.1 Impact of the resolution framework on State aid control by the Commission

Public funding of failing banks in the European Union (LBF vol. 19) 2020/6.6.1

6.6.1 Impact of the resolution framework on State aid control by the Commission

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The previous sections have shown that State aid control by the Commission has been impacted at two different levels by the resolution framework. The first impact is at an institutional level. Section 6.2 showed that as a result of the resolution framework, the Commission not only has a role as State aid authority, but also as co-resolution authority. The second impact is at a more procedural level, impacting the assessment by the Commission of State aid awards. As shown in sections 6.3, 6.4 and 6.5, the Commission has to assess State aid awards not only on compatibility with the internal market under the State aid regime for the banking sector, but also on compliance with intrinsically linked provisions of the resolution framework, with the exception of liquidation aid awards. In addition, the Commission has to apply its State aid regime for the banking sector on aid granted in resolution.

Liquidation aid awards are not assessed on compliance with intrinsically linked provisions of the resolution framework because the situation in which a bank is wound up in normal insolvency proceedings is not covered by the resolution framework but by the national insolvency regimes.

The institutional and procedural impact of the resolution framework on State aid control by the Commission in the banking sector differs, depending on the situation of the failing bank, as shown in Table 10. 1

Table 10: Institutional and procedural impact of resolution framework on State aid control by the Commission in the banking sector

Situation

Institutional impact

Procedural impact

i) A bank is put in resolution and receives State aid (resolution aid)

The Commission does not only act as State aid authority, but also as co-resolution authority. It has to endorse the decision of the SRB to put the bank in resolution.

The Commission has to assess State aid awards not only on compatibility with the internal market under the State aid regime for the banking sector, but also on compliance with intrinsically linked provisions of the resolution framework.

ii) A bank is put in resolution and does not receive State aid

The Commission only acts as co-resolution authority.

N/A

iii) A bank receives State aid without triggering resolution (precautionary guarantees and precautionary recapitalisation)

The Commission only acts as State aid authority.

The Commission has to assess State aid awards not only on compatibility with the internal market under the State aid regime for the banking sector, but also on compliance with intrinsically linked provisions of the resolution framework.

iv) Resolution action is not in the public interest and the bank receives State aid (liquidation aid)

The Commission only acts as State aid authority. The Commission is not involved in the decision of the SRB that resolution is not in the public interest.

The Commission has to assess State aid awards only on compatibility with the internal market under the State aid regime for the banking sector.

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