State aid to banks (IVOR nr. 109) 2018/8.5:8.5 Necessity of recapitalisation measures

State aid to banks (IVOR nr. 109) 2018/8.5

8.5 Necessity of recapitalisation measures

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‘Necessity’ means that the aid amount should be limited to the minimum necessary; the aid amount should not be more than is needed to achieve the objective of the aid measure. The necessity of the measure is thus closely linked to the objective of the measure. In that regard, it should be recalled that the objective of a recapitalisation is usually to ensure that the bank complies with the regulatory capital requirements.

Thus, the amount of the capital injection should be limited to what is necessary to ensure that the bank fulfils its regulatory capital requirements. For instance, in the Rescue Decision on Monte dei Paschi di Siena (MPS), the Commission considered that the aid was limited to covering MPS immediate capital needs, catering also for further foreseeable risk factors which could endanger compliance with EBA minimum capital ratios.1

The Commission finds the aid to be limited to the minimum necessary when the aid amount is derived from the calculation of the specific capital needs of the bank.2 It should, however, be noted that the Commission does not assess whether the capital needs of the bank are correctly calculated. The Commission essentially limits itself to the observation that the aid amount will ensure that the bank will again fulfil its regulatory capital requirements.

Thus, the Commission does not usually dwell on the exact amount of aid needed to cover the bank’s capital needs. Nevertheless, in a few cases, the Commission referred to the fact that the financial supervisor had determined the amount of State aid needed.3

The analysis of the bank State aid decisions reveals that the Commission never concludes that the aid amount is not limited to the minimum necessary. Just as the Commission always accepts a recapitalisation as an appropriate measure (see subsection 8.3.3), a recapitalisation is always accepted as a necessary measure. It is worth stressing that this does not mean that Member States can just grant large amounts of aid. Indeed, the amount of aid has repercussions for the extent of restructuring required (as will be explained in section 10.3).

Part III: Proportionality

After establishing that the aid is appropriate and necessary, the Commission proceeds to the third compatibility-criterion, according to which the aid should be proportionate. When is aid “proportionate”? Proportionality is defined as follows:

“The positive effects of the measures must be properly balanced against the distortions of competition, in order for the distortions to be limited to the minimum necessary to reach the measures’ objectives. This follows from Article 3(1)(g) EC and Article 4(1) and (2) EC, which provide that the Community shall ensure the proper functioning of an internal market with free competition.”

State aid measures are usually considered to be proportionate if three elements are present: in the first place, there should be an adequate remuneration (see section 8.6), in the second place, there should be exit incentives (see section 8.7), in the third place, there should be behavioural safeguards in place (see section 8.8).

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