Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.3.2:3.3.2 Advantage

Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.3.2

3.3.2 Advantage

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State aid constitutes an economic advantage that the recipient would not have obtained under normal market conditions, that is to say in the absence of State intervention.1 An advantage therefore only qualifies as State aid, if this concerns a non-market conform advantage. Only the effect of the measure on the undertaking is relevant, and not the cause or the objective of the State intervention. To assess this, the financial situation of the undertaking following the measure should be compared with its financial situation, if the measure had not been taken.2 In order to assess whether actions by public authorities give an advantage to an undertaking, the ‘market economy operator principle’ has been developed by the EU Courts under which the actions of a Member State are compared with a hypothetical private market participant in comparable market circumstances.3 Depending on the type of transaction, the market economy operator principle applies in different forms. Where the Member State acts as an investor, the ‘market economy investor principle’ is applied. The ‘market economy creditor principle’ has been developed for cases where the Member State acts as a creditor. Lastly, the ‘private vendor principle’ applies when the Member State acts as the seller.

With the introduction of the resolution framework, the political sensitivity of the market economy operating principle has increased, tak ing into account that, when Member State support qualifies as State aid, it may trigger resolution.4 Examples of aid measures that were granted after the introduction of the resolution framework and that did not qualify as State aid according to the Commission, because there was no advantage to the aid beneficiary are: the additional aid measures to HSH Nordbank,5 the recapitalisation of CEC Bank,6 the recap italisation of Nord/LB, including the award of guarantees,7 the Italian securitization scheme,8 and the Greek Hellenic asset protection scheme (Hercules, based on the Italian securitization scheme).9 In the author’s view, these decisions should be met with scrutiny, as they are diametrically opposed to the promise of the resolution framework to obviate the need for the use of taxpayers’ money for saving failing banks to the greatest extent possible.10

3.3.2.1 Market economy investor principle3.3.2.2 Market economy creditor principle3.3.2.3 Private vendor principle

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