3.4.2 What is special about the Crisis Framework?

The Crisis Framework is special in the sense that it takes into account the specificities of the banking sector. By contrast, the Rescue and Restructuring- guidelines (R&R-guidelines) – that the Commission originally applied – do not take into account the systemic effects of a bank failure. As was explained in section 3.2, bank failure can be contagious. During the crisis, Member States supported banks not just to rescue one bank, but to rescue the entire banking sector. This makes the State aid to banks different from ‘normal’ rescue and restructuring aid.1 For this reason, the Commission adopted the Crisis Framework.

The adoption of the Crisis Framework is special in two ways. On the one hand, the introduction of the Crisis Framework underlined that the Commission continued to apply State aid rules to the banking sector. It had been argued by some that State aid control should be suspended altogether for the duration of the crisis.2 However, instead of completely suspending the State aid rules, the Commission adapted the State aid rules for the banking sector. It has been remarked that “the pragmatism and flexibility shown by the Commission in adjusting its approach to fit the circumstances may well have avoided a more serious undermining of State aid antitrust law through widespread non-compliance”.3

On the other hand, the adoption of the Crisis Framework constitutes a relaxation of the State aid rules. Although the Crisis Framework is largely based on the principles of the 2004 R&R-guidelines4, there are several differences between them.5 In that regard, the Crisis Communications have been described as “quite permissive”6, “more flexible”7, “accommodating”8 and a “marked liberalization”.9 The Crisis Communications are more flexible than the 2004 R&R-guidelines on the following aspects:

Point 72 of the R&R-guidelines provides that rescue aid should only be granted once. This is known as the “one time, last time-principle”. In the crisis framework, the Commission departed from this “one time, last time-principle”. Point 7 of the Restructuring Communication stipulates that provision of additional aid during the restructuring period should remain a possibility if justified by reasons of financial stability.10 As a consequence, a bank can be aided several times.

The Commission requires a significant own contribution from the beneficiary bank. The R&R-guidelines contain several thresholds: for small enterprises, the contribution should be at least 25%; for SME, the contribution should be at least 40%; and for large firms, the contribution should be at least 50%. As banks are large firms, the R&R-guidelines would require an own contribution of at least 50%. Unlike the R&R-guidelines, the Crisis Framework does not stipulate a specific threshold for the own contribution.

Another relaxation concerns the timeframe. In the Crisis Framework, the restructuring period (i.e. the period in which a bank has to return to viability) is extended to five years.11 This is a relaxation, because the normal time frame is two to three years.12

The Crisis Framework not only amounted to substantive changes, it also changed the procedure.13 Under the R&R-guidelines, the Member States could not implement the aid measures until the Commission had approved the aid measures. The aid measures were subject to a full ex ante review. This process could take some time (usually several months). The R&R-guidelines provided for a simplified procedure14, but even this procedure could take 1 month. In a financial crisis, it is of the utmost importance that Member State can act quickly.15 The need for immediate approval of State aid measures was recognised by the Commission. Indeed, the 2008 Banking Communication stressed that “the Commission has taken appropriate steps to ensure the swift adoption of decisions upon complete notification, if necessary within 24 hours and over a weekend”.16 As set out in the previous subsection, the procedure (under the 2008 Banking Communication) was as follows: recapitalisation measures and asset relief measures were temporarily approved as rescue aid, while the in-depth analysis of the aid measures was postponed to the restructuring stage. This approach has been described as “clear first, ask questions later”.17