5.3.6.1 Resolution action is not necessary in the public interest

While this stance is reiterated extensively throughout publications of the European institutions, it is in the author’s view problematic for two reasons. The first is the lack of harmonization of national insolvency proceedings in the EU.2 Secondly, it should be taken into account that winding up a bank through normal insolvency proceedings can only take place if the conditions set out in national law for entering such proceedings are fulfilled. The administrative or judicial authorities of the home Member State of the bank which are responsible for winding up are alone empowered to decide on the opening of winding up proceedings concerning a bank.3 The SRB or the national resolution authorities can therefore not subject a bank to normal insolvency proceedings following the assessment that resolution is not necessary in the public interest.

This became clear in the case of ABLV Bank Luxembourg. On 23 February 2018, the ECB determined that ABLV Bank Luxembourg was FOLTF.4 The SRB subsequently determined that resolution action was not necessary in the public interest, and that winding up should take place under the law of Luxembourg.5 The Luxembourg court however rejected a request from the competent authority (the Commission de Surveillance du Secteur Financier) to liquidate ABLV Bank Luxembourg. The court assessed that ABLV Bank Luxembourg had a strong financial standing and could look for new investors.6 This outcome directly contradicted the determination by the ECB. It is therefore unsurprising that ABLV Bank brought an action before the CI to annul the decision of the ECB that ABLV Bank and ABLV Bank Luxembourg are FOLTF. In an order of 6 May 2019, the CI decided that the action of ABLV Bank was inadmissible.7 In that respect, it is interesting that BRRD II introduces a new Article 32b which requires Member States to ensure that a bank in relation to which the resolution authority considers that the resolution conditions, besides the public interest condition, are met, should be wound up in an orderly manner in accordance with the applicable insolvency law.

An example of the award of liquidation aid to failing banks that were not put in resolution, is the award of liquidation aid to Banca Popolare di Vicenza and Veneto Banca. After the ECB had established that the banks were FOLTF, the SRB considered that there was no public interest in resolution.9 Rather than initiating a liquidation procedure under general insolvency law, the Italian government, on the basis of an emergency decree enacted directly after the SRB’s decisions, prepared the ground for a breakup of the two institutions, the sale of parts of their business to a competitor (Intesa Sanpaolo), the transfer of the unviable parts to a ‘bad bank’, and a compensation for those private investors who had purchased subordinated debt instruments issued by both banks. In particular, the Italian State granted the following measures: cash injections of about EUR 4.785 billion and State guarantees of a maximum of about EUR 12 billion, notably on Intesa's financing of the liquidation mass. Both guarantees and cash injections were backed by the Italian State's senior claims on the assets in the liquidation mass. The Commission found these measures to be in line with the State aid regime for the banking sector. A potential transfer of non-performing loans from Banco Popolare di Vicenza and Veneto Banca to an AMC was deemed by the Commission not to constitute State aid, since the transfer would occur at a value less or equal to the net book value.10

On 29 June 2015, Italy notified the Commission the forthcoming liquidation of Banca Romagna. Italy first tried to sell Banca Romagna as a going concern, but when that failed, it decided to resolve Banca Romagna as a gone concern under national insolvency law by selling only parts of assets and liabilities out of liquidation. Non-performing loans, deferred tax assets, and subordinated debt would remain in the entity to be liquidated. Banca Sviluppo was selected as the buyer of the offered assets and liabilities of Banca Romagna.

The Italian deposit guarantee scheme contributed the negative difference between the acquired assets and liabilities in cash, and in turn became the only senior creditor of the entity in liquidation. This was considered by the Commission to be State aid compatible with the internal market pursuant to Article 107(3)(b) TFEU.11