12.4.1 “Those who invested in the bank”

The principle of burden-sharing requires that the restructuring costs should not only be borne by the State but also by those who invested in the bank. Who are the persons or entities that have invested in the bank? Essentially, there are three categories: i) shareholders of the bank, ii) hybrid capital holders and subordinated debt holders; and iii) senior creditors.

While there are many different types of securities (such as preference shares and CoCo’s), the Commission does not really make a distinction between hybrid capital and subordinated debt. Instead, they are usually bracketed together.1 For instance, the decision on Alpha Bank speaks of “subordinated and hybrid debt”2, the decision on Banco Mare Nostrum speaks of “hybrid and subordinated debt”3 and the decision on NLB speaks of “hybrid capital holders and subordinated debt holders”.4 Burden-sharing by these investors is usually achieved in the same way, so it makes sense to treat them as one category.

Admittedly, the CRR sets out a detailed distinction between Common Equity Tier 1, Additional Tier 1 and Tier 2 Capital. From a regulatory perspective, it is important to clearly distinguish between these different types of capital. By contrast, from a State aid control perspective, such a distinction is less important, because burden-sharing is required by all of these investors.

However, since burden-sharing by shareholders is achieved in a different way than burden-sharing by hybrid and subordinated debt holders, it is useful to make a distinction between these two. Burden-sharing by shareholders will be discussed in section 12.5, while burden-sharing by subordinated debt holders will be discussed in section 12.6.

Burden-sharing by senior creditors is not required under State aid rules – but it sometimes takes place. This will be discussed in section 12.7.