3.4.1.2 The secondary law sources

The secondary law sources for the State aid regime for the banking sector consist of Council and Commission regulations and soft-law instruments.

Pursuant to Article 109 TFEU, the Council may make any appropriate regulations for the application of Articles 107 and 108 TFEU on a proposal from the Commission and after consulting the European Parliament. It may in particular determine the conditions in which Article 108(3) TFEU (the standstill obligation) shall apply and the categories of aid exempted from this procedure. In its regulations, the Council can empower the Commission to adopt regulations.

In the late 1990s two Council Regulations were proposed by the Commission and adopted by the Council. The first is the Enabling Regulation1 which gives the Commission the authority to exempt entire categories of aid from the notification requirement. That is, it allows the Commission to issue its own regulations within limits established by the Council. On the basis of the Enabling Regulation the Commission has published the General Block Exemption Regulation (GBER)2 and the De Minimis Regulation.3 These regulations are not of much importance to the application of the State aid rules in the banking sector, since the GBER does not apply to aid to undertakings in difficulty4 and the aid granted to failing banks normally exceeds the thresholds in the De Minimis Regulation.5

The second Council regulation is the Procedural Regulation that codifies the decision-making procedures that apply to State aid policy. This regulation is of much importance to the application of the State aid rules in the banking sector, since it sets out the procedure that is followed by the Commission in its assessment of State aid measures in the banking sector, as further discussed in section 3.5. The Procedural Regulation is accompanied by the Implementing Regulation of the Commission setting out detailed implementing rules as regards the form and content of notifications, time limits and annual reports.

The Commission is not empowered to lay down general and abstract binding rules governing the conditions for application of Article 107 TFEU. Commission policy therefore derives from (the predecessors of) the TFEU, case-law of the EU Courts and the Commission’s own rules and experience.6 These own rules take the form of guidelines, frameworks, communications, codes and even at times letters (together referred to as ‘soft law’). Soft law is used by the Commission to clarify its approach to nationally granted aid and to structure discretion in this policy area.7 The adoption of this soft law must be solely for the purposes of making the State aid rules transparent and cannot be used for other purposes, in particular the promotion of other EU policies.8 Soft State aid law mainly concretizes the Commission’s approach towards possible exceptions to the State aid prohibition. In addition, it further substantiates procedural aspects of the Commission’s assessment of State aid.

In relation to the application of the State aid rules to the banking sector, the main instrument of soft law that is used by the Commission is the 2013 Banking Communication. The Commission is bound by the 2013 Banking Communication, meaning that it may not depart from it, unless giving a valid reason for doing so, provided that it is not contrary to the TFEU or other applicable legislation.9 This has been confirmed by the ECJ in the Kotnik case.10 In accordance with settled case-law, in adopting the 2013 Banking Communication and announcing by publishing it that it will apply to the cases to which it relates, the Commission imposes a limit on the exercise of its discretion and cannot, as a general rule, depart from the 2013 Banking Communication, at the risk of being found to be in breach of general principles of law, such as equal treatment or the protection of legitimate expectations. That said, the Commission cannot waive, by the adoption of the 2013 Banking Communication, the exercise of the discretion that Article 107(3)(b) TFEU confers on it. The adoption of the 2013 Banking Communication does not therefore relieve the Commission of its obligation to examine the specific exceptional circumstances relied on by a Member State, in a particular case, for the purpose of requesting the direct application of Article 107(3)(b) TFEU, and to provide reasons for its refusal to grant such a request.11

The ECJ confirmed in the Kotnik case that the 2013 Banking Communication, being soft law, is not binding on the Member States. The 2013 Banking Communication is not capable of imposing independent obligations on the Member States. It does no more than establishing conditions, designed to ensure that State aid granted to the banks in the context of the financial crisis is compatible with the internal market, which the Commission must take into account in the exercise of the wide discretion that it enjoys under Article 107(3)(b) TFEU.12

Although the 2013 Banking Communication forms the core of the State aid regime for the banking sector, there also are other instruments of soft law that are of importance for this regime, most notably in relation to the procedural rules. One could, for example, think of the Notice on the notion of State aid, the Enforcement Notice and the EC Code of Best Practices.