5.2.2 The concept of ELA

One form of public funding receives special treatment within the resolution framework. This is emergency liquidity assistance (ELA) granted by national central banks. ELA does not qualify as State aid, if certain conditions are met, and it also does not qualify as supranational EPFS.

At the time of writing this dissertation, ELA is granted at national level through the national central banks. Although the ECB has been conferred the exclusive competence to conduct the Eurozone monetary policy,1 the task of providing ELA to banks in the Eurozone is not explicitly conferred on the ECB by the TFEU.2 The Governing Council of the ECB may, however, restrict ELA operations. Some have argued that the ECB should have more competencies for the provision of ELA, at least with regard to those banks directly supervised by the ECB, and that this step would be necessary to complete the European Banking Union, not least because banking groups with significant operations outside their home country may find it difficult to get access to ELA, if required.3 One should, however, be aware that centralisation would deviate significantly from the existing ELA practice. Given significant differences in the current national ELA arrangements, this move would surely prove highly controversial among the participating Member States. However, in the author’s view, such a step would indeed be desirable, also taking into account the potential development of Eurosystem Resolution Liquidity, as further discussed in section 5.5.2.2.

The BRRD defines emergency liquidity assistance (ELA) as “the provision by a central bank of central bank money, or any other assistance that may lead to an increase in central bank money, to a solvent financial institution, or group of solvent financial institutions, that is facing temporary liquidity problems, without such an operation being part of monetary policy’”.4

This definition of ELA does not include the conditions set out in the 2013 Banking Communication under which ELA does not qualify as State aid. It is therefore not clear whether, under the resolution regime, it is intended to use the term ‘ELA’ only in relation to support by national central banks that does not qualify as State aid (and, therefore, EPFS). Arguments for the intention that ELA, as defined within the BRRD, does not fall within the scope of the EPFS concept can be found in (a) the fact that the BRRD includes a separate definition of ELA, besides the definition of EPFS,5 and (b) the fact that ELA is mentioned as a separate category of funding besides EPFS, that may not be assumed in the drafting of resolution plans (as further discussed in section 5.4.5.1). It would, however, have been helpful, if the definition of ELA in the BRRD had clarified that ELA is meant to be central bank support that does not constitute State aid; in other words, that meets the conditions set out in the 2013 Banking Communication.

This is without prejudice to the fact that ELA can qualify as State aid if the conditions under the 2013 Banking Communication are not met. This is, for example, the case if ELA is guaranteed by a Member State. State guaranteed ELA hence qualifies as EPFS. ELA also qualifies as EPFS if it is granted in conjunction with other support measures.

This was, for example, the case for the ELA granted to Panellinia Bank. Any cost and the risks arising from the provision of ELA were incurred by the Bank of Greece.6 This ELA constituted State aid, because it was State guaranteed and it was granted in conjunction with other support measures. In addition, the other conditions to qualify the State-guaranteed ELA as State aid (e.g. selectivity, advantage, distortion of competition) were also met.7

The Belgium State changed the law in order to withdraw the statutory State guarantee for ELA extended by the central bank of Belgium in order to ensure that this no longer constituted State aid. As a consequence, the central bank could extend ELA without the need either to obtain the Commission’s prior approval or to apply burden-sharing measures.8 One should, however, be aware that the shareholders of the national central banks in the Member States are (almost always) the Member States themselves. Therefore, even if there is no State guarantee, if there is a serious default under an ELA, the national budget of the Member State involved – as the shareholder of the central bank – will still be impinged. See also section 5.5.2.4.