Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.3.1.2:3.3.1.2 Imputability

Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.3.1.2

3.3.1.2 Imputability

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In order for State resources to qualify as State aid, they have to be imputable to a Member State. In cases where a public authority grants an advantage to a beneficiary, the measure is by definition imputable to the State, even if the authority in question enjoys legal autonomy from other public authorities. The same applies, if a public authority designates a private or public body to administer a measure conferring an advantage. 1

Imputability is less evident however, if the advantage is granted through public undertakings instead of public authorities. A public undertaking is any undertaking over which the public authorities may exercise directly or indirectly a dominant influence by virtue of their ownership of it, their financial participation therein, or the rules which govern it.2 In such cases, it is necessary to determine whether the public authorities can be regarded as having been involved, in one way, or another, in adopting the meas ure.3 In the Notice on the notion of State aid, the Commission has set out a number of indicators to establish whether a measure taken by a public undertaking is imputable to the State.4 These indicators include, inter alia, the fact that the public undertaking could not take the contested decision without taking account of the requirements of the public authorities, the degree of supervision that the public authorities exercise over the management of the public undertaking, and any other indicator showing the involvement of the public authorities in adopting the measure in question or the unlikelihood of their not being involved, taking account of the scope of the measure, its content or the conditions it contains.

In the case of Norddeutsche Landesbank Girozentrale (Nord/LB), the Commission had to make the assessment whether a change in the coupon terms by Nord/LB constituted State aid to the holders of the notes. Nord/LB was a German banking group owned by German States and Savings Banks’ associations. It had four silent participation contracts with single purpose companies for the issuance of certain tier-1 instruments (the Fürstenberg hybrids or the notes). Due to the change of regulatory conditions, the hybrids had lost their quality as core tier-1 capital. In that context, Nord/LB changed the terms of the hybrids as a result of which the payment of the coupon became independent of the dividend payment to the public shareholders. Even though it was evident that the noteholders received a benefit, the Commission found no evidence that the provision of that advantage was imputable to the State. The Commission considered that, although Nord/LB was a public undertaking, its by-laws stipulated that it must conduct the banking business independently from public authorities and must be operated like a private sector company. The business management was the responsibility of the executive board which independently carried out its tasks and did not in principle have to act on instructions. In addition, the Commission found no evidence that the State actively influenced the decision-making process or was decisively involved in the course of the action. The Commission had no evidence that the management decision in relation to the coupon terms was determined by anything other than purely commercial considerations.5

In the case of the rescue of the German bank IKB by its shareholder, the Commission came to a different conclusion. KfW, being the main shareholder of IKB had provided a ‘risk shield’ to IKB as suming the obligations under certain liquidity facilities provided by IKB. The Commission considered that this measure was imputable to the German State. This followed, apart from the fact that KfW was publicly owned, from the strong involvement of the German banking authority BaFin and the Ministry of Finance. It appeared that, without the strong pressure imposed by the German banking authority and the Ministry of Finance on the KfW management dur ing the days preceding the granting of the risk shield, KfW would not have taken engagements to such an extent.6

In addition, when the aid is provided by a private undertaking or an undertaking that has autonomy in respect of, inter alia, the management of its funds, the Commission has the obligation to carefully elaborate and substantiate why it concludes that the Member State has significant control over the used resources and that these resources are imputable to the Member State. The Commission has to demonstrate not only that the Member State can exercise control on the undertaking that awards the aid, but also that it has actually exercised this control in the case at hand.7

Imputability is also less evident, if the advantage is granted through supranational bodies. The Notice on the notion of State aid does not provide for specific indicators for imputability in that respect. Taking into account the line that has been developed by the EU Courts in relation to public undertakings, one could however argue that it should be assessed whether the public authorities of the Member States can be regarded as having been involved, in one way, or another, in adopting the measure by the supranational body.8

If a Member State is under an obligation to implement an aid measure under EU law without any discretion, the measure stems from an act of the EU legislature and is not imputable to the State.9 However, this is not the case in situations where EU law simply allows for certain national meas ures and the Member State enjoys discretion (i) as to whether to adopt the measures in question or (ii) in establishing the characteristics of the concrete measure which are relevant from a State aid perspective.10

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