8.6.3 Preparation of a permanent State aid regime for the banking sector

Taking into account that it is highly likely that banking crises will continue to take place in the future, it is the author’s view that the establishment of a permanent State aid regime for the banking sector will contribute to the objective of financial stability while enhancing the legal certainty. Already the European Parliament called on the Commission to assess the recovery and resolution of banks in the light of State aid rules, to examine regulation in the light of the BRRD and to propose transparent application of the rules on State aid in relation to the BRRD.1 Below, the author addresses the elements that should, in her view, form part of such a permanent regime for the banking sector.

Creating a permanent regime can in the author’s view not take place without changing the legal basis for the State aid assessment in the banking sector. The Commission has always emphasised that the application of Article 107(3)(b) TFEU remains possible only as long as the crisis situation persists, creating genuinely exceptional circumstances where financial stability is at risk. The European Parliament also recalls the strict requirements for this application.2 As discussed in section 5.3.2.2 and section 6.6.1.4, the Commission is struggling with these requirements, as it assesses that Article 107(3)(b) TFEU can also be used when aid is necessary to avoid (instead of remedy) a serious disturbance in the regional economy (instead of the whole economy) of a Member State. The Commission seems to stretch the scope of Article 107(3)(b) TFEU contrary to the strict interpretation of the EU Courts.

A shift back to Article 107(3)(c) TFEU, however, seems undesirable. First, although this is more a technical concern, the resolution framework is currently based on the assumption that the legal basis for the State aid assessment is Article 107(3)(b) TFEU. An example thereof can be found in the access criteria for precautionary guarantees and recapitalisation. If the legal basis for the State aid assessment shifts to Article 107(3)(c) TFEU, precautionary guarantees and recapitalisation may no longer be available. This could, however, be solved by amending the resolution framework at this point. Secondly, and more importantly, the public policy objective that underlies Article 107(3)(c) TFEU (that is, facilitation of the development of certain economic activities or of certain economic areas) does not fit the public policy objective that is pursued with aid measures in the banking sector (that is, to safeguard financial stability by preventing spillover effects on other banks and on the real economy via the lending channel).

As Article 107(3)(b) TFEU seems to give insufficient leeway to the Commission for its assessment and the public policy objective underlying Article 107(3)(c) TFEU is a mismatch, the only solution seems to be the creation of a special exception under Article 107(3) TFEU for aid measures in the banking sector. The Council can create such a specific exception on a proposal from the Commission.3 Creating a specific exeption for the State aid assessment by the Commission in the banking sector would provide the possibility to further align the State aid regime with the resolution framework, in particular with respect to the ‘public interest’ test.

The new exception under Article 107(3) TFEU could form the basis of a sectoral policy expressing the coherence between the framework of State aid control and the supervisory and regulatory framework for the banking sector. In this assessment framework, the distinction can be made between aid granted in resolution (resolution aid) and aid granted outside of resolution (precautionary guarantees, precautionary recapitalisation and liquidation aid). Within the concept of resolution aid, many different aid measures are captured. The specifics of these aid measures and the resolution procedure should be taken into account in the new assessment framework. Additionally, the development towards centralised public funding resources (supranational EPFS) should be striven for in the new assessment framework.

In addition, it would be helpful if the assessment framework addresses the assessment that is made by the Commission whether aid measures violate intrinsically linked provisions of the resolution framework. Inconsistencies between the State aid regime and the resolution framework could be resolved in the revision of the State aid regime, unless this is better addressed in a revision of the resolution framework. This concerns in particular the burden-sharing requirements, but also, for example, the valuations.

Time pressure is no exception, but the rule when a bank fails. State aid procedures can take a long time due to the negotiations between the Commission and the Member State. This may lead to an exaggeration of the financial difficulties that a bank faces.4 It is therefore of the essence that a new regime for State aid control in the banking sector sets sharp timelines. This may even be a reason to replace the ex ante assessment by the Commission with an ex post assessment in certain circumstances.