3.1 Introduction

While the application of the State aid rules in the banking sector was often neglected prior to the GFC, this completely changed when Member States started to award mind-blowing amounts of State aid to their banking sectors in order to keep them alive after the fall of Lehman Brothers in 2008. Although the EU did not know – at that time – a resolution framework, such as in the US, State aid control was and is a unique feature of the EU. As Gambaro and Mazzocchi mention, the State aid regime for the banking sector filled what had previously been, in substance, a regulatory vacuum, and foreshadowed some areas of the European Banking Union regulation that would follow. The fundamental objective of avoiding public resources being used to confer on particular undertakings or categories of undertakings advantages distorting competition in the internal market has remained constant, but the State aid rules have shown great flexibility in their ability to respond to the major changes that have impacted the EU.1 It is thanks to the exercise of State aid control by the Commission that a certain level playing field could be protected within the internal market during the GFC.

By exercising State aid control in the banking sector, the Commission had – and still has – to balance the necessity and the proportionality of an aid measure in achieving an EU objective versus the distortion of competition brought about it. The Commission has continuously stressed that financial stability is the overriding goal of State aid policy in the banking sector, whilst ensuring that State aid and distortions of competition between banks and across Member States are kept to the minimum. To find the right balance between the two is key to the State aid regime for the banking sector as discussed in this chapter.

This chapter starts with a description of the development of the State aid regime for the banking sector in section 3.2. It subsequently discusses the concept of State aid in section 3.3. Section 3.4 describes the legal outline and scope of the current State aid regime for the banking sector. Section 3.5 provides more insight in the assessment by the Commission of State aid awards in the banking sector. Section 3.6 discusses the peculiarities of granting State aid to a banking group. Sections 3.7 and 3.8 describe the treatment of the beneficiary bank and third parties (such as shareholders and creditors of a bank) in the State aid award and assessment process. Section 3.9 describes the judicial protection of beneficiary banks and third parties against decisions from the Commission. Section 3.10 concludes this chapter.