Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.3.1.1:3.3.1.1 State resources

Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.3.1.1

3.3.1.1 State resources

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State resources include all resources of the public sector, including resources of intra-State entities (decentralised, federated, regional or other) and ‘public undertakings’1 and can include under certain circumstances, resources of private bodies and transfers within a public group. Resources of private bodies can qualify as State resources if, under application of national legislation, the State exercises control and influence to ensure that the use of resources of a private body fulfils a public policy objective with which that body is entrusted.2

The notion of State resources is not limited to direct grants. It also comprises, inter alia, guarantees, investment in the capital of companies and benefits in kind.3 Hence, State aid also includes measures, which may not involve direct payment to a beneficiary, but which nevertheless alleviate charges which the latter would otherwise have to bear.4 A firm and concrete commitment to make State resources available at a later point in time is also considered a transfer of State resources. A positive transfer of funds does not have to occur; foregoing State revenue is sufficient.5

Impaired asset relief measures are for example State aid inasmuch as they free the beneficiary bank from (or compensate for) the need to register either a loss or a reserve for a possible loss on its impaired assets and/or free regulatory capital for other uses. This would notably be the case where impaired assets are purchased or insured at a value above the market price, or where the price of the guarantee does not compensate the State for its possible maximum liability under the guarantee.6

The origin of the resources is not relevant for the qualification as State resources, provided that they come under public control and are therefore available to the public authorities, even if the resources do not become the property of the public authority.7 In particular, State resources are generally considered to be involved where funds come from contributions made compulsory by State legislation and are managed and apportioned in accordance with that legislation, even if they are administered by institutions separate from the State.8 In other words, the mere fact that resources are financed in part by private contributions is not sufficient to rule out the public character of those resources since the relevant factor is not the direct origin of the resources, but the degree of intervention of the public authority within the definition of the measure and its method of financing.9

State resources can also be present, if these are at the joint disposal of several Member States who decide jointly on the use of those resources.10 Also resources coming from the EU11 (for example, from structural funds) or from international financial institutions, such as the International Monetary Fund (IMF), can be considered State resources, but only if national authorities have discretion as to the use of the resources, in particular the selection of the beneficiaries. By contrast, if these resources are awarded directly by the EU, with no discretion on the part of the national authorities, they do not constitute State resources.12

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