3.7.1 Overview of the structural measures and behavioural constraints

In the literature, the Commission’s approach towards bank State aid has been applauded and criticised. Most authors agree that the Commission was successful in the sense that it avoided a financial meltdown. Nevertheless, there was some criticism. In particular, the structural measures and behavioural constraints have attracted a lot of criticism. With respect to certain behavioural restraints, it has been argued in the literature that “the medicine may be more harmful than the illness”.1 All structural measures and behavioural constraints will be touched upon in this PhD-study, but the most prominent ones will be introduced below:

One of the most prominent behavioural restrictions is the price leadership ban. A price leadership ban (sometimes referred to as a non-price leadership commitment) means that the beneficiary bank is not allowed to offer the best price on the market. The rationale of this behavioural restriction is that State aid may not be used to finance aggressive pricing strategies.

A criticism is that by imposing price leadership bans in a concentrated market, the Commission makes the non-recipient bank de facto price leader.2 It has been argued that price leadership bans undermine the competitive process.3 It limits limiting the beneficiary bank’s ability to compete and thus softens its rivals’ incentives to compete.4

Another prominent behavioural restriction is the acquisition ban. An acquisition ban means that the beneficiary bank is not allowed to acquire stakes in other banks. This is in line with point 23 of the Restructuring Communication (according to which the restructuring aid should be limited to covering costs which are necessary for the restoration of viability) and points 39 and 40 of the Restructuring Communication (according to which State aid must not be used to the detriment of competitors which do not enjoy similar public support).

Many bank State aid cases are characterised by remuneration restrictions. Remuneration restrictions usually entail that the remuneration of the bank’s senior management will be restricted. This make State aid less attractive. This – in turn – weakens the incentive to apply for State aid; and it strengthens the incentive to repay State aid as soon as possible. In the literature, it has been argued that remuneration restrictions can be counterproductive, because it could induce good and capable managers to leave the beneficiary bank.5 This would harm the return to viability of the bank.

While price leadership bans, acquisition bans and remuneration restrictions are examples of behavioural restrictions, divestments are a structural remedy. Divestments are a form of burden-sharing by the beneficiary bank. They are also a form of downsizing of the beneficiary bank.

A criticism raised in the literature is that many divestments concern foreign markets rather than the domestic market, which might undermine the cohesion of the internal market.6

How to ensure that the restructuring measures are implemented correctly? To that end, a monitoring trustee is appointed in most bank State aid cases. The monitoring trustee monitors the implementation of the restructuring measures and submits a report to the Commission. These regular reports allow the Commission to verify that the restructuring plan is implemented properly.