State aid to banks (IVOR nr. 109) 2018/4.1:4.1 Introduction

State aid to banks (IVOR nr. 109) 2018/4.1

4.1 Introduction

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

Since the financial crisis, the supervisory and regulatory landscape has changed dramatically. In particular, a bank recovery and resolution framework has been created, consisting of the Bank Recovery and Resolution Directive (BRRD)1 and the Single Resolution Mechanism (SRM)-Regulation.2

Before the adoption of the bank recovery and resolution framework, Member States were forced to choose between “two evils”, when dealing with an ailing bank: either allowing the bank to fail (under normal insolvency procedures) or bailing out the bank (i.e. rescuing the bank by granting State aid).3 The latter option was the “lesser evil”: although State aid leads to com-petition distortions and moral hazard, it preserves financial stability. Allowing banks to fail and to go into insolvency would be much more damaging. In that regard, the Commission remarked:

“Put bluntly, there was no simple way for a bank to continue to provide essential banking functions whilst in insolvency, and in the case of a failure of a large bank, those functions could not be shut down without significant systemic damage”.4

The inadequacy of normal insolvency procedures underlined the need for a special insolvency regime for banks. The recovery and resolution framework constitutes an alternative to normal insolvency procedures.5 At the same time, it also provides an alternative to the bail-out of a bank. It effectively adds another option to the “two evils”: instead of allowing the bank to fail (and go into insolvency) or bailing out the bank, the bank can be put into resolution.

The introduction of the recovery and resolution framework raises the following question: (how) does the recovery and resolution framework affect the way in which State aid is granted? Does State aid to banks still have a future now that the BRRD and SRM entered into force?

A similar question arises in the context of the European Stability Mechanism (ESM). As will be explained in section 4.5, it is now possible for the ESM to directly recapitalise banks: the ESM direct recapitalisation instrument (DRI). The question could arise whether State aid rules also apply to the ESM direct recapitalisation instrument. After all, if the ESM recapitalises banks directly, is the recapitalisation imputable to the Member State?

These questions will be answered in the present chapter. In the context of this PhD-study, these questions are of the utmost importance. If banks can be allowed to fail by putting them into resolution, then this reduces the need for State aid measures. Accordingly, a study of the Commission’s assessment of State aid measures to banks would lose some of its relevance. However, as will be explained in this chapter, State aid to banks remains relevant.

This chapter is structured as follows. First, the background and context of the BRRD/SRM will be provided (in section 4.2). Section 4.3 sets out the main elements of the BRRD/SRM. Section 4.4 delves into the fundamental question regarding the impact of the BRRD/SRM on the State aid control framework. The impact of the ESM will be discussed in section 4.5. The conclusion of this chapter – that State aid (control) remains relevant – can be found in section 4.6.

Deze functie is alleen te gebruiken als je bent ingelogd.