Public funding of failing banks in the European Union (LBF vol. 19) 2020/7.5.3.2:7.5.3.2 Lack of cooperation provisions

Public funding of failing banks in the European Union (LBF vol. 19) 2020/7.5.3.2

7.5.3.2 Lack of cooperation provisions

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Taking into account that there are multiple authorities involved in the restructuring process of a bank as a result of the introduction of the resolution framework, the cooperation between these authorities is important in order to ensure a smooth and efficient restructuring process. As discussed in section 7.3.2, this cooperation is however not a topic covered by the resolution framework or the State aid regime for the banking sector, other than the (likely) premise of close liaison. Some guidance is also given in respect of the business reorganisation plan. The resolution framework does, however, not provide for a role of the resolution authority in the restructuring of a bank that is subject to precautionary recapitalisation. In addition, it does not provide for any cooperation procedures.

Providing a clearer picture of the cooperation between the different actors in the restructuring process seems to be desirable, as any flaws in cooperation could negatively impact the efficiency of the restructuring process.

Dewatripont noted in relation to the resolution authority that it should make sure that in its decisions it embeds the State aid control principles – relating to viability, the sharing of the restructuring costs with the incumbent owners, and other measures to remedy competitive distortions. This, as it would always be possible for the Commission to challenge ex post a decision of the resolution authority to bail out a particular institution, either on its own initiative or following a complaint of unfair competition by another bank.1 This is indeed correct, taking into account the exclusive competence of the Commission to act as the State aid authority. It is however only possible for the Commission to challenge the decision of the resolution authority when State aid is involved. In cases where State aid is not involved, the State aid control principles do not play a role. It would then only be on the basis of the competition rules in Articles 101 to 106 TFEU that the Commission could act. The resolution of Banco Popular forms an example.

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