Summary

This PhD-study examined the decisional practice of the Commission on State aid to banks.

Chapter 1 introduced the main research question and the aim of this PhD- study. There is some doubt whether the principle of equal treatment is respected by the Commission in its bank State aid decisions. This doubt is caused by a lack of clarity. The aim of this PhD-study is to tackle this problem by providing some clarity. In other words: the aim of this PhD-study is to provide a framework which can be used to establish whether a bank State aid decision complies with the principle of equal treatment.

Chapter 2 provided a basic background of the concepts ‘State aid’ and ‘State aid control’. There may be valid reasons to grant State aid, but State aid can also be harmful. In principle, State aid is prohibited, but it can – in certain instances – be authorised (“declared compatible”) by the Commission.

Chapter 3 focussed on State aid to banks. During the financial crisis, granting State aid to banks was necessary; not just to rescue one bank, but to rescue the entire financial system. This follows from the fact that bank failure is contagious. In addition, banks are essential to the economy. For these two reasons, granting State aid to banks may be justified. This was recognised by the Commission, which adopted the so-called Crisis Framework (consisting of the Crisis Communications). In the Crisis Communications, the Commission gave guidance.

Chapter 4 discussed the bank resolution framework, consisting of the Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism (SRM)-Regulation. The main message of Chapter 4 is that – notwithstanding the introduction of the BRRD, SRM and DRI – State aid to banks remains relevant, the State aid control framework remains relevant and this PhD-study remains relevant.

Chapter 5 provided an overview of the case-law on bank State aid. In addition, this chapter discussed how the Court of Justice EU (“CJEU”) has interpreted the principle of equal treatment. The main findings of this chapter can be summarised as follows. In the first place, most bank State aid decisions are not challenged before the CJEU. In the second place, the principle of equal treatment is interpreted very narrowly by the CJEU.

Chapter 6 delved into the question how the principle of equal treatment can be applied to bank State aid cases. In that regard, the CJEU-definition and the Aristotelian formula were discussed. However, I am of the opinion that the CJEU-definition is unsatisfactory and that the Aristotelian formula is unfeasible. I therefore propose a different approach towards the principle of equal treatment: the ‘relevant-characteristics approach’. In each bank State aid case, the Commission should take into account these relevant characteristics. Indeed, when these relevant characteristics are consistently taken into account by the Commission, then the decisional practice of the Commission complies with the principle of equal treatment.

Chapter 7 discussed the preliminary steps in the Commission’s assessment. The first preliminary step is the question whether the aid measures constitute State aid within the meaning of Article 107(1) TFEU. The second preliminary step is to establish whether the compatibility of the aid measure has to be assessed on the basis of Article 107(3)(b) TFEU. The essential criterion in that respect is the systemic importance of the bank. However, since the Commission takes the view that in the situation of a financial crisis, every bank that collapses can create a serious disturbance, every bank is considered to have systemic importance. Consequently, the (implicit) assessment criterion ‘systemic importance’ is always met.

Chapter 8 discussed characteristics that are relevant to the assessment of whether the State aid is “appropriate”, “necessary” and “proportionate”. This concerns the first stage of the compatibility-assessment: State aid can only be declared compatible when it is “appropriate”, “necessary” and “proportionate”. In this stage of the compatibility-assessment, the Commission was quite lenient: in none of the cases, the Commission concluded that the State aid was not appropriate, necessary or proportionate.

Chapter 9 discussed characteristics that are relevant to the assessment of the compatibility of impaired assets measures. These measures have to be compatible with the principles of the Impaired Assets Communication (IAC). In that regard, the IAC sets out the following criteria for the compatibility of asset relief measures: i) eligibility of assets, ii) transparency and disclosure, iii) management of assets, iv) valuation, and v) burden-sharing and remuneration. In every case that involved asset relief measures, the Commission applied the five IAC- criteria. Interestingly, there were several asset relief measures that did not meet the IAC-criteria. However, these asset relief measures were still approved by the Commission, because the non-compliance with the IAC-criteria was compensated for by far-reaching restructuring.

Chapter 10 discussed characteristics that are relevant to the assessment of whether far-reaching restructuring is required. The degree of restructuring depends primarily on i) the aid amount, and ii) the question whether the bank’s difficulties were caused by endogenous problems or by external factors. The fact that the aid amount is high (or the opposite: that it is low) and the fact that the bank’s difficulties were caused by endogenous problems (or the opposite: caused by external factors) are thus relevant characteristics.

Chapter 11 discussed characteristics that are relevant to the assessment of the first restructuring objective: long-term viability. In every Restructuring Decision, the Commission assesses whether the restructuring plan ensures that the beneficiary bank will return to long-term viability. In that regard, the Commission notes positively the fact that the corporate governance framework, risk management, remuneration policy, funding and operational efficiency of the bank will be improved.

Chapter 12 discussed characteristics that are relevant to the assessment of the second restructuring objective: burden-sharing. Burden-sharing means that the bank and its capital holders should contribute to the restructuring as much as possible with their own resources. Burden-sharing by shareholders can be achieved in various ways: for instance by diluting the shareholders in the context of a recapitalisation, or by expropriating the shareholders in the context of a nationalisation of the bank. Also burden-sharing by subordinated debt holders can be achieved in various ways. Not all bank State aid cases are characterised by the same type of burden-sharing, nor are they characterised by the same level of burden-sharing. However, the 2013 Banking Communication raised the minimum requirements for burden-sharing. By doing so, it contributed greatly to a consistent application of the burden-sharing principle.

Chapter 13 discussed characteristics that are relevant to the assessment of the third restructuring objective: minimising competition distortions. The problematic aspect of State aid is that it may create distortions of competition. For this reason, the restructuring plan should contain compensatory measures (i.e. measures to compensate for the distortions of competition). The Commission assesses whether the compensatory measures are sufficient to mitigate the competition distortions stemming from the State aid. This depends essentially on two aspects: i) the competitive impact of the State aid; and ii) the type and nature of the compensatory measures.

Chapter 14 presented the conclusions of my research. The aim of this PhD- study is to provide a framework which can be used to establish whether a bank State aid decision complies with the principle of equal treatment. This framework effectively consists of a list of relevant characteristics. As submitted in this PhD-study, the only way in which bank State aid cases can be treated consistently, is by using the ‘relevant-characteristics approach’. In the first place, the Commission should asses in every bank State aid case whether the relevant characteristics are present in that case. In other words: the relevant characteristics should be consistently used as assessment criteria. In the second place, the relevant characteristics should be elaborated in a consistent manner.