Public funding of failing banks in the European Union (LBF vol. 19) 2020/6.4.6.1:6.4.6.1 The assessment of SRF contributions

Public funding of failing banks in the European Union (LBF vol. 19) 2020/6.4.6.1

6.4.6.1 The assessment of SRF contributions

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As discussed in section 5.2.1.1, the Commission applies the criteria established under the State aid regime for the banking sector to the use of the SRF, in order to ensure that resolution takes place on the same terms both inside and outside the European Banking Union.1 Basically, the procedure set out for the assessment of State aid under the State aid regime for the banking sector is copied in the SRMR.

If resolution action requires the use of the SRF, the SRB always has to adopt the resolution scheme.2 The adoption of the resolution scheme may not take place until such time as the Commission has adopted a positive or conditional decision concerning the compatibility of the use of the SRF with the internal market.3 The SRB has to act in conformity with a decision on that aid taken by the Commission.4

When the SRF is used, the SRB replaces the rights and obligations of a Member State in a State aid procedure.5 The SRB must notify the Commission of the proposed use of the SRF. The SRB's notification includes all the information necessary to enable the Commission to make its assessment. 6 The notification triggers a preliminary investigation by the Commission during the course of which the Commission can request further information from the SRB. The Commission assesses whether the use of the SRF would distort, or threaten to distort, competition by favouring the beneficiary or any other undertaking so as, insofar as it would affect trade between Member States, to be incompatible with the internal market. For the use of the SRF, the Commission applies the criteria established for the application of State aid rules as enshrined in Article 107 TFEU.7

If the Commission has serious doubts as to the compatibility of the proposed use of the SRF with the internal market, or where the SRB has failed to provide the necessary information pursuant to a request of the Commission, the Commission will open an in-depth investigation and notify the SRB accordingly. The SRB, any Member State or any person, undertaking or association whose interests may be affected by the use of the SRF, may submit comments to the Commission within such timeframe as may be specified in the notification. The SRB may submit observations on the comments submitted by Member States and interested third parties within such timeframe as may be specified by the Commission. At the end of the period of investigation, the Commission will make its assessment as to whether the use of the SRF would be compatible with the internal market.8

In making its assessments and conducting its investigations, the Commission is guided by all of the relevant regulations adopted under Article 109 TFEU as well as relevant communications, guidance and measures adopted by the Commission in application of the rules of the EU Treaties relating to State aid in force at the time the assessment is to be made. Those measures will be applied as though references to the Member State responsible for notifying the aid were references to the SRB, and with any other necessary modifications.9

The Commission will adopt a decision on the compatibility of the use of the SRF with the internal market, to be addressed to the SRB and to the national resolution authorities of the Member State or Member States concerned. That decision may be contingent on conditions, commitments or undertakings in respect of the beneficiary.10

The conditions which may be imposed by the Commission may include, but are not limited to, burden-sharing requirements, including restrictions on the payment of dividends on shares or coupons on hybrid capital instruments, on the repurchase of own shares or hybrid capital instruments, or on capital management transactions, restrictions on acquisitions of stakes in any undertaking either through an asset or share transfer, prohibitions against aggressive commercial practices or strategies, or advertising support from public aid, requirements concerning market shares, pricing, product features or other behavioural requirements, requirements for restructuring plans, governance requirements, reporting and disclosure requirements, requirements relating to the sale of the beneficiary or of all or part of its assets, rights and liabilities, and requirements relating to the liquidation of the beneficiary.11

The decision can also place obligations on the SRB, the national resolution authorities in the Member State or Member States concerned, or the beneficiary, to enable compliance to be monitored. This may include requirements for the appointment of a trustee or other independent person to assist in monitoring. A trustee or other independent person may perform the functions as specified in the Commission’s decision.12

The Commission may issue a negative decision addressed to the SRB, where it decides that the proposed use of the SRF would be incompatible with the internal market and cannot be implemented in the form proposed by the SRB. Upon receipt of such a decision, the SRB has to reconsider its resolution scheme and prepare a revised resolution scheme.13

Where the Commission has serious doubts as to whether its decision is being complied with, it will conduct any necessary investigations. For that purpose, the Commission can exercise the powers available to it under the regulations and other measures, and it will be guided by them.14 If, on the basis of the investigations carried out by the Commission, and after giving notice to the parties concerned to submit their comments, the Commission considers that the decision has not been complied with, it will issue a decision to the national resolution authority in the Member State concerned requiring that authority to recover the misused amounts within a period to be determined by the Commission. The SRF aid to be recovered pursuant to a recovery decision has to include interest at an appropriate rate fixed by the Commission and has to be paid to the SRB. The SRB will pay any amounts received into the SRF and take these into consideration when determining contributions. The recovery procedure respects the right to good administration and the right of access to documents, of the beneficiaries.15

Member States have to ensure that their national resolution authorities have the powers necessary to ensure compliance with any conditions laid down in a Commission decision, and to recover misused amounts pursuant to a Commission decision.16

Without prejudice to the reporting obligations that the Commission may establish in its decision, the SRB will submit annual reports assessing the compliance of the use of the SRF with the decision to the Commission .17

If the Commission, following a recommendation of the SRB or on its own initiative, considers that the application of resolution tools and actions does not respond to the criteria on the basis of which its initial decision was made, it may review this decision and adopt the appropriate amendments.18

On application by a Member State, the Council may, acting unanimously, decide that the use of the SRF is considered compatible with the internal market, if such a decision is justified by exceptional circumstances. If, however, the Council has not made its attitude known within seven days of the said application being made, the Commission will give its decision on the case.19

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