Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.5.3.3:3.5.3.3 Proportionality

Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.5.3.3

3.5.3.3 Proportionality

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The positive effects of State aid should be properly balanced against the distortions of competition, in order for those to be limited to a minimum. Undue distortions of competition should be avoided by applying certain safeguards. These may include: (i) a significant contribution from the beneficiaries and/or the sector to the cost of the State aid has to be ensured, (ii) the State aid is adequately remunerated, (iii) behavioural constraints are imposed that ensure that beneficiary banks do not engage in aggressive expansion against the background of the State aid to the detriment of competitors not covered by this protection and, (iv) the Member State concerned can enforce these behavioural constraints, including the sanction of withdrawing the State aid in case of non-compliance.1

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