State aid to banks (IVOR nr. 109) 2018/13.2.1:13.2.1 Why is this a relevant characteristic?

State aid to banks (IVOR nr. 109) 2018/13.2.1

13.2.1 Why is this a relevant characteristic?

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One of the most influential factors determining the extent of the compensatory measures is the amount of State aid. The aid amount is often expressed in terms of the bank’s risk-weighted assets (RWA). As a general rule, the higher the aid amount (in terms of RWA), the higher the need for compensatory measures. This general rule can be illustrated by the following recital of the Commission decision on the Spanish banking group BFA1:

“The aid amount granted is equivalent to [20-30]% of the BFA Group’s RWA as of 31 December 2011. As the relative amount of aid to the beneficiary is very large, significant measures are necessary in order to limit potential distortions of competition”.2

Conversely, if the aid amount is low, then there is less need for compensatory measures. This can also be illustrated by a recital of a Commission decision:

“The Commission recalls that CGD3 has received State aid in the form of capital injections and CoCos in the amount of EUR 1 650 million. The aid amount is equivalent to 2.3% of CGD’s Risk Weighted Assets (RWA) which is comparatively low. As the CoCos are adequately remunerated, only moderate measures are necessary to limit potential distortions of competition”.4

These considerations can be found in many decisions. The aid amount (in terms of RWA) is thus clearly a decisive factor, which makes the fact that the aid amount is very large and the fact that the aid amount is relatively low relevant characteristics.

The underlying reasoning is as follows: the larger the aid amount, the larger the distortions of competition, and the greater the need for compensatory measures. This reasoning shows that there is an intermediate step between the aid amount and the need for compensatory measures (i.e. the competitive impact or distortive effect of the State aid). However, this intermediate step is usually not mentioned explicitly in the decisions.5 The emphasis is on the amount of State aid rather than on the competitive impact of State aid. The decisions create the impression of a direct link between the amount of State aid and the need for compensatory measures, as is illustrated by the above-cited consideration of the BFA-decision.

It should also be noted that these relevant characteristics are not mentioned in relation to a specific compensatory measure, but usually in relation to compensatory measures in general.6 However, in some cases, a relation between the aid intensity and the balance sheet reduction seems to be implied. This will be discussed in more detail in section 13.6.3.

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