Public funding of failing banks in the European Union (LBF vol. 19) 2020/5.4.2:5.4.2 ELA as a trigger for resolution?

Public funding of failing banks in the European Union (LBF vol. 19) 2020/5.4.2

5.4.2 ELA as a trigger for resolution?

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As set out in section 5.2.2, it is the author’s understanding that it is intended that ELA as defined in the BRRD, does not qualify as State aid and is therefore not covered by the EPFS definition. Moreover, the recitals to the BRRD and SRMR mention that resort to ELA does not demonstrate per se that a bank is or, in the near future, will be unable to pay its liabilities as they fall due.1 Based on that premise, ELA granted by a national central bank does not trigger resolution as such.

When ELA is provided under a State guarantee, this leads to the qualification of ELA as State aid, and therefore EPFS, as a result of which one could argue that the award of ELA would trigger resolution. Hadjiemmanuil, however, mentions that the fact that the use of State guarantees in support of ELA does not trigger resolution (because these qualify as precautionary guarantees) may contribute to the conclusion that the use of ELA in that case also does not trigger resolution.2 This seems to be a logical interpretation, although the text of the BRRD and SRMR leaves room for debate.

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