Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.5.7.1:3.5.7.1 Additional assessment criteria for aid schemes

Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.5.7.1

3.5.7.1 Additional assessment criteria for aid schemes

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The 2004 R&R Guidelines only provided for the possibility to adopt an aid scheme for granting rescue and restructuring aid to SMEs for a maximum sum of EUR 10 million per firm. The 2008 Banking Communication broadened the scope to guarantee and recapitalisation schemes for all financial institutions, no matter their size or the amount of the aid that was intended to be granted.1 The options for these schemes were tightened up in the 2013 Banking Communication.

Under the 2013 Banking Communication, the assessment by the Commission of the compatibility with the internal market of aid schemes takes place on the basis of the same criteria used by the Commission for ad hoc cases, supplemented by the following criteria:

Additional criterion 1: Time limit

A scheme may be authorised by the Commission for a period of six months only.2 After this, the scheme can be prolonged, but this requires a new assessment by the Commission. This criterion does not apply in relation to liquidation aid schemes.

Additional criterion 2: Reporting to the Commission

Member States must report to the Commission, so that the Commission can evaluate whether the relevant scheme achieves its objective and is implemented correctly. The periodicity of these reports depends on the type of aid scheme:

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Liquidity and guarantee schemes: Member States must report to the Commission on a three-monthly basis on the operation of the scheme, the guaranteed debt issues, and the actual fees charged. In addition, they must supplement their reports on the operation of the scheme with available updated information on the cost of comparable non-guaranteed debt issuances (nature, volume, rating, currency).3

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Recapitalisation and restructuring schemes: Member States must provide a report on the use of the scheme on a six-monthly basis after the scheme’s authorisation.4

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Liquidation schemes: Member States must provide regular reports, at least on an annual basis, on the operation of any liquidation scheme. In addition, Member States must submit regular reports (on at least a yearly basis) on the development of the liquidation process of each bank in liquidation, and a final report at the end of the winding up procedure.5

Additional criterion 3: No capital shortfall (only for liquidity and guarantee schemes)

Liquidity support schemes and funding guarantee schemes must be restricted to banks which have no capital shortfall. In addition, they may only cover guarantees with a maturity of more than three years, if these guarantees are limited to one-third of the total guarantees granted to the individual bank.6

Additional criterion 4: Maximum balance-sheet (only for recapitalisation and restructuring schemes)

The application of any recapitalisation and restructuring scheme must be restricted to banks with a balance-sheet total of not more than EUR 100 million. The sum of the balance-sheets of the banks that receive aid under the scheme must not exceed 1.5% of the total assets held by banks in the domestic market of the Member State concerned.7

Additional criterion 5: Limited size (only for liquidation schemes)

Liquidation aid schemes can only be approved for banks of limited size. Aid measures under an approved scheme in favour of banks with total assets of more than EUR 3,000 million must be individually notified for approval.8

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