12.5.4 Impact of the BRRD

The BRRD is based on the principle that the shareholders of the bank under resolution should bear first losses.1 This principle thus requires full burden- sharing by shareholders. It should be stressed that this principle is only applicable when a bank is put into resolution. If a State aid measure does not trigger resolution, then Art. 34(1)(a) BRRD is not applicable. This does, however, not mean that there can be less burden-sharing in such a case, because point 41 of the 2013 Banking Communication also requires that losses are first absorbed by equity. In fact, point 41 of the 2013 Banking Communication and Art. 34(1)(a) BRRD both require full burden-sharing by shareholders. Thus, as regards burden-sharing by shareholders, the State aid control framework and the recovery and resolution-framework are consistent with each other.

As explained in section 4.4.4, in the bank State aid decisions that were taken after the adoption of the BRRD, the Commission assessed whether the aid measures violated intrinsically linked provision of the BRRD. As regards burden-sharing by shareholders, the intrinsically linked provision is Art. 34(1)(a) BRRD. Therefore, in the decisions on CCB, Panellinia Bank, MKB Bank and Banif – i.e. the decisions taken after the adoption of the BRRD – the Commission assessed whether the aid measure was in line with Art. 34(1)(a) BRRD.

To give an example, in its decision on Panellinia Bank2, the Commission noted that the equity of Panellinia Bank was not transferred to the acquiring bank, but left in the liquidated entity. Therefore, the shareholders were fully wiped out and would suffer 100% losses.3 Consequently, the resolution measure was in line with Art. 34(1) BRRD.

It should be recalled that in the case of CCB (discussed in subsection 12.5.3.2), there was only a 99% dilution. However, the fact that there was only a 99% dilution (and not a 100% dilution) did not prevent the Commission from concluding that the provisions of the aid measure were in line with Art. 34(1)(a) BRRD.4 This case illustrates that the State aid control framework and the recovery and resolution-framework are consistent with each other.