Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.5.1.1:3.5.1.1 Preliminary examination

Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.5.1.1

3.5.1.1 Preliminary examination

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In accordance with the Procedural Regulation, the Commission first makes a preliminary examination of a State aid notification by a Member State in which it considers whether the State measure constitutes State aid and whether there are any doubts regarding its compatibility with the internal market.

Prior to filing a notification, a Member State can file a so-called ‘pre-notification’. In case of pre-notification, the Commission will conduct a non-binding assessment of the aid measure on the basis of a draft notification by the Member State. This non-binding assessment is not an official position of the Commission, but informal guidance on the completeness of the draft notification and the prima facie compatibility of the planned project with the internal market. The Commission recommends involving the beneficiaries of individual measures in pre-notification contacts. Nevertheless, the decision on whether or not to involve the beneficiary rests with the Member State. 1

Should the Commission, after a preliminary examination, find that the notified measure does not constitute State aid, it records that finding by way of a decision. Where no doubts are raised, the Commission decides that the measure is compatible with the internal market. This is also referred to as ‘a decision not to raise objections’. The Member State may then implement the aid measure. If the Commission finds that there are doubts as to the compatibility with the internal market of a State aid measure, it may initiate the formal investigation procedure.2

The Commission has two months for the preliminary examination. This begins on the day following the receipt of a complete notification. The notification is considered complete if, within 2 months from its receipt, or from the receipt of any additional information requested, the Commission does not request any further information. If the Commission does not take a decision within two months following receipt of a complete notification, the aid is deemed to have been authorized by the Commission. The relevant Member State may then implement the State measure after giving the Commission prior notice thereof, unless the Commission takes a decision within 15 working days following receipt of such notice.3

These timelines are normally considerably shorter in relation to the assessment of State aid awards in the banking sector.4 As a result of the extremely short timelines during the GFC, the Commission developed the practice of immediately approving notified aid (not only in the form of guarantees and liquidity support, but also in the form of the more structural measures of recapitalisations and impaired asset measures) on a temporary basis subject to a six months review clause.5 The 2013 Banking Communication has restricted this practice again.6 After the Commission approves rescue aid, normally a restructuring plan should be provided (unless it concerns certain aid measures for which this obligation does not exist, see section 3.5.4.1). In such a case, but also if a Member State intends to grant restructuring aid without having granted rescue aid, the Commission assesses the compatibility of the restructuring aid in light of the restructuring plan. This can still all take place in the preliminary examination procedure. Only, if the Commission has doubts as to the compatibility with the internal market of the restructuring aid, the formal investigation procedure may be started.7

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