Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.3.3:3.3.3 Selectivity

Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.3.3

3.3.3 Selectivity

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To fall within the scope of Article 107(1) TFEU, a State measure must favour ‘certain undertakings or the production of certain goods’. Measures of purely general application which do not favour certain undertakings or the production of certain goods do not fall within the scope of Article 107(1) TFEU.

To clarify the element of selectivity under State aid law, one should distinguish between material and regional selectivity. The material selectivity of a measure implies that the measure applies only to certain (groups of) undertakings or certain sectors of the economy in a given Member State. Material selectivity can be established de jure or de facto. De jure selectivity results directly from the legal criteria for granting a measure that is formally reserved for certain undertakings only. De facto selectivity can be established in cases where, although the formal criteria for the application of the measure are formulated in general and objective terms, the structure of the measure is such that its effects significantly favour a particular group of undertakings. General measures which prima facie apply to all undertakings but are limited by the discretionary power of the public administration are selective. This is the case where meeting the given criteria does not automatically result in an entitlement to the measure.1 In addition, in principle, only measures that apply within the entire territory of a Member State escape the regional selectivity criterion laid down in Article 107(1) TFEU.2

Where a Member State reacts to a banking crisis not with selective measures in favour of individual banks, but with general measures open to all comparable market players in the market (e.g. lending to the whole market on equal terms), these general measures are often outside the scope of the State aid rules and do not need to be notified to the Commission. The Commission considers for instance that activities of central banks related to monetary policy, such as open market operations and standing facilities, are not caught by the State aid rules because they are not selective in favour of individual banks.3 This does however not mean that aid schemes cannot be selective. They can be selective and qualify as State aid, if they are targeted at a certain sector, such as the financial sector.4

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