Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.4.2.3:4.4.2.3 To protect public funds

Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.4.2.3

4.4.2.3 To protect public funds

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The third resolution objective focuses on the protection of public funds by minimizing reliance on EPFS. EPFS includes State aid within the meaning of Article 107(1) TFEU or any other public financial support at supranational level, which, if provided for at national level would constitute State aid, that is provided in order to preserve or restore the viability, liquidity or solvency of a bank or of a group.1 The concept of EPFS is discussed in more detail in section 5.2.1.

Out of the ten resolution cases that have been notified by the SRB and the national resolution authorities to the EBA at the time of writing this dissertation, seven involve a decision by the Commission on the compatibility of State aid granted to the bank in resolution, albeit that this is often granted through the national resolution funds.2 For example, in the case of MKB Bank, it was considered that the provision of State aid was absolutely necessary, as the sale of the assets on the market was not successful within a short deadline, but it was not possible to wait for favourable changes in market conditions in the hope of a better market price. It was still considered that public funds were protected by putting the bank in resolution, because the requirement of minimization was met in the case of the support.3

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