5.5.2.1 Concepts of EPFS and ELA need further refinement

The concepts of EPFS and ELA as introduced in the resolution framework need further refinement. Firstly, the definition of EPFS makes the concept of ‘State aid’ an integral part of the fabric of the resolution framework.1 As a result, when public funding qualifies as State aid, it qualifies as EPFS provided that it is granted to preserve or restore the viability, liquidity, or solvency of a bank. One should be aware that the notion of State aid is a technical term with a defined legal meaning.2 Regardless of whether a failing bank is resolved through the resolution framework or under national standard insolvency law, any mobilisation of financial resources that meets the definition of State aid will be subject to the State aid regime for the banking sector.3 An example where this interlinkage of definitions seems to cause unintended consequences, are alternative measures taken by deposit guarantee schemes. As discussed in section 5.3.4, these alternative measures may qualify as State aid and therefore as EPFS, in which case they trigger resolution, while, at the same time, they can only be granted outside of resolution.

Secondly, as a result of the restriction of the definition of EPFS to aid provided to preserve or restore the viability, liquidity, or solvency of a bank, it is not clear whether the use of the SRF and the national resolution funds always qualify as EPFS, as they may also be used to assist in winding up the bank in an orderly manner, e.g. through the use of a transfer tool. It seems to be the intention that the use of the SRF and the national resolution funds always qualify as EPFS, but strictly speaking, the definition of EPFS would have to be amended to include all possible uses of the SRF and the national resolution funds.

Thirdly, it is not clear whether ELA qualifies as EPFS or not. It seems that ELA is excluded from the definition of EPFS as long as this meets the conditions set out in the 2013 Banking Communication, as a result of which it does not qualify as State aid. It would however be helpful if the definition of ELA in the resolution framework refers to the conditions set out in the 2013 Banking Communication.