Public funding of failing banks in the European Union (LBF vol. 19) 2020/8.4.2:8.4.2 Tensions

Public funding of failing banks in the European Union (LBF vol. 19) 2020/8.4.2

8.4.2 Tensions

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The institutional and procedural changes that the Commission faces as a result of the introduction of the resolution framework have created certain tensions for the Commission in its exercise of State aid control.

At the institutional level

There can be certain tensions between the different roles that the Commission fulfils, since, on the one hand it is involved in the decision to put a bank in resolution within the SRM – thereby restricting the access to EPFS –, while on the other hand it has to assess the compatibility of the proposed State aid measures with the internal market on the basis of the State aid regime for the banking sector. This tension is particularly clear when the decision is taken that resolution is not in the public interest, while the award of State aid is subsequently justified by the Commission to remedy a serious disturbance in the economy of a Member State. Chapter 6 has researched several root causes for this tension:

1.

The Commission does not have the power to endorse the decision by the SRB concerning the assessment of the conditions for resolution without such a resolution scheme being adopted (section 6.6.1.1).

2.

The cooperation between the Commission and the SRB has not been crystallized yet (section 6.6.1.2).

3.

Retail investor protection may be the underlying rationale for the decision not to put a bank in resolution (section 6.6.1.3).

4.

Resolution and State aid control may serve different purposes (section 6.6.1.4).

5.

DG COMP and DG FISMA may have different priorities as a result of which the involvement of the Commission as co-resolution authority is not necessarily completely aligned with the involvement of the Commission as State aid authority. However, any service preparing a Commission decision or proposal must take account of the fact that the Commission as a whole will bear responsibility for the measure in question and must act accordingly, i.e. in conjunction with other services as appropriate (section 6.6.1.5).

At the procedural level

Another potential for tension is created by the fact that two sets of rules may have to be taken into account by the Commission, when assessing State aid measures in the banking sector. These sets of rules are not always coherent, as could be seen in Chapter 6 in the example of precautionary guarantees and the exercise of the PONV conversion power. In section 6.6.2.1, it is argued that there is no hierarchy between the State aid regime for the banking sector and the resolution framework and that measures adopted by Member States and EU institutions should be consistent with both the State aid regime and the resolution framework. This means that if there is any inconsistency between these rules, either the State aid regime or the resolution framework should be amended (section 6.6.2.1). This tension is intensified by the fact that the 2013 Banking Communication has not been updated since its introduction (section 6.6.2.2) and exacerbated by the lack of harmonisation of the national insolvency regimes (section 6.6.2.3).

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