3.4.1.1 The 2008 Banking Communication

On 13 October 2008, the Commission adopted the Banking Communication.1 The purpose of this Communication was to provide guidance on compatibility of recapitalisation and guarantee schemes. The Banking Communication set out the general principles. First of all, the Commission justified why it had chosen Article 107(3)(b) TFEU as the appropriate legal basis.2 The Commission stressed that the exceptional nature of the crisis – in which the entire functioning of financial markets was jeopardised – might require exceptional measures. Article 107(3)(b) TFEU was therefore an appropriate legal basis.

Secondly, the Banking Communication introduced a distinction between fundamentally sound banks and distressed banks.3 The Commission recognised that – due to the exceptional nature of the crisis – even fundamentally sound banks experienced problems. Fundamentally sound (efficient) banks and distressed (inefficient) banks were both affected by the crisis. Therefore, a distinction should be made between banks whose problems have an exogenous cause and banks whose problems have an endogenous cause. An exogenous cause means that the bank – although it has an efficient business model and strategy – has gotten into difficulty because of the exceptional nature of the crisis. An endogenous cause means that the bank has got into difficulty because of its own inefficient business model or risky strategy. In this case, a far-reaching restructuring is required.4

Thirdly, the Banking Communication reiterated the general principle that aid should be well-targeted, proportionate and limited to the strict minimum.5 In other words: any aid measure should be appropriate, necessary and proportionate.6

After introducing these general principles, the Banking Communication provided specific guidance relating to guarantees, recapitalisation measures, controlled winding-up and liquidity assistance. These specific principles concerned, for instance, the eligibility criteria to the scheme, the material and temporal scope of the aid measure, and the need for behavioural safeguards (such as restrictions on commercial conduct). These specific principles determined whether a State aid measure could be considered appropriate, necessary and proportionate. For that reason, these specific principles will be discussed in chapter 8 of this PhD-study, since that chapter covers the Commission’s assessment of the appropriateness, necessity and proportionality of State aid measures.