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Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.7.1
3.7.1 Restructuring
mr. M. Louisse-Read, datum 01-06-2020
- Datum
01-06-2020
- Auteur
mr. M. Louisse-Read
- JCDI
JCDI:ADS214031:1
- Vakgebied(en)
Financieel recht / Europees financieel recht
Staatssteun (V)
Voetnoten
Voetnoten
See section 3.5.4.
Gray and De Cecco 2017, p. 39.
The EU Courts have acknowledged the existence of a general presumption that disclosure of documents in the administrative file relating to a procedure for reviewing State aid in principle undermines the protection of the objectives of investigation (ECJ, 29 June 2010, C-139/07 P, ECLI:EU:C:2010:376 (Commission v Technische Glaswerke Ilmenau), par. 60-63). In June 2016, a report was prepared on request of the Commission on the perception and awareness about transparency of State aid. The key findings were harsh: European citizens are insufficiently aware about State aid and, most Europeans think information about State aid is difficult to find. Most think there should be full access to information about the State aid given to companies, but few think sufficient information is actually available. A majority of respondents agree that transparency about State aid is beneficial, but relatively few think it has recently improved. Of the respondents, 43% think there is a need for more transparency about State aid in financial services (Special Eurobarometer Report 2016, p. 4, 44). See in reaction to these findings: EC, State aid transparency: Why? What? When? Where? How?, Competition policy brief, 2016(4), p. 3.
See for example EC, 19 July 2011, C(2011) 5229 final (SA.32172 and SA.32554 – HGAA), par. 38-39. See also Botta JEI 2016, p. 274.
Hancher, Ottervanger and Slot 2016,, p. 613.
During the period 2008 to 2016, the Commission adopted 10 conditional decisions (EC Memo 2016). See for the difference between commitments and conditions Hancher, Ottervanger and Slot 2016, p. 613-615.
2010 Prolongation Communication, point 12. The Recapitalisation Communication set a number of indicators to further define the distinction between fundamentally sound banks and banks characterized by endogenous problems: capital adequacy, current credit default swap spreads, current rating of the bank and its outlook as well as, inter alia, the relative size of recapitalisation.
Recapitalisation of a bank that is subsequently wound up seems to be economically illogical, taken into account that recapitalisation normally is a ‘going concern’ solution. The Recapitalisation Communication however considers that a capital injection from public sources providing emergency support to an individual bank may help to avoid short term systemic effects of its possible insolvency (Recapitalisation Communication, point 6).
Recapitalisation Communication, point 44.
Recapitalisation Communication, point 44.
2008 Banking Communication, point 14.
Restructuring Communication, point 8, footnote 2 and 4. 2010 Prolongation Communication, point 12.
2010 Prolongation Communication, points 13-14.
2010 Prolongation Communication, point 14.
2011 Prolongation Communication, point 14.
See Gray and de Cecco 2017, p. 34-35.
This section describes the content of the restructuring and capital raising plan. A restructuring plan is normally accompanied or preceded by a capital raising plan.
In the phase of rescue aid, the Commission already takes commitments by Member States to impose certain behavioural constraints into account, such as a ban on advertising State support, a ban on aggressive commercial strategies, dividend restrictions, or a cap on executive remuneration. 1
The exact nature and scope of the required restructuring is discussed between the Commission, the Member State involved and (unofficially) the beneficiary bank, its shareholders and its competitors.2 This is a political game that is not transparent for outsiders.3 The starting point is the restructuring plan submitted by the Member State. It is therefore the Member State that decides on the scope and nature of the measures, in concert with the beneficiary bank. The Commission has, however, to agree with the restructuring plan. If it does not agree, the Member State has to submit a revised restructuring plan.4 This revision often takes the form of commitments regarding how the Member State or the beneficiary will act in the future.5 If the Commission is still not satisfied after the submission of the revised restructuring plan, it can issue a negative decision. It can attach certain conditions to its approval of the State aid award, but, only, if this approval follows the formal investigation procedure.6 As a result, the design of State aid is the result of complex interactions between the parties involved. The Commission has, however, a decisive influence on the nature and scope of restructuring requested from the bank, taking into account that the Commission has the exclusive power to authorise the State aid measure. If a beneficiary bank is unhappy with the restructuring obligations as part of the State aid approval, it can challenge the decision from the Commission in the EU Courts, as further discussed in section 3.9.2.
Under the application of the proportionality principle, the 2008 Banking Communication, Recapitalisation Communication and Impaired Assets Communication made a difference in treatment between illiquid but otherwise fundamentally sound banks and banks characterized by endogenous problems. Fundamentally sound banks were banks whose problems merely and largely had to do with the extreme situation in the GFC, rather than with the soundness of their business model.7 Under the Recapitalisation Communication, recapitalisation of banks that were not fundamentally sound could only be accepted on the condition of either the bank's winding up8 or a thorough and far-reaching restructuring, including a change in management and corporate governance where appropriate.9 In addition, the price charged for recapitalisation should be set higher for banks that were characterised by endogenous problems than for banks that were fundamentally sound.10 Pursuant to the Restructuring Communication, distortions of competition resulting from aid measures supporting fundamentally sound banks were deemed to be more limited.11 If the beneficiary was fundamentally sound, the Member State was required to submit a viability review to the Commission instead of a restructuring or liquidation plan. In that case, the Commission requested less detailed information, albeit that the principles underlying the restructuring plan applied by analogy to viability reviews.12
Under the 2010 Prolongation Communication, which applied to State aid measures as of 1 January 2011, the distinction between sound and distressed banks was deemed to be no longer relevant in order to determine which banks should restructure and which banks should not. This was a result of the renewed access to capital markets.13 A restructuring plan was again required from every beneficiary of State aid, independent of the cause of its failure.14 In the 2011 Prolongation Communication, the Commission explains that it makes a proportionate assessment of the long term viability of banks, taking full account of elements indicating that banks could be viable in the long term without the need for significant restructuring.15 This means that banks can benefit from a complete or partial exemption from restructuring. It can be derived from the 2011 Prolongation Communication that the proportionate assessment was particularly introduced while having in mind the situation in which the capital shortage of a bank is essentially linked to a confidence crisis on sovereign debt and the sovereign debt portfolio had not been acquired by the bank as a result of excessive risk-taking.16
3.7.1.1 The restructuring plan3.7.1.2 The capital raising plan