13.3.3 How are these relevant characteristics elaborated in the decisions?

The following recitals from the decision on Kommunalkredit Austria (KA) can serve as an illustration of how the Commission takes into account the market characteristics:

Several observations can be made on the basis of the above-mentioned recitals. Firstly, the Commission explicitly refers to point 32 of the Restructuring Communication, which provides that the nature and form of compensatory measures depend on the characteristics of the markets on which the beneficiary bank will operate. Secondly, a link was made between the market characteristics and the competitive impact of the aid. Thirdly, the Commission identified the relevant market (i.e. public finance and project finance). In addition, the Commission made a distinction between the national market and the European market. Furthermore, the Commission also mentioned that the relevant market was relatively fragmented.

To what extent is the above-mentioned recital of the decision on KA illustrative of the Commission’s approach with respect to the market characteristics? This PhD-study has analysed all the Commission decisions to find out how the market position of the beneficiary bank has been taken into account by the Commission. This analysis yields the following results:

It should be noted that the Commission does not always refer in every decision to point 32 of the Restructuring Communication. This is, however, not significant. The crucial question is not whether the Commission refers to point 32; instead the crucial question is whether the Commission actually applies point 32.

It should be noted that in several decisions, a link was explicitly made between the market presence of the beneficiary bank and the competitive impact of the State aid (and the subsequent need for compensatory measures). For instance, in the decision on the Lithuanian Central Credit Union (LCCU), the Commission considered that, since LCCU had a limited market presence, the competitive impact of the State aid was limited and that there was thus less need for compensatory measures.3

Conversely, in some decisions, the Commission held that the beneficiary bank was one of the market leaders. To give an example, in the decision on RBS, the Commission considered that the aid allowed the bank to keep its leading position.4 Consequently, measures were necessary in order to remedy this distortion of competition created by the aid.

The link between the market position of the bank and the need for compensatory measures explains the relevance of the market position. In that regard, it should be noted that this link is not always made explicit in every decision. Indeed, subsection 13.3.2 discussed that there are decisions that do not mention the market position of the beneficiary banks in relation to the competitive impact of the aid (or in relation to the need for compensatory measures).

The decision on KA is one of the decisions that really elaborates the market characteristics. The market characteristics can be elaborated on the basis of the following aspects: i) the identification of the relevant product market, ii) the identification of the relevant geographic market, iii) the concentration level of the market, and iv) other market characteristics, such as entry barriers and switching costs.

As regards the first aspect, it should be noted that the bank State aid decisions do not give much information on the identification of the relevant product market. This stands in sharp contrast to the detailed analysis of the relevant product market in one of the other fields of EU competition law: merger control.5

In the decision on KA, the Commission made a distinction between the national market and the European market. The relevance of the geographic market also appears in some other decisions. For instance, Bank of Ireland was one of the market leaders in Ireland. But Bank of Ireland had only a limited market share in the UK. The run-off of the UK loan portfolios was therefore sufficient to address competition distortions. This illustrates the importance of how the relevant geographical market is defined. In the decision on Dunfermline, a distinction was made between the UK market and part of that market (i.e. the market in Scotland). In some decisions, the Commission took into account the fact that the beneficiary bank mainly operated regionally. This was the case with several Danish banks6 and Spanish banks. For instance, the Commission noted that Banco CAM had a limited market presence in the national market, but a very strong regional presence.7 Notwithstanding the fact that the relevant geographic market is mentioned quite prominently in these decisions, there are many decisions that do not clearly identify the relevant geographic market.

Besides market presence, there are other market characteristics. One of them is the fact that the market is concentrated. Indeed, in several decisions, the Commission mentioned that the relevant market was concentrated. Conversely, in the decision on KA, the Commission mentioned that the relevant market was fragmented. An interesting observation is that the fact that the market is concentrated is often8 mentioned in combination with the fact that the beneficiary bank is one of the leading market players.9 Another observation is that only a few decisions mention whether the relevant market is concentrated or fragmented.

The other market characteristics identified in point 32 of the Restructuring Communication, such as switching rates and entry barriers, are usually not mentioned in the decisions.10 It can be concluded that in many decisions, the analysis of the market characteristics is limited to an analysis of the market shares of the bank.