State aid to banks (IVOR nr. 109) 2018/6.7.2:6.7.2 Identifying the relevant characteristics

State aid to banks (IVOR nr. 109) 2018/6.7.2

6.7.2 Identifying the relevant characteristics

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It should be recalled that aid measures are only authorised by the Commission if it considers the aid measures to be compatible with the common market. In its bank State aid decisions, the Commission states reasons why it considers the aid measures to be compatible with the common market. The statement of reasons is based on the characteristics of the case.

To give an example: in several cases, the senior management of the beneficiary bank was replaced. This was noted positively by the Commission, because the change of management provided a valuable signal against moral hazard. The change of management was therefore one of the reasons to declare the aid compatible. The fact that the senior management of the bank has been replaced is thus a relevant characteristic of the case. To conclude, the characteristics that are being used in the State aid decisions as a reason to consider the aid measures to be compatible, are relevant characteristics.

In essence, the relevant-characteristics approach redefines “cases” and “treatment”. Under the relevant-characteristics approach, “cases” are constituted by banks that benefited from State aid and that are subject to restructuring measures. The “treatment” is no longer constituted by the restructuring measures, because the restructuring measures are now considered to be part of the “case”. The “treatment” is now constituted by the Commission’s assessment of the compatibility of the aid.

In that regard, it is important to keep in mind that the Commission’s assessment of State aid measures consists of five steps:

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In the first place, it has to be assessed whether a certain aid measure constitutes State aid within the meaning of article 107(1) TFEU.

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In the second place – when the measure constitutes State aid – it has to be assessed whether the compatibility of the State aid measure should be assessed on the basis of Article 107(3)(b) TFEU (and thus on the basis of the Crisis Framework).

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In the third place – when Article 107(3)(b) TFEU forms the basis of the compatibility-assessment – it has to be assessed whether the State aid meets the cumulative criteria of appropriateness, necessity and proportionality. NB: in the specific case of an asset relief measure, the measure has to comply with the criteria of the Impaired Assets Communication.

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In the fourth place – when the State aid is appropriate, necessary and proportionate – it has to be assessed whether a restructuring plan is required for the beneficiary bank.

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In the fifth place – when a restructuring plan is required – it has to be assessed whether the restructuring plan achieves long-term viability, burden-sharing and the limitation of competition distortions.

Thus, the “treatment” (i.e. the Commission’s assessment whether the State aid is compatible) is constituted by the Commission’s assessment whether the State aid is appropriate, necessary and proportionate and whether the restructuring plan achieves the three objectives (of restoration of long-term viability, burden-sharing and minimizing competition distortions). And the relevant characteristics of the case are the reasons that are given by the Commission to support its conclusion that the aid is compatible. The relevant-characteristics approach is aimed at identifying these relevant characteristics. To that end, the statements of reasons of all bank State aid decisions will be analysed and compared.

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