3.4.1.4 The Restructuring Communication

The fourth Communication of the Crisis Framework was the Restructuring Communication1, adopted on 22 July 2009. Member States have to submit a restructuring plan or a viability plan. The Restructuring Communication contains detailed provisions regarding the restructuring plan.2 The Restructuring Communication is based on three pillars: restoration of long-term viability of the bank, burden sharing, and minimisation of competition distortion.

Long-term viability implies that State aid is redeemed over time, or is remunerated according to normal market conditions.3 Long-term viability requires that the bank is able to survive without any State support.4 Pursuant to the Restructuring Communication, the relevant Member State should demonstrate how the bank will restore long-term viability. The Restructuring Communication contains detailed provisions on the information that a restructuring plan should contain. First of all, the restructuring plan should include a comparison with alternative options. Secondly, the restructuring plan should contain a diagnosis of the causes of the bank’s difficulties. Thirdly, it should contain information about the business model. This includes information on the organisational structure, funding, corporate governance, risk management, asset- liability management, cash-flow generation, off-balance sheet commitments, leveraging, current and prospective capital adequacy and the remuneration incentive structure.5 The business model should be feasible. The feasibility is analysed by the Commission with a stress test. The expected results of the planned restructuring are to be tested under different scenarios (base case scenario and stress case scenario). The annex of the Restructuring Communication provides a model restructuring plan. The Restructuring Communication further provides that the restructuring period should be as short as possible: the maximum duration of a restructuring plan is five years.6

NB: The principle of restoring long-term viability will be discussed in depth in chapter 11 of this PhD-study.

The bank and its capital holders should contribute to the restructuring costs as much as possible.7 This is necessary in order to limit distortions of competition and moral hazard. The R&R-guidelines already stipulated that ‘the amount and intensity of aid must be limited to the strict minimum of the restructuring costs necessary to enable restructuring to be undertaken in the light of the existing financial resources of the company, its shareholders or the business group to which it belongs’.8 Unlike the R&R-guidelines, the Restructuring Communication does not require a specific threshold for the own contribution.9

NB: The principle of burden-sharing will be discussed in depth in chapter 12 of this PhD-study.

Since State aid creates competition distortions, measures are needed to limit these competition distortions. These measures are usually referred to as “compensatory measures”. Section 3.7.1 gives a general overview of these compensatory measures. The Restructuring Communication stresses that compensatory measures should be tailor-made.10 The Communication identifies two main criteria that determine the nature and form of the compensatory measures: 1) the amount of aid and the conditions and circumstances under which the aid was granted, and 2) the characteristics of the market on which the beneficiary bank will operate.11

NB: The principle of limiting competition distortions will be discussed in depth in chapter 13 of this PhD-study.