Annex I: Overview of the relevant characteristics

Chapter 8: Appropriate, necessary and proportionate

First stage of the compatibility-assessment

- when the measure constitutes State aid,

- when Article 107(3)(b) TFEU forms the basis of the compatibility-assessment,

- in case of a guarantee or recapitalisation:

Assessment of whether the State aid measure meets the (cumulative) criteria of appropriateness, necessity and proportionality.

Characteristics relevant to that assessment:

Consistency (I)

Consistency (II)

Has the Commission consistently taken into account this relevant characteristic?

Is the relevant characteristic elaborated in a consistent manner?

* The fact that the beneficiary bank has systemic importance.

In every decision, the Commission assessed whether the bank had systemic relevance. Thus, in that regard, there is no inconsistency (see sections 7.6 and 8.2)

If one takes the view that all banks have systemic relevance, then the observation that the Commission has consistently held that the beneficiary bank has systemic relevance, means that there is no inconsistency. By contrast, if one takes the view that some banks are systemically important while others are not, then the approach of the Commission amounts to an inconsistency (see sections 7.6 and 8.2).

* The fact that the aid measure strengthens the bank and restores market confidence.

The Commission easily arrived at the conclusion that the aid is appropriate (see section 8.3).

This relevant characteristic is to a very large extent self-explanatory. It would have been very hard for the Commission to be inconsistent (see section 8.3).

* The fact that the guarantee is limited in time and scope.

The Commission consistently assessed whether the guarantee was limited in time and scope (see section 8.4).

There were some exceptions (for instance, when the guarantee scheme included subordinated debt). However, these exceptions were justified. There are therefore no indications of an inconsistency (see section 8.4).

* The fact that beneficiary bank has to pay an adequate remuneration to the State.

The Commission consistently assessed whether the remuneration was adequate (see section 8.6).

There are no indications of an inconsistency (see section 8.6).

* The fact that there are exit incentives.

The Commission consistently assessed whether there were exit incentives.

In essence, all behavioural constraints are to some extent ‘painful’ and make it unattractive for a bank to be dependent on State aid over a long period.

* The fact that there are behavioural restrictions (in the rescue phase).

The Commission consistently assessed whether there were behavioural restrictions.

There are no indications of an inconsistency.

Additional relevant characteristics in the context of a bank support scheme:

* The fact that the schemeis targeted at solvent/fundamentally sound banks.

It is not applied consistently: while the Commission notes positively the fact that the scheme is aimed at fundamentally sound banks, it does not note negatively the fact that the scheme is open to all banks.

A consistent application would require a uniform definition of ‘solvent’. However, the decisions do not apply a uniform definition of ‘solvent’.

* The fact that subsidiaries of foreign banks are eligible for the scheme.

That the scheme should be open for subsidiaries of foreign banks, is a clear requirement to which Member States have to comply.

There are no indications of an inconsistency.

* The fact that the bank support scheme has a maximum budget.

The Commission usually notes that the scheme has a maximum budget. There are no indications of an inconsistency.

There are no indications of an inconsistency.

Chapter 9: IAC

First stage of the compatibility-assessment

- when the measure constitutes State aid,

- when Article 107(3)(b) TFEU forms the basis of the compatibility-assessment,

- in case of an asset relief measure:

Assessment of whether the asset relief measure complies with the criteria of the Impaired Assets Communication.

Characteristics relevant to that assessment:

Consistency (I)

Consistency (II)

Has the Commission consistently taken into account this relevant characteristic?

Is the relevant characteristic elaborated in a consistent manner?

* The fact that the measure has the effect of relieving the bank from its impaired assets.

In every case, the Commission should assess whether the IAC is applicable.

* The fact that the ‘eligibility-criterion’ of the IAC has been met.

In all cases involving impaired asset measures, the Commission assessed whether the IAC-criteria had been met. In that regard, there is no inconsistency.

There are no indications of an inconsistency.

* The fact that the ‘transparency and disclosure-criterion’ of the IAC has been met.

* The fact that the ‘management-criterion’ of the IAC has been met.

* The fact that the ‘valuation-criterion’ of the IAC has been met.

* The fact the ‘burden-sharing and remuneration criterion’ of the IAC has been met.

Chapter 10: Need for in-depth restructuring

Intermediate step

- when the measure constitutes State aid,

- when Article 107(3)(b) TFEU forms the basis of the compatibility-assessment,

- when the State aid is appropriate, necessary and proportionate/complies with the IAC-criteria:

Assessment of whether a restructuring plan is required for the beneficiary bank/assessment whether far-reaching restructuring is needed.

Characteristics relevant to that assessment:

Consistency (I)

Consistency (II)

Has the Commission consistently taken into account this relevant characteristic?

Is the relevant characteristic elaborated in a consistent manner?

* The fact that the beneficiary bank is fundamentally sound./The fact that the beneficiary bank is distressed.

The First Prolongation Communication removed the distinction between fundamentally sound banks and distressed banks. Until the entry into force of this Communication, the Commission consistently assessed whether the beneficiary bank was fundamentally sound (see section 10.2.1).

There are no indications of an inconsistency.

(*) The fact that the remuneration is inadequate./The fact that the own contribution is inadequate.

The assessment whether the remuneration is adequate includes the assessment whether an inadequate remuneration should be compensated for by far-reaching restructuring.

There are no indications of an inconsistency.

Indeed, in every case, the Commission either concluded that the remuneration was adequate or concluded that the low level of remuneration must be compensated for by far-reaching restructuring.

(*) The fact that the bank’s difficulties are caused by external factors./The fact that the bank’s difficulties are caused by internal factors.

This relevant characteristic does not necessarily have to be mentioned in every decision, since it is – in any event – taken into account by the Commission when it assesses whether the restructuring plan meets the three restructuring objectives.

There are no indications of an inconsistency.

Chapter 11: Viability

Second stage of the compatibility-assessment

- when the measure constitutes State aid,

- when Article 107(3)(b) TFEU forms the basis of the compatibility-assessment,

- when the State aid is appropriate, necessary and proportionate / complies with the IAC-criteria,

- when a restructuring plan is required:

Assessment of whether the restructuring plan meets the restructuring objective of restoring long-term viability.

Characteristics relevant to that assessment:

Consistency (I)

Consistency (II)

Has the Commission consistently taken into account this relevant characteristic?

Is the relevant characteristic elaborated in a consistent manner?

* The fact that the senior management of the beneficiary bank has been replaced.

This relevant characteristic is not mentioned in every decision. There is no plausible explanation for this omission to mention this relevant characteristic. This would indicate an inconsistency (see section 11.2.2).

The decisional practice gives a very varied picture of ‘senior management’. Thus, the elaboration of this relevant characteristic could have been more consistent (see section 11.2.3).

* The fact that the restructuring plan provides for an improvement of the bank’s corporate governance framework.

This relevant characteristic is not mentioned in every decision. This can be explained by the fact that this relevant characteristic does not have to be present in every case. In that regard, there is no inconsistency (see section 11.3.2).

The way in which this relevant characteristic is elaborated in the decisions depends on the nature of the corporate governance problems. This is not necessarily inconsistent (see section 11.3.3).

* The fact that the restructuring plan provides for an improvement the bank’s risk management.

This relevant characteristic isnot mentioned in every decision. This can be explained by the fact that this relevant characteristic does not have to be present in every case. In that regard, there is no inconsistency (see section 11.4.2).

The way how risk management is mentioned in the decisions depends on the nature of the risk management problems. This is not necessarily inconsistent (see section 11.4.3).

* The fact that the restructuring plan contains restrictions of theremuneration of the beneficiary bank’s employees and managers.

This relevant characteristic is not mentioned in every decision. However, prior to the 2013 Banking Communication, this relevant characteristic did not have to be present in every case. In that regard, there is no inconsistency (see section 11.5.2).

The modalities of the remuneration restrictions were often different per bank. The 2013 Banking Communication put an end to this inconsistency (see section 11.5.3).

* The fact that the restructuring plan provides for a reduction of the bank’s reliance on wholesale funding.

This relevant characteristic is not mentioned in every decision. There is no plausible explanation for the omission to mention this relevant characteristic. This would indicate an inconsistency (see section 11.6.2).

There are no indications of an inconsistency (see section 11.6.3).

* The fact that the beneficiary bank will focus on its core activities (and thus divest its non-core activities).

The relevant characteristic is not mentioned in every decision. This can be explained by the relevant context. In that regard, there is no inconsistency (see section 11.7.2).

There is no uniform definition of ‘non-core activities’. This is not necessarily inconsistent (see section 11.7.3).

* The fact that the beneficiary bank has implemented cost-cutting measures.

Cost-cutting measures are not mentioned in every decision, but this can be explained by the relevant context. In that regard, there is no inconsistency (see section 11.8.2).

Although the extent of cost-cutting is mentioned in the decision, it is not explicitly taken into account in the assessment of the viability and burden-sharing (see section 11.8.3).

* The fact that the bank participates in an Asset Protection Scheme or has transferred impaired assets to an Asset Management Company.

The relevant characteristic is not mentioned in every decision. This can be explained by the fact that this relevant characteristic does not have to be present in every case. In that regard, there is no inconsistency (see section 11.9.2).

There are no indications of an inconsistency (see section 11.9.3).

* The fact that the acquiring bank has a strong financial position.

These relevant characteristics are only applicable in the T-context and S/T/W-context. In that regard, there is no inconsistency (see section 11.10.2).

There are no indications of an inconsistency (see section 11.10.3).

* The fact that the acquiring bank is much larger than the ailing bank.

* The fact that the acquiring bank has a good track record in extracting synergies.

* The fact that only the good parts of the ailing bank are transferred to the acquiring bank.

* The fact that the assumptions (on which the financial projections are based) are reasonable.

The Commission has consistently checked whether the assumptions were reasonable (see section 11.12.2).

There are no indications of an inconsistency (see section 11.12.3).

Chapter 12: Burden-sharing

Second stage of the compatibility-assessment

- when the measure constitutes State aid,

- when Article 107(3)(b) TFEU forms the basis of the compatibility-assessment,

- when the State aid is appropriate, necessary and proportionate/complies with the IAC-criteria,

- when a restructuring plan is required:

Assessment of whether the restructuring plan meets the restructuring objective of burden-sharing.

Characteristics relevant to that assessment:

Consistency (I)

Consistency (II)

Has the Commission consistently taken into account this relevant characteristic?

Is the relevant characteristic elaborated in a consistent manner?

* The fact that the chosen rescue/restructuring is the least costly alternative.

There are only a few decisions that explicitly mention that the chosen scenario is the least costly one (see section 12.2.2). This is inconsistent, but not problematic (see section 12.2.4).

Although elaborated in various manners, there are no indications of an inconsistency (see section 12.2.3).

* The fact that the beneficiary bank is divesting (profitable non-core) subsidiaries.

The more general observation that the bank is using own resources to finance the restructuring can be found in almost any decision. In that regard, there is no inconsistency (see section 12.3.2).

In most decisions, the fact that the bank has made divestments is not very elaborated (see section 12.3.3).

* The fact that the beneficiary bank is nationalised.

In principle, burden-sharing is required in every bank State aid case. Accordingly, in every case, the Commission has assessed whether there was burden-sharing. In that regard, there is no inconsistency (see section 12.5.2).

Whether the different types ofburden-sharing are equivalent to each other (in terms of how burdensome they are) depends on the exact modalities of the burden-sharing measures (see section 12.5.3.6).

* The fact that the bank’s shareholders are diluted.

* The fact that the bank’s shareholders participate in a capital raising exercise.

* The fact that the bank’s shareholders remain at thebad bank or the bank in liquidation.

* The fact that the bank’s equity is completely written-down.

* The fact that the beneficiary bank is subject to a dividend ban.

* The fact that the beneficiary bank conducted a liability management exercise (LME).

In principle, burden-sharing is required in every bank State aid case. Accordingly, in every case, the Commission has assessed whether there was burden- sharing. In that regard, there is no inconsistency (see section 12.6.2).

Whether the different types of burden-sharing are equivalent to each other (in terms of how burdensome they are) depends on the exact modalities of the burden-sharing measures (see section 12.6.3.4).

* The fact that the subordinated debt is completely written-down.

* The fact that subordinated debt holders are not transferred to the acquiring bank, but remain in the bad bank or the entity in liquidation.

* The fact that the beneficiary bank is subject to a coupon ban.

Chapter 13: Competition distortions

Second stage of the compatibility-assessment

- when the measure constitutes State aid,

- when Article 107(3)(b) TFEU forms the basis of the compatibility-assessment,

- when the State aid is appropriate, necessary and proportionate/complies with the IAC-criteria,

- when a restructuring plan is required:

Assessment of whether the restructuring plan meets the restructuring objective of minimising competition distortions.

Characteristics relevant to that assessment:

Consistency (I)

Consistency (II)

Has the Commission consistently taken into account this relevant characteristic?

Is the relevant characteristic elaborated in a consistent manner?

* The fact that the aid amount is very large./The fact that the aid amount is relatively low.

In its decisional practice, the Commission has consistently taken into account the amount of State aid (see section 13.2.2).

There are no indications of an inconsistency (see section 13.2.3).

* The fact that the beneficiary bank has a limited market presence.

In several decisions, the market position of the bank is not mentioned as an indication of the competitive impact. The finding that the market position is not always used as an assessment criterion points at an inconsistency (see section 13.3.2).

The market characteristics are not always elaborated to the same extent. Some decisions contain more detailed information than other decisions. This would indicate an inconsistency (see section 13.3.3).

* The fact that the bank is one of the market leaders.

* The fact that the market is concentrated.

* The fact that the beneficiary bank will implement market-opening measures.

Market-opening measures only appear in a few cases and are thus not a very common compensatory measure (see section 13.4.2).

There are no indications of an inconsistency (see section 13.4.3).

(*) The fact that the divestment is aimed at creating a new competitor.

Only in a few cases, the divestment was specifically aimed at creating a new competitor. Remarkably, the Commission did not clarify why this type of divestment was not needed in all cases. While there may be valid reasons to change the approach towards this specific type of divestment, changing the approach without a clear explanation points at an inconsistency (see section 13.5.2).

There is a link between divestment-related commitments and divestments aimed at creating a new competitor. However, this link is not consistently made in the decisions (see section 13.5.3.3).

* The fact that restructuring plan provides for a reduction of the balance sheet size of the beneficiary bank.

The more general observation that the bank is subject to downsizing can be found in almost any decision. In that regard, there is no inconsistency (see section 13.6.2).

The percentage of the balance sheet reduction is not always mentioned in combination with the relative aid amount. This would indicate an inconsistency (see section 13.6.3).

* The fact that the bank will reduce the number of branches.

There are no indications of an inconsistency (see section 13.7.2).

The Commission did not take particular note of the exact modalities of this relevant characteristic. This would indicate an inconsistency (see section 13.7.3).

* The fact that the bank will reduce the number of employees.

* The fact that the restructuring plan provides for a growth limitation.

It is difficult to establish whether the Commission has consistently taken into account this relevant characteristic (see section 13.8.2).

It is difficult to establish whether the Commission has consistently taken into account this relevant characteristic (see section 13.8.3).

* The fact that the beneficiary bank is subject to an acquisition ban.

Most decisions fit within the general pattern. In that regard, there is no inconsistency (see section 13.9.2).

Prior to the 2013 Banking Communication, the Commission did not take particular note of the exact modalities of the acquisition ban. This is inconsistent (see section 13.9.3).

* The fact that the beneficiary bank is subject to a price leadership ban.

Since the price leadership ban and the other pricing restrictions are not substitutes, the absence of a price leadership ban cannot be explained by the mere fact that the bank is subject to the other pricing restrictions.

To some extent, the Commission has taken into account the modalities of the price leadership ban. However, with respect to the standard of comparison, an explanation as to why a specific standard of comparison was chosen, was completely lacking. This is inconsistent (see section 13.10.3).

The finding that there are only 13 cases in which a price leadership ban was imposed, would seem to indicate an inconsistency (see sections 13.10.2 and 13.10.5).

* The fact that the beneficiary bank is subject to other pricing restrictions.

* The fact that the beneficiary bank is subject to a ban on aggressive commercial practices/strategies.

There is a lot of vagueness regarding the use of these terms.Sometimes, they are used as synonyms; sometimes they are used as two distinct notions (see section 13.11.1).

There is a lot of vagueness regarding the use of these terms. Sometimes, they are used as synonyms; sometimes they are used as two distinct notions (see section 13.11.1).

* The fact that the restructuring plan includes a clear repayments schedule./The fact that the bank has already repaid (part of) the aid.

Exit from State aid is relevant in every case (irrespective of the form of aid). Consequently, the exit strategy should be taken into account in every case. There are no indications of an inconsistency (see section 13.12.2).

There are no indications of an inconsistency (see section 13.12.3).

* The fact that the Member State commits to reprivatize the beneficiary bank.