14.2.1 The relevant context

One of the conclusions of this PhD-study is that the context matters. This PhD- study distinguishes between the following contexts: in the C-context, the beneficiary bank continues to exist as a standalone entity; in the W-context, the beneficiary bank is wound-down; in the T-context, the beneficiary bank is taken- over by another bank; in the S/C/W-context, the beneficiary bank is split-up in a good and bad part; and in the S/T/W-context, the beneficiary bank is split-up in a good part – which is transferred to another bank – and a bad part – which is wound-down.

It should be stressed that categorising bank State aid cases on the basis of the relevant context is not an end in itself; rather, it is a means to an end. The compatibility-assessment ultimately depends on the relevant characteristics. In that regard, the context is relevant, because it may have an impact on the relevant characteristics. The exact relevance differs per context, as will be explained below.

The defining feature of the W-context is that the beneficiary bank will be wound-down. Consequently, the beneficiary bank will eventually disappear from the market. This greatly limits the distortions of competition stemming from the State aid. Indeed, when the bank has exited the market, it can no longer distort competition on that market. Therefore, as discussed in section 13.1.2, the fact that the beneficiary bank will eventually disappear from the market is the starting point of the Commission’s assessment of the compensatory measures.

Since the bank in the W-context will be wound-down, the restructuring measures in this context are not aimed at the restoration of the long-term viability of the bank. Accordingly, most of the characteristics that are relevant to the viability-assessment are less relevant in the W-context. Nevertheless, to some extent these characteristics may still be relevant, since the bank will eventually leave the market rather than immediately. In the meantime, some viability- measures might be useful.

The defining feature of the T-context is that the beneficiary bank’s activities are transferred to the acquiring bank (and subsequently integrated into the acquiring bank). Since the transferred activities constitute an economic continuity, the Commission assesses how the transfer and subsequent integration of these activities contributes to the restoration of their viability. As discussed in section 11.10, the relevant criterion is that the acquiring bank should be viable and capable of absorbing the transfer of the ailing bank. In essence, the main reason to sell the beneficiary bank to a larger bank is to restore the viability of the beneficiary bank. Thus, the viability-elements (such as corporate governance, operation efficiency and funding) are assessed from the viewpoint of the takeover and subsequent integration into the acquiring bank.

Even though the transferred activities are considered to be an economic continuity, the beneficiary bank itself will cease to exist as a standalone entity. This is noted positively by the Commission, because this limits competition distortions.

The defining feature of the S-context is that the beneficiary bank is split-up in a ‘good’ part and a ‘bad’ part. This has important implications for the burden- sharing. As discussed in sections 12.5.3.4 and 12.6.3.2, in the S-context, the shareholders and subordinated debt holders usually remain at the ‘bad’ part of the bank. In this way, burden-sharing by shareholders and subordinated debt holders is ‘automatically’ achieved.

The S-context is also relevant with respect to the limitation of competition distortions, because the split-up of the bank means that the bank will cease to exist as a standalone entity. This is noted positively by the Commission (just like the exit of the bank is noted positively in the W-context and T-context).

The defining feature of the C-context is that the beneficiary bank continues to exist as a standalone entity. This differentiates the C-context from the other contexts discussed above. Since the beneficiary bank in the C-context does not cease to exist as a standalone entity, compensatory measures (such as downsizing) are very important in this context. For this reason, the balance sheet reduction figures prominently in the C-context.