11.1.2 The relevant context

Where a bank cannot be restored to viability, it should be wound up in an orderly fashion.1 This is – by definition – the case in the W-context.2 In this context, the first pillar of the restructuring plan is not focussed on the restoration of long-term viability, but on the orderly resolution. ‘Orderly resolution’ (in the W-context) is thus the counterpart of ‘return to viability’ (in the C-context). This illustrates the importance of the relevant context. How is the first pillar applied in the other contexts? In the T-context, the Commission assesses whether the purchaser is viable and capable of absorbing the transfer of the ailing bank.3 In the S/T/W- context, the first pillar concerns the following three points: i) break-up of the beneficiary bank in an orderly fashion; ii) transferred business should be viable; iii) bad bank should be liquidated in an orderly fashion.

There are several scenarios in which an ailing bank can be rescued and restructured. It should be noted that the Restructuring Communication requires that the notification of the restructuring plan should include a comparison with alternative options.4 The chosen alternative should be the least costly one. This follows from the principle that the aid should be limited to the minimum necessary, a principle which shall be discussed in more detail in the next chapter. At this point, it is worth stressing that an orderly wind-down scenario is only chosen when the viability of the bank cannot be restored.