6.4.3 Determining the comparability of the treatment

While in popular conception, the restructuring plan might be perceived as punishment, the treatment serves more objectives than only punishing banks. For instance, the restructuring measures are also taken to ensure that the bank will become viable in the long run. In chapter 3, it was explained that the Restructuring Communication is based on three basic principles: i) restoration of long-term viability of the bank, ii) burden sharing, and iii) minimization of competition distortion. This means that the “treatment” serves three purposes. While some restructuring measures may be aimed specifically at one of those three purposes, this is not always the case. For instance, a divestment may be needed to restore the long-term viability of a bank. At the same time, it is an own contribution of the bank.1

It would therefore be wrong to assume that the treatment is only about punishing the banks that received State aid. This does not, however, mean that treatments cannot be compared in terms of their punitive effect. It could be argued that, while not having the purpose of punishing a bank, a compensatory measure may have the effect of punishing a bank. Consequently, treatments can be compared in terms of their punitive effect.

Even if punitive effect (or severity) is used as a metric, there are problems with the actual application of this metric. One of the most severe restructuring measures is the divestment. Assume that Bank A has to divest 5% of its assets and that Bank B has to divest 20%. At first sight, it seems that Bank B is ‘punished’ more than Bank A. However, only looking at the percentages is deceiving. The picture (that Bank B is punished more) may change if the example is extended: assume that Bank A has to divest 5% within one year and that Bank B has to divest 20% within three years. The timeframe can be a very relevant aspect. It may be much harder to divest a small stake of 5% within one year than it is to divest a larger stake within three years. This makes it hard to determine which bank is punished more (i.e. which structural remedy is more severe).

The severity of the divestment is also influenced by the prevailing market conditions. In good times, it may be easier to find potential acquirers than in bad times.2 In addition, if the market knows that the bank is forced to divest a certain subsidiary, then the bank finds itself in a difficult bargaining position.

The severity of the divestment is also determined by the modalities of the divestment. A divestment of 20% can be achieved by selling one subsidiary of 20% or by selling 10 different activities of each 2%.3 This also influences the severity of the treatment.

Consider the following example. Bank X has to divest a subsidiary; this subsidiary is structurally loss-making. The commitment to divest a loss-making subsidiary is not really a punishment.

That a divestment is not always bad, is also illustrated by the fact that some banks voluntarily divest subsidiaries. For instance, Barclays chose to divest its global investment banking business.4 Mamdani argued that “although the measures required to ensure a return to long-term viability may have appeared very radical, however, it should be borne in mind that the restructuring undertaken by aided banks was not dissimilar to the sort of restructuring that their unaided competitors were doing of their own accord”.5 However, it should be borne in mind that a voluntary divestment is different from a forced divestment, because the bargaining position of the bank vis-à-vis potential acquirers would probably be better in the case of a voluntary divestment.

The aforementioned examples make clear that it is difficult to compare structural remedies in the form of divestments. A percentage alone is not enough to determine the severity of a divestment. The severity depends not only on the size of a divestment, but also on its timeframe, the modalities of the divestment and the nature of the divested subsidiaries (profit-generating or loss-making).6