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Burden Sharing Arrangements vs. Shareholders and Creditors: Kotnik, Dowling and the Current State Aid Policy in the Banking Sector

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Abstract

State aid policy to banks has developed extensively throughout the financial crisis. After outlining the main features of State aid policy in the banking sector, this article analyses the Kotnik and Dowling judgments where the application of burden sharing arrangements was assessed. In particular, the paper looks at the impact of these judgments on the approach of the Commission on State aid policy and examines the nature of burden sharing arrangements set out in State aid policy. In this context, the paper discusses more generally the relationship between burden sharing arrangements and fundamental rights, in particular the right of property. Then, the article shows that State aid policy to banks still remains highly relevant and controversial in the Banking Union framework where, under certain conditions, Member States can still grant State support measures. This is for instance the case of precautionary recapitalisation as State aid aimed at preventing a bank from going under resolution. Furthermore, the Banking Union framework raises questions such as how burden sharing is related to the Bank Recovery and Resolution Directive (BRRD) and what the relation is between burden sharing and bail-in.

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Notes

  1. See European Commission (2015), COM(2015) 587 final, p 3.

  2. See generally http://ec.europa.eu/competition/state_aid/scoreboard/financial_economic_crisis_aid_en.html. See also European Commission (2011), SEC(2011) 1126 final and in literature Hancher et al. (2016a), Piernas Lopez (2015), p 223 and Laprévote and Maron (2015), p 88.

  3. Gerard (2013), p 248.

  4. Laitenberger (2016), Speech.

  5. Case C-526/14 Kotnik and Others, ECLI:EU:C:2016:570.

  6. Case C-41/15 Gerard Dowling and Others v. Minister for Finance, ECLI:EU:C:2016:836.

  7. Kotnik, para. 108.

  8. See on this topic Wojcik (2016), p 115.

  9. See among others Piernas López (2015); Hancher et al. (2016a); Hofmann (2016).

  10. Hancher et al. (2016a), Chapter 1.

  11. Almunia (2013), Speech.

  12. Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 of the Treaty on the Functioning of the European Union [2015] OJ L 248/9-29 (hereinafter the ‘Procedural Regulation’).

  13. Hancher et al. (2016b), p 348.

  14. Ibid., p 349.

  15. Hancher et al. (2016a), Chapter 30.

  16. See European Commission (2011), pp 19 and following.

  17. See European Commission (2013), points 2 and 4.

  18. Lo Schiavo (2014), p 428.

  19. See Ianus and Orzan (2016), p 268. This framework took also into account the European Central Bank (ECB) opinions on national support measures set out in national laws as available here: http://www.ecb.europa.eu/ecb/legal/opinions/html/index.en.html.

  20. See Hasan and Marinč (2016), p 319.

  21. See European Commission (2011), pp 22 and following. In literature see Laprévote and Maron (2015), p 88; Lo Schiavo (2014), p 431.

  22. European Commission (2013).

  23. Ibid., para. 12.

  24. Ibid., para. 89.

  25. Ibid., para. 15. This assessment follows the international discussions on policies aimed at reducing bail out measures and introducing bail-in as a statutory power. See e.g. IMF (2012).

  26. Ibid., para. 41.

  27. See ibid., para. 42.

  28. Ibid., para. 45.

  29. See Kotnik, para. 108.

  30. See, among others, SA.43365: National Bank of Greece, OJ C/220/2016, paras. 134 and following; SA.43364: Piraeus Bank, OJ C/104/2016, paras. 125 and following; SA.34825: HFSF Recapitalisation commitment to EFG Eurobank, OJ L/357/2014, paras. 384 and following; SA.39250: Monitoring of Banco Espirito Santo, OJ C/393/2014, para. 89; SA.35334: Recapitalisation and restructuring of the Cooperative Central Bank Ltd and of the Cooperative Credit Institutions, OJ C/233/2014, paras. 137 and following; SA.39451: Aid to Banca Tercas Banca Tercas, OJ L/203/2016, para. 206 and cases quoted therein.

  31. See SA.39451: Aid to Banca Tercas Banca Tercas, OJ L/203/2016, para. 209.

  32. Cypriot case: SA.35334: Recapitalisation and restructuring of the Cooperative Central Bank Ltd and of the Cooperative Credit Institutions, OJ C/233/2014.

  33. Portuguese case: SA.39250: Monitoring of Banco Espirito Santo, OJ C/393/2014, para. 89.

  34. Greek case: SA.41503: Resolution of Panellinia Bank through a transfer order to Piraeus Bank (Funding gap), OJ C/325/2015, para. 84.

  35. Greek cases: SA.43365: National Bank of Greece, OJ C/220/2016, paras. 128–129; SA.43364: Piraeus Bank, OJ C/104/2016, paras. 130–131.

  36. European Commission (2013), para. 45.

  37. Greek case: SA.34825: HFSF Recapitalisation commitment to EFG Eurobank, OJ L/357/2014, paras. 396 and following.

  38. See Vestager (2017), Speech.

  39. Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council [2014] OJ L 173/190–348.

  40. Regulation (EU) No. 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010 [2014] OJ L 225/1–90.

  41. See Arts. 37 and 59–62 BRRD and Art. 21 SRM Regulation.

  42. See Kotnik, para. 21.

  43. Kotnik, para. 40.

  44. Ibid., para. 44.

  45. Maxian Rusche (2016), p 225.

  46. Case T-496/11 UK v. ECB, ECLI:EU:T:2015:133.

  47. See also Senden (2001).

  48. See the similarity with T-496/11 UK v. ECB, ECLI:EU:T:2015:133, paras. 51–54.

  49. [2012] OJ L 315.

  50. See Micheau (2016), p 25 and case law cited therein.

  51. Kotnik, para. 100.

  52. Ibid.

  53. Kotnik, para. 108.

  54. Ibid., para. 53.

  55. Ibid.

  56. Ibid., para. 56.

  57. Ibid., para. 57.

  58. Ibid., para. 58.

  59. [1977] OJ L 26/1.

  60. Ibid., Arts. 25 and 29.

  61. Dowling, para. 23.

  62. Ibid., paras. 46 and following.

  63. Ibid, para. 51.

  64. Ibid., para. 55.

  65. See Grünewald (2013), p 52.

  66. See also Grünewald (2013), p 52.

  67. Babis (2012), p 387.

  68. Ibid., p 388.

  69. See in particular Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes [2014] OJ L 173/149–178, Art. 2.

  70. For an analysis of the private investor test under State aid law see Ó Caoimh and Sauter (2016), pp 115 and following.

  71. See European Commission (2013), paras. 63–64 and Art. 44(5) BRRD.

  72. See Bacon (2017), p 381.

  73. See Art. 45(6) BRRD and Art. 12(6) SRM Regulation.

  74. Kotnik, para. 58.

  75. Hancher et al. (2016a), Chapter 16.

  76. See generally Lo Schiavo (2017).

  77. See Communication (2013), para. 45.

  78. Kotnik, para. 57.

  79. See Kotnik, para. 89; Dowling, para. 51.

  80. Directive 2012/30 of the European Parliament and of the Council of 25 October 2012 [2012] OJ L 315/74-97.

  81. Angeloni and Lenihan (2016), p 112.

  82. See Art. 44 BRRD. See also infra Sect. 6 for an assessment in the European Banking Union.

  83. See infra Sect. 6 for similar reflections in the European Banking Union framework.

  84. Kotnik, para. 101.

  85. At the time of writing, this case is pending before the CJEU: Italy v. Commission (Case T-98/16); Banca Tercas v. Commission (Case T-196/16). The application documentation is available at: http://curia.europa.eu/juris/document/document.jsf?text=tercas&docid=180553&pageIndex=0&doclang=EN&mode=req&dir=&occ=first&part=1&cid=492641#ctx1.

  86. Whenever a State measure is enacted or proposed the first question under State aid control is whether it constitutes State aid under Art. 107(1) TFEU. The Banca Tercas cases raise the question of whether a contributions from the Italian Interbank Deposit Protection Fund, as the voluntary arm of the Italian DGS, are State aid measures. The question is also treated in the Banking Communication under para. 63 where the European Commission still considers contributions from the voluntary arm of DGSs as in the form of private contributions as State aids ‘the extent that they come within the control of the State and the decision as to the funds’ application is imputable to the State’.

  87. Ibid., para. 64.

  88. Ibid., paras. 61 and following.

  89. Kotnik, para. 62.

  90. See Art. 1 of Protocol No. 1 to the ECHR.

  91. Art. 51 Charter states that ‘the provisions of the Charter are addressed to the Member States only when they are implementing EU law’. See case C-206/13 Siragusa, EU:C:2014:126, paras. 20 et seq.

  92. Art. 52(3) of the Charter.

  93. See in this sense Micossi et al. (2016), pp 15–16.

  94. See Sluysmans et al. (2015), p 396.

  95. See European Commission (2015), p 3.

  96. See Recitals 6 and 19 of the SRM Regulation.

  97. See Art. 14(2)(c) of the SRM Regulation.

  98. Art. 2(28) BRRD.

  99. ELA is not considered State aid in accordance with the State aid framework if four cumulative conditions are met: (a) the credit institution is temporarily illiquid but solvent at the moment of the liquidity provision which occurs in exceptional circumstances and is not part of a larger aid package; (b) the facility is fully secured by collateral to which appropriate haircuts are applied, in function of its quality and market value; (c) the central bank charges a penal interest rate to the beneficiary; (d) the measure is taken at the central bank’s own initiative, and in particular is not backed by any counter-guarantee of the State. On ELA and State aid see Steinbach (2016), p 375.

  100. See Recital 41 of the BRRD.

  101. See ibid.

  102. See Communication (2013), paras. 58 and 59.

  103. See Gardella (2015), p 383.

  104. EBA, Guidelines on the types of tests, reviews or exercises that may lead to support measures under Article 32(4)(d)(iii) of the Bank Recovery and Resolution Directive EBA/GL/2014/09, available at https://www.eba.europa.eu/regulation-and-policy/recovery-and-resolution/guidelines-on-the-types-of-tests-reviews-or-exercises-that-may-lead-to-support-measures.

  105. Italian Law 17 February 2017, no. 15 converting Decree Law 23 December no. 237 aimed at supporting the Italian banking system, available in Italian only at http://www.normattiva.it/uri-res/N2Ls?urn:nir:stato:decreto.legge:2016-12-23;237.

  106. See European Commission (2017a).

  107. See Communication, para. 64. See also Art. 19 of the SRM Regulation.

  108. See Art. 76(1) of the SRM Regulation.

  109. See Recitals 30 and 75 of the SRM Regulation.

  110. Art. 27(6) of the SRM Regulation.

  111. Art. 27(7) of the SRM Regulation.

  112. Gardella (2015), p 381.

  113. This is what has happened recently in the case of two Italian banks. See European Commission (2017b).

  114. See European Commission (2013), paras. 65–88.

  115. See ibid., paras. 77, 78 and 84.

  116. See Brunsden (2017).

  117. Woijcik (2016), p 106.

  118. See Schoenmaker (2015), p 48.

  119. See European Commission (2017c) COM(2017) 592 final, pp 13–14.

  120. See https://www.esm.europa.eu/sites/default/files/20141208_guideline_on_financial_assistance_for_the_direct_recapitalisation_of_institutions.pdf.

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    Gianni Lo Schiavo

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This article was completed on 31 October 2017. The author holds a PhD from King’s College, London and an LLM from the College of Europe, Bruges. The views expressed in this article are purely personal and they are in no way intended to represent those of the ECB or its Supervisory Board Secretariat. The author would like to thank Petra Senkovic for comments on earlier drafts. All errors and omissions remain my own.

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Lo Schiavo, G. Burden Sharing Arrangements vs. Shareholders and Creditors: Kotnik, Dowling and the Current State Aid Policy in the Banking Sector. Eur Bus Org Law Rev 19, 581–613 (2018). https://doi.org/10.1007/s40804-018-0114-6

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