State aid to banks

Title Page
Copyright Page
Preface
List of abbreviations

Chapter 1. Introduction
1.1  Background and illustration of the subject-matter
1.2  Description of the problem
1.3  The aim of the study
1.3.1  Research question
1.3.2  Relevance of the research
1.4  Scope of the study
1.5  Structure of the study

Chapter 2. State aid
2.1  Introduction
2.2  The economics of State aid
2.2.1  The adverse effects of State aid
2.2.2  Motives for granting State aid
2.2.3  The effectiveness of State aid
2.2.4  State aid control
2.2.5  Concluding remarks
2.3  The (legal) notion of State aid
2.3.1  Criterion 1: The aid must be granted by the state or through state resources
2.3.2  Criterion 2: The recipient of aid: “undertaking”
2.3.3  Criterion 3: The aid must confer an advantage to the recipients
2.3.4  Criterion 4: The advantage must favour certain undertakings or economic activities
2.3.5  Criterion 5: The aid must distort competition in the common market
2.3.6  Criterion 6: The aid must affect trade between Member States
2.3.7  Concluding remarks
2.4  The compatibility of State aid
2.4.1  Article 107 (2) TFEU
2.4.2  Article 107 (3) TFEU
2.4.3  The Communications, Guidelines and Notices
2.4.4  Concluding remarks
2.5  State aid procedure
2.5.1  New aid
2.5.2  Unlawful aid
2.5.3  Misuse of aid
2.5.4  Existing aid
2.5.5  Interested parties
2.5.6  Concluding remarks
2.6  Conclusion

Chapter 3. State aid to banks
3.1  Introduction
3.2  The economics of State aid to banks
3.2.1  Why banks are essential
3.2.2  Why banks are special
3.2.3  The justification for State aid to banks
3.3  State aid measures in support of banks
3.3.1  Guarantees
3.3.2  Bond loan scheme
3.3.3  Recapitalisation
3.3.4  Nationalisation
3.3.5  Underwriting
3.3.6  Asset relief measures
3.3.7  Facilitating a transfer of (part of) the beneficiary bank
3.3.8  Controlled winding-up
3.3.9  Liquidity assistance by central banks
3.4  State aid control since the financial crisis
3.4.1  The Crisis Framework
3.4.1.1  The 2008 Banking Communication
3.4.1.2  The Recapitalisation Communication
3.4.1.3  The Impaired Assets Communication
3.4.1.4  The Restructuring Communication
3.4.1.5  The First Prolongation Communication
3.4.1.6  The Second Prolongation Communication
3.4.1.7  The 2013 Banking Communication
3.4.2  What is special about the Crisis Framework?
3.4.3  The legal status of the Communications
3.4.4  Temporary Framework for the real economy
3.5  The Commission’s assessment of bank State aid
3.5.1  The steps in the Commission’s assessment
3.5.2  The outcome of the Commission’s assessment
3.6  The Commission decisions
3.6.1  Type of decisions
3.6.2  Structure of the decisions
3.6.3  Language of the decisions
3.6.4  Confidential information in the decisions
3.7  The structural measures and behavioural constraints
3.7.1  Overview of the structural measures and behavioural constraints
3.7.2  Terminology
3.7.3  Imposed by the Commission or proposed by the Member State?
3.8  Conclusion

Chapter 4. Bank State aid under the BRRD and the SRM
4.1  Introduction
4.2  The background and context of the BRRD and the SRM
4.2.1  The background of the BRRD
4.2.2  The background of the SRM
4.2.3  The added value of the SRM
4.3  The main elements of the BRRD and SRM
4.3.1  Preparation
4.3.2  Early intervention
4.3.3  Resolution
4.3.3.1  Resolution objectives
4.3.3.2  Resolution conditions
4.3.3.3  Resolution tools
4.3.4  Bail-in
4.3.4.1  Reasons for introducing the bail-in tool
4.3.4.2  Write-down and conversion power
4.3.4.3  Hierarchy of claims
4.3.4.4  Scope of the bail-in
4.3.4.5  MREL
4.3.4.6  Criticisms of the bail-in tool
4.3.5  Resolution of a (cross-border) banking group
4.3.6  Resolution fund
4.4  BRRD/SRM and State aid
4.4.1  State aid as a trigger of resolution
4.4.2  State aid to a bank under resolution
4.4.3  Relevance of the State aid control framework
4.4.4  Compliance of the aid measure with the intrinsically linked provision of the BRRD
4.4.5  Interaction between State aid and resolution
4.5  ESM
4.5.1  Background of the ESM
4.5.2  ESM direct recapitalisation instrument
4.6  Conclusion

Chapter 5. Case-law of the Court of Justice EU on bank State aid
5.1  Introduction
5.1.1  The role of the Court of Justice EU
5.1.2  The purpose(s) of this chapter
5.2  The case of ING
5.3  The case of FIH
5.4  The case of ABN AMRO
5.5  The case of WestLB
5.6  The case of HSH Nordbank
5.7  The case of BayernLB
5.8  The case of Banco Privado Português (I)
5.9  The case of Banco Privado Português (II)
5.10  The case of ARCO (I)
5.11  The case of ARCO (II)
5.12  The case of Banca Tercas
5.13  The case of the Slovenian banks
5.14  The case of Irish Life and Permanent (PTSB)
5.15  The case of Banco Espirito Santo (I)
5.16  The case of Banco Espirito Santo (II)
5.17  The case of SNS REAAL
5.18  The case of MPS
5.19  Concluding observations on the case-law on bank State aid
5.20  The principle of equal treatment in the case-law on bank State aid
5.20.1  The case of ABN AMRO
5.20.2  The case of WestLB
5.20.3  The case of Banco Privado Portugues (BPP)
5.20.4  Reflection
5.21  Concluding remarks

Chapter 6. Applying the principle of equal treatment to bank State aid cases
6.1  Introduction
6.2  The principle of equal treatment
6.3  Which definition should be used in this PhD-study?
6.3.1  A different definition
6.3.2  When is a definition satisfactory?
6.3.3  Why is the CJEU-definition unsatisfactory?
6.3.4  Why is it justified to use other definitions of the principle of equal treatment?
6.3.5  Why is the Aristotelian formula unfeasible?
6.4  The ‘one-metric approach’
6.4.1  Introduction
6.4.2  Determining the comparability of the cases
6.4.3  Determining the comparability of the treatment
6.4.4  Relation between aid intensity and balance sheet reduction
6.4.5  Concluding remarks
6.5  The ‘many-variables approach’
6.5.1  Finding a link between the characteristics of the cases and the treatments
6.5.2  Other complicating factors
6.5.3  Concluding remarks
6.6  Problems in determining “cases” and “treatment”
6.7  The ‘relevant-characteristics approach’
6.7.1  Introduction
6.7.2  Identifying the relevant characteristics
6.7.3  Consistency
6.7.4  Limitations of the relevant-characteristics approach
6.7.5  Concluding remarks
6.8  The relevant context
6.8.1  Introduction
6.8.2  The main differences between the relevant contexts
6.8.3  The relevance of the context
6.9  Introduction to the following seven chapters
6.9.1  The structure of the following seven chapters
6.9.2  Presenting the relevant characteristics
6.9.3  “Taken into account”
6.10  Conclusion

Chapter 7. Preliminary steps in the Commission’s assessment
7.1  Introduction
7.2  Existence of State aid within the meaning of Article 107 (1) TFEU?
7.3  State resources and imputability
7.3.1  Intermediary
7.3.2  Intervention by a DGS
7.4  Market Economy Investor Principle (MEIP)
7.4.1  Application of the MEOP in bank State aid cases
7.4.2  Concluding remarks
7.5  Identification of beneficiaries
7.5.1  Aid to the investors of the bank?
7.5.2  The relevance of the context
7.5.3  The relevance of the identification of the beneficiaries
7.6  Assessment on the basis of Article 107(3)(b) or (c) TFEU?
7.6.1  The relevance of the choice of legal basis
7.6.2  “to remedy a serious disturbance in the economy”
7.6.3  Systemic importance
7.6.4  Decisions taken before the adoption of the 2008 Banking Communication
7.6.5  Concluding remarks
7.7  Conclusion

Chapter 8. Appropriate, necessary and proportionate
8.1  Introduction
8.1.1  Assessment in two stages
8.1.2  Impact of the 2013 Banking Communication
8.1.3  Where can the two stages of the compatibility-assessment be found?
8.1.4  The relative importance of the two stages of the assessment
8.1.5  Scope of this chapter
8.2  Systemic importance
8.2.1  Why is this a relevant characteristic?
8.2.2  Concluding remarks
8.3  Restoring market confidence
8.3.1  Appropriateness of a guarantee
8.3.2  Appropriateness of a recapitalisation
8.3.3  Concluding remarks
8.4  Material and temporal scope of the guarantee
8.4.1  Material scope of the guarantee
8.4.2  Temporal scope of the guarantee
8.4.3  Concluding remarks
8.5  Necessity of recapitalisation measures
8.6  Adequate remuneration
8.6.1  Why is this a relevant characteristic?
8.6.2  Pricing of guarantees
8.6.3  Pricing of recapitalisations
8.6.4  Concluding remarks
8.7  Exit incentive
8.7.1  Why is this a relevant characteristic?
8.7.2  Step-up clause
8.7.3  Other exit mechanisms
8.7.4  Concluding remarks
8.8  Behavioural constraints
8.8.1  Why is this a relevant characteristic?
8.8.2  Balance sheet growth limitation
8.8.3  Ban on advertising
8.9  Restructuring plan
8.10  Additional relevant characteristics in the context of a bank support scheme
8.10.1  Targeted at the appropriate beneficiaries
8.10.2  Open to subsidiaries of foreign banks
8.10.3  Maximum budget of the scheme
8.10.4  Concluding remarks
8.11  Conclusion

Chapter 9. Compatibility with the Impaired Assets Communication
9.1  Introduction
9.2  Asset relief measures
9.2.1  The rationale of asset relief measures
9.2.2  Types of asset relief measures
9.2.3  Asset relief scheme
9.2.4  Overview of asset relief measures
9.3  Applicability of the IAC
9.3.1  Material scope of the IAC
9.3.1.1  Asset relief measures which are similar to recapitalisation measures
9.3.1.2  The split-up of the bank
9.3.2  Temporal scope of the IAC
9.3.3  Relevance of the applicability-question
9.4  Eligibility of assets
9.5  Transparency and disclosure
9.6  Management of the assets
9.7  Valuation
9.7.1  Market value, transfer value and ‘real economic value’
9.7.2  Valuation methodology
9.8  Burden-sharing and remuneration
9.8.1  Burden-sharing through a write-down/first-loss tranche
9.8.2  Claw-back
9.8.3  Remuneration of an asset guarantee
9.8.4  Remuneration in case of an asset purchase
9.8.5  Remuneration in case of a split-up of the bank
9.8.6  Concluding remarks on burden-sharing
9.9  Procedural aspects
9.10  Follow-up measures: “far-reaching restructuring”
9.10.1  The need for far-reaching restructuring
9.10.2  How is this principle applied in the Commission decisions?
9.10.3  Concluding remarks
9.11  Conclusion

Chapter 10. The need for far-reaching restructuring
10.1  Introduction
10.1.1  The concept of “far-reaching restructuring”
10.1.2  Structure of this chapter
10.2  Requirement to submit a restructuring plan
10.2.1  Introduction
10.2.2  Ad hoc recapitalisation measures and ad hoc asset relief measures
10.2.3  Bank support scheme
10.2.3.1  Recapitalisation schemes
10.2.3.2  Guarantee schemes
10.2.3.3  Other bank support schemes
10.2.4  Failure to submit a restructuring plan
10.2.5  Concluding remarks
10.3  Far-reaching restructuring needed? (I): amount of aid
10.4  Far-reaching restructuring needed? (II): lack of adequate own contribution
10.5  Far-reaching restructuring needed? (III): cause of the bank’s difficulties
10.5.1  Introduction
10.5.2  “Proportionate assessment” under the Second Prolongation Communication
10.5.3  External or internal factors?
10.6  Conclusion

Chapter 11. Restoring long-term viability
11.1  Introduction
11.1.1  Long-term viability
11.1.2  The relevant context
11.1.3  Remedying the bank’s weaknesses
11.1.4  Structure of this chapter
11.2  Replacement of senior management
11.2.1  Why is this a relevant characteristic?
11.2.2  Has the Commission consistently taken into account this relevant characteristic?
11.2.2.1  A matter of interpretation
11.2.2.2  Possible explanations
11.2.3  How is this relevant characteristic elaborated in the decisions?
11.2.4  Impact BRRD
11.2.5  Concluding remarks
11.3  Corporate governance framework
11.3.1  Why is this a relevant characteristic?
11.3.2  Has the Commission consistently taken into account this relevant characteristic?
11.3.3  How is this relevant characteristic elaborated in the decisions?
11.3.3.1  The level of detail with which the corporate governance issues are described
11.3.3.2  State involvement
11.3.4  Concluding remarks
11.4  Remuneration policy
11.4.1  Why is this a relevant characteristic?
11.4.2  Has the Commission consistently taken into account this relevant characteristic?
11.4.3  How is this relevant characteristic elaborated in the decisions?
11.4.3.1  The aim of the remuneration restrictions
11.4.3.2  The modalities of the remuneration restrictions
11.4.4  Concluding remarks
11.5  Risk management
11.5.1  Why is this a relevant characteristic?
11.5.2  Has the Commission consistently taken into account this relevant characteristic?
11.5.3  How is this relevant characteristic elaborated in the decisions?
11.5.4  Concluding remarks
11.6  Funding
11.6.1  Why is this a relevant characteristic?
11.6.2  Has the Commission consistently taken into account this relevant characteristic?
11.6.3  How is this relevant characteristic elaborated in the decisions?
11.6.3.1  Funding problems
11.6.3.2  Improving the funding structure
11.6.3.3  Banks without a funding problem
11.6.4  Concluding remarks
11.7  Operational efficiency
11.7.1  Why is this a relevant characteristic?
11.7.2  Has the Commission consistently taken into account this relevant characteristic?
11.7.3  How is this relevant characteristic elaborated in the decisions?
11.7.4  Concluding remarks
11.8  Business model: focus on core activities
11.8.1  Why is this a relevant characteristic?
11.8.2  Has the Commission consistently taken into account this relevant characteristic?
11.8.3  How is this relevant characteristic elaborated in the decisions?
11.8.3.1  Which activities are discontinued?
11.8.3.2  How are the non-core activities discontinued?
11.8.4  Concluding remarks
11.9  Impaired assets
11.9.1  Why is this a relevant characteristic?
11.9.2  Has the Commission consistently taken into account this relevant characteristic?
11.9.3  How is this relevant characteristic elaborated in the decisions?
11.9.4  Concluding remarks
11.10  Sale of an ailing bank to another financial institution
11.10.1  Why are these characteristics relevant?
11.10.2  Has the Commission consistently taken into account these four characteristics?
11.10.3  How are these relevant characteristics elaborated in the decisions?
11.10.3.1  Financial position of the acquiring bank
11.10.3.2  Size of the acquiring bank
11.10.3.3  Experience of the acquiring bank and synergies
11.10.3.4  S/T/W-context
11.10.4  Concluding remarks
11.11  Acquisition of other banks by a beneficiary bank
11.12  Assumptions underlying the restructuring plan
11.12.1  Why is this a relevant characteristic?
11.12.2  Has the Commission consistently taken into account this relevant characteristic?
11.12.3  How is this relevant characteristic elaborated in the decisions?
11.12.4  Concluding remarks
11.13  Conclusion
11.13.1  Key findings
11.13.2  Implications for the Commission
11.13.3  Implications for the Member States and beneficiary banks

Chapter 12. Burden-sharing
12.1  Introduction
12.1.1  Why an own contribution?
12.1.2  Overlap and interaction
12.1.3  Structure of this chapter
12.2  Comparison with alternatives
12.2.1  Why is this a relevant characteristic?
12.2.2  Has the Commission consistently taken into account this relevant characteristic?
12.2.3  How is this relevant characteristic elaborated in the decisions?
12.2.4  Concluding remarks
12.3  Own contribution of the beneficiary bank: sale of assets
12.3.1  Why is this a relevant characteristic?
12.3.2  Has the Commission consistently taken into account this relevant characteristic?
12.3.3  How is this relevant characteristic elaborated in the decisions?
12.3.3.1  Limited possibilities for burden-sharing
12.3.3.2  Divestments that are not accepted as an own contribution measure
12.3.3.3  Intermezzo: the different purposes of divestments
12.3.4  Concluding remarks
12.4  Burden-sharing by those who invested in the bank
12.4.1  “Those who invested in the bank”
12.4.2  From bail-out to bail-in
12.5  Burden-sharing by shareholders
12.5.1  Why are these characteristics relevant?
12.5.2  Has the Commission consistently taken into account these relevant characteristics?
12.5.3  How are these relevant characteristics elaborated in the decisions?
12.5.3.1  Nationalisation
12.5.3.2  Dilution
12.5.3.3  Capital raising exercise
12.5.3.4  Remaining at the bad bank or bank in liquidation
12.5.3.5  Write-down
12.5.3.6  Dividend ban
12.5.3.7  Consistent application of the burden-sharing principle?
12.5.4  Impact of the BRRD
12.5.5  Concluding remarks
12.6  Burden-sharing by hybrid and subordinated debt holders
12.6.1  Why are these characteristics relevant?
12.6.2  Has the Commission consistently taken into account these relevant characteristics?
12.6.3  How are these relevant characteristics elaborated in the decisions?
12.6.3.1  Liability management exercise (LME)
12.6.3.2  Write-down
12.6.3.3  Remaining at the bad bank or bank in liquidation
12.6.3.4  Coupon ban
12.6.3.5  Consistent application of the burden-sharing principle?
12.6.4  Impact BRRD
12.6.5  Concluding remarks
12.7  Burden-sharing by senior creditors
12.7.1  A relevant characteristic?
12.7.2  Impact of the 2013 Banking Communication?
12.7.3  Impact BRRD
12.8  Coupon and dividend ban
12.8.1  The modalities of the coupon and dividend ban
12.8.1.1  Duration of the coupon and dividend ban
12.8.1.2  Limitation of the coupon and dividend ban
12.8.1.3  Exceptions to the coupon and dividend ban
12.8.2  Concluding remarks
12.9  Conclusion
12.9.1  Key findings
12.9.2  Implications for the Member States
12.9.3  Implications for the Commission

Chapter 13. Limiting competition distortions
13.1  Introduction
13.1.1  The need for compensatory measures
13.1.2  The relevant context
13.1.3  Structure of this chapter
13.2  Competitive impact: amount of State aid
13.2.1  Why is this a relevant characteristic?
13.2.2  Has the Commission consistently taken into account this relevant characteristic?
13.2.3  How is this relevant characteristic elaborated in the decisions?
13.2.4  Concluding remarks
13.3  Competitive impact: market position of the beneficiary bank
13.3.1  Why are these characteristics relevant?
13.3.2  Has the Commission consistently taken into account these relevant characteristics?
13.3.3  How are these relevant characteristics elaborated in the decisions?
13.3.4  Concluding remarks
13.4  Market-opening measures
13.4.1  Why is this a relevant characteristic?
13.4.2  Has the Commission consistently taken into account this relevant characteristic?
13.4.3  How is this relevant characteristic elaborated in the decisions?
13.4.4  Concluding remarks
13.5  Divestments: creation of a new competitor
13.5.1  Why is this a relevant characteristic?
13.5.2  Has the Commission consistently taken into account this relevant characteristic?
13.5.3  How is this relevant characteristic elaborated in the decisions?
13.5.3.1  Value preservation commitments
13.5.3.2  Purchaser requirements
13.5.3.3  An inconsistency?
13.5.4  Amendments
13.5.5  Concluding remarks
13.6  Downsizing (I): balance sheet reduction
13.6.1  Why is this a relevant characteristic?
13.6.2  Has the Commission consistently taken into account this relevant characteristic?
13.6.3  How is this relevant characteristic elaborated in the decisions?
13.6.3.1  The relevance of the aid intensity
13.6.3.2  The percentage of the balance sheet reduction
13.6.3.3  Limited possibilities for downsizing
13.6.3.4  Divestments needed for viability-reasons
13.6.3.5  Other modalities: timeframe
13.6.4  Concluding remarks
13.7  Downsizing (II): reduction of branches and staff
13.7.1  Why are these characteristics relevant?
13.7.2  Has the Commission consistently taken into account these relevant characteristics?
13.7.3  How are these relevant characteristics elaborated in the decisions?
13.7.4  Concluding remarks
13.8  Growth limitation
13.8.1  Why is this a relevant characteristic?
13.8.2  Has the Commission consistently taken into account this relevant characteristic?
13.8.3  How is this relevant characteristic elaborated in the decisions?
13.8.4  Concluding remarks
13.9  Acquisition ban
13.9.1  Why is this a relevant characteristic?
13.9.2  Has the Commission consistently taken into account this relevant characteristic?
13.9.3  How is this relevant characteristic elaborated in the decisions?
13.9.3.1  Duration of the acquisition ban
13.9.3.2  Scope of the acquisition ban
13.9.3.3  Exemptions to the acquisition ban
13.9.4  Concluding remarks
13.10  Price leadership ban and other pricing restrictions
13.10.1  Why are these characteristics relevant?
13.10.2  Has the Commission consistently taken into account these relevant characteristics?
13.10.3  How is the price leadership ban elaborated in the decisions?
13.10.4  How are the other pricing restrictions elaborated in the decisions?
13.10.5  Concluding remarks
13.11  Ban on aggressive commercial practices/strategies
13.11.1  Inconsistent use of these terms?
13.11.2  A price leadership ban in disguise?
13.11.3  Concluding remarks
13.12  Exit from State aid
13.12.1  Why are these characteristics relevant?
13.12.2  Has the Commission consistently taken into account these relevant characteristics?
13.12.3  How are these relevant characteristics elaborated in the decisions?
13.12.3.1  Reprivatisation
13.12.3.2  Repayment of State aid
13.12.4  Concluding remarks
13.13  Conclusion
13.13.1  Key findings
13.13.2  Implications for the Commission
13.13.3  Implications for the Member States and beneficiary banks

Chapter 14. Conclusion
14.1  The aim of this PhD-study
14.2  Key findings
14.2.1  The relevant context
14.2.2  Inconsistency on the first level
14.2.3  Inconsistency on the second level
14.3  Implications
14.3.1  Interpreting the findings: has the Commission favoured certain banks?
14.3.2  Implications for the Commission
14.3.3  Implications for the Member States and beneficiary banks

Summary
Samenvatting
Annexes
Bibliography
Dankwoord
Curriculum vitae
Portfolio