State aid compliance in the financial sector: a post-crisis framework

State aid rules for banks in distress that were put into place late 2008, after the collapse of Lehman Brothers, has proved to be essential for the rescue and restructuring of operations for European banks from an EU perspective. However, new problems have appeared and we are forced to deal with the new wave of effects on the banking system of a financial crisis that has turned into a sovereign-debt crisis.

The following areas were discussed during the briefing:

1. Traditional approach to troubled banks:

  • Banks subject to same rules as other sectors, i.e. Rescue and Restructuring Guidelines
  • Restructuring aid is to restore long-term viability and is approved based on

2. Response to crisis

  • R&R Guidelines are based on Article 107(3)(c) TFEU
  • In September 2008, the Commission turned to Article 107(3)(b) TFEU
  • First Signs of Phasing-Out in 2010
  • The hope was to end general resort to Article 107(3)(b) TFEU at the end of 2011

3. Banking communication

  • The Banking Communication subjected the authorisation of State aid in the form of guarantee, capital, asset relief or liquidity support for financial institutions to the following essential conditions

4. Recapitalisation communication

  •  Need to balance competition concerns against the objectives of rescuing systemic banks, restoring confidence and maintaining lending.
  • Remuneration for sound banks
  • Remuneration for distressed banks
  • Reporting and possible prolongation after 6 months

5. Impaired asset communication

  • Key issues:

– Transparency

– Burden-sharing

– Eligibility of assets

– Valuation of assets

  • Valid for guarantee (e.g. HSH Nordbank) and purchase models (e.g. NAMA)
  • State aid procedure:

– Commission approval for 6 months

– Within 3 months, viability review or restructuring plan

– Final approval within assessment of restructuring

6. Restructuring communication

  • Key issues:

– Financial stability and internal market

– Long-term viability

– Burden-sharing

– Distortion of competition

7. Questions as the crisis ends

  • State aid as coordination tool
  • State aid control as tool to support viability and financial stability
  • Monitoring and review of schemes
  • Impaired asset transactions ongoing
  • Restructuring decisions being adopted and monitored
  • Phasing-out of schemes

Speaker: Leo Flynn, Legal Service, European Commission

Topic: State aid compliance in the financial sector: a post-crisis framework

Tuesday 22nd May 2012

Joshua

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