Originally published December 9, 2011
Keywords: European Commission, special State aid, State guarantees, restructuring plans
On 6 December 2011, the European Commission published a Communication to extend the application of the special State aid regime for banks that had been adopted during the financial crisis.1 The extension of the crisis framework responds to the need to tackle the continued tensions in the financial markets, now increased by the European sovereign debt crisis. The rules will apply as of 1 January 2012 for as long as required by market conditions.
At the same time, the Commission has taken the opportunity to clarify and update some of the rules relating to this crisis regime, such as pricing and conditions for State recapitulations and for State guarantees, as well as on restructuring plans. These rules shall facilitate the implementation of the banking package agreed by the Heads of State and Government of the EU Member States on 26 October 2011 for the purpose of strengthening the capital of banks and providing guarantees on their liabilities.2
The crisis State aid regime was introduced in the autumn of 2008 after the collapse of the investment bank Lehman Brothers which triggered a financial crisis worldwide.3 The crisis posed an enormous challenge for the EU's State aid regime, which was conceived to ensure a level playing field in the single market. The size and nature of the support required for the banks, the number of the schemes and the complexity of the cases that had to be examined and approved were overwhelming.4
In order to cope with these exceptional circumstances and provide guidance to Member States, the European Commission issued four Communications: the Banking Communication, the Recapitalisation Communication, the Impaired Assets Communication and the Restructuring Communication.5 These special rules were introduced on the basis of Article 107(3)(b) of the Treaty on the functioning of the EU that allows the Commission to approve state support to remedy a "serious disturbance in the economy of a Member State".
The rules have been maintained since then but with adaptations reflecting the market conditions but also the dimension and duration of the crisis. In July 2010, the remuneration of the government guarantees on banks' debt was increased to better reflect the risk profile of the beneficiaries and to avoid excessive dependence on an instrument that represents a high contingent risk for public finances. Then, in December 2010, the regime was again extended for one year.6 The main change here was to require all banks receiving support through either capital injection or an impaired asset relief guarantee to submit a restructuring plan regardless of the size of the support.
The Extension of the Crisis State Aid Rules
In its Communication of 6 December 2011, the Commission extends the application, as of 1st of January 2012, of the special State aid rules to support measures in favour of banks for the sake of financial stability. The Commission recognises that the financial crisis is not over and that the exceptional circumstances for State aid to be approved under Article 107(3)(b) of the Treaty are still met. In fact, the recent tensions in the European sovereign debt markets have put the banking sector under increasing pressure, particularly in terms of access to funding. Moreover, the European Banking...