3 PE 602.084
Box 2: Assessment of capital support to failing banks under State aid rules
State aid which distorts or threatens to distort competition is forbidden by the Treaty. Article 107.1 provides
that “Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources
in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings
or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible
with the internal market.”
However a number of exceptions are listed in the Treaty, including aid measures aimed “to remedy a serious
disturbance in the economy of a Member State” (Article 107.3(b)). On this basis, the Commission has
published a number of communications since the start of the crisis, to explain its assessment of compatible aid
to failing banks. As a general rule, the measure should be appropriate, necessary and proportionate: it shall
address the serious disturbance efficiently, be limited to the minimum amount necessary, and avoid spill-over
effects (2008 Banking Communication).
The Commission later on detailed the specific rules regarding the different forms of support (guarantees,
recapitalisations, and impaired asset measures) as well as its assessment of banks restructuring plans. For the
aid to be limited to the minimum amount necessary, any injection of capital shall ensure a sufficient
remuneration for the State. To that end, the bank shall return to long-term viability, and contribute to the costs
of its own restructuring to the maximum extent: this is the concept of burden sharing, which means that the
costs of a bank rescue should be minimized by the contributions from shareholders, creditors (through
voluntary liability management exercises and a coupon and dividend ban), managers as well as the bank itself
(for instance through the sale of assets and various cost reductions). In additions the beneficiary bank shall
implement measures to limit distortions of competition (divestments, acquisition ban, advertising ban, price
leadership ban). All those measures (return to long term viability, burden sharing, and limitations to distortions
of competition) together with assumptions of the future evolution of the business are submitted to the
Commission in the form of a restructuring plan, which must be approved for the aid to be found compatible
with the internal market.
The 2013 Banking Communication further strengthened this framework, in particular by forcing banks to
submit the restructuring plan before the approval of the measure, by making mandatory the bail-in of
subordinated creditors before any capital be injected into the bank, and by imposing a salary cap to the
management.
A review clause is included in article 32.4 BRRD, whereby “by 31 December 2015, the Commission
shall review whether there is a continuing need for allowing the support measures (...) and the
conditions that should be met (...)”.
Piraeus Bank and National Bank of Greece (2015)
In December 2015 the European Commission approved two precautionary recapitalisations in
Greece, for Piraeus Bank and National Bank of Greece (NBG). Following the sharp deterioration
of the economic environment in Greece in the first half of 2015, and the political gridlock which led
to the imposition of capital controls in June 2015, the Greek authorities and the creditors agreed on a
third economic adjustment programme on 19 August 2015. This programme amounted to
EUR 86 billion and included a further recapitalisation of the four major Greek banks, which had been
impacted by the rise in non-performing loans and significant deposit outflows since January 2015.
The ECB carried out an asset quality review and a stress test in the autumn of 2015, the results of
which were disclosed in November 2015.
The four Greek banks reported capital shortfalls of EUR 4.4 billion in the baseline scenario and
EUR 14.4 billion in the adverse scenario. The Greek Parliament approved the new recapitalisation
law on 31 October 2015, requesting banks to raise private capital through share capital increases,
bond swaps or asset sales. All four large Greek banks managed to raise significant amounts of capital
(see Table 2), and thereby escaped resolution. However National Bank of Greece and Piraeus only
managed to address the baseline scenario through private funds (including the conversion of all
subordinated and senior bondholders).