Table of Contents

1.Introduction

1.1.The State aid rules for banks in difficulty

1.2.Purpose

1.3.Scope of the evaluation

1.4.Data sources used for the evaluation & Methodology

2.What was the expected outcome of the intervention?

2.1.Description of the intervention, its logic and objectives

2.1.1.Notion of State aid and compatibility of State aid with the internal market

2.1.2.The State aid rules for banks in difficulty and their objectives: Intervention Logic

2.2.Points Of Comparison

3.How has the situation evolved over the evaluation period?

3.1.Key Macroeconomic developments and the EU Banking Sector

3.2.Key figures and types of State aid measures

3.3.Case practice of the Commission

3.4.Relevant policy developments: Interaction between State aid control and the CMDI framework

4.Evaluation findings

4.1.To what extent was the intervention successful and why?

4.1.1.Effectiveness

4.1.2.Efficiency

4.1.3.Coherence

4.2.How did the EU intervention make a difference and to whom?

4.3.Is the intervention still relevant?

5.What are the conclusions and lessons learned?

5.1.Conclusions

5.2.Lessons learned

Annex I: Procedural Information

Annex II: Methodology and Analytical Models Used

1.Consultation activities

1.1.Public consultation

1.2.Targeted consultation

2.Expert study

3.Other data sources

4.Limitations and challenges of the evaluation

5.Method of the evaluation

Annex III: Evaluation Matrix

Annex IV: External factors and policy initiatives over the evaluation period

Annex V: Overview of benefits and costs and Table on simplification and burden reduction

Annex VI: Replies and Contributions to the public and targeted consultation

1.Overview of respondents

2.Summary of key messages

2.1.Effectiveness

2.2.Efficiency

2.3.Relevance

2.4.Coherence

2.5.EU added value

2.6.Other

3.Conclusion

Annex VII. Overview of the State aid rules for banks in difficulty subject to the Evaluation

Annex VIII. Relevant Legal Provisions in the TFEU

Annex IX: European Commission case practice on the basis of State aid rules for banks in difficulty

Annex X. Main differences between the Rescue and Restructuring Guidelines for non-financial Firms and the State aid rules for banks in difficulty

Glossary

1.Introduction

This Staff Working Document (“SWD”) summarises the results of the evaluation of the State aid rules for banks in difficulty, launched in March 2022.

1.1.The State aid rules for banks in difficulty

Since the start of the financial crisis in 2008, the Commission has developed a dedicated set of rules for assessing State aid to banks in difficulty. These rules were specifically designed to address the effects of the crisis and avoid knock-on effects from bank failures to the financial sector and the economy in general.

Since 2008, the Commission has revised, updated and expanded these State aid rules several times to take into account the evolution of the financial crisis and lessons learned from their application.

The relevant communications setting out the State aid rules for banks in difficulty are the 2008 Banking Communication (repealed) 1 , the 2009 Recapitalisation Communication 2 , the 2009 Impaired Assets Communication 3 , the 2009 Restructuring Communication 4 , the 2010 Prolongation Communication 5 , the 2011 Prolongation Communication 6 , and the 2013 Banking Communication 7  (see Annex VII).

The current rules are set out in six of the above-mentioned Commission communications 8 , of which the most recent and comprehensive is the 2013 Banking Communication. Since the start of the financial crisis in 2008, the Commission has adopted over 500 State aid decisions concerning banks in difficulty, based on the application of these communications throughout the EU.

1.2.Purpose 

The purpose of this evaluation is to analyse how the State aid rules for banks in difficulty have functioned over time and to what extent they have achieved their objectives. In particular, the evaluation will analyse to what extent the State aid rules for banks in difficulty have preserved financial stability in the EU single market while ensuring a level-playing field by mitigating competition distortions. The evaluation seeks to analyse the effectiveness, efficiency, coherence, relevance, and EU-added value of the State aid rules for banks in difficulty.

The purpose of the evaluation is also to verify to what extent the current rules are still fit for purpose, especially in the context of the current regulatory environment, and whether there is potential to simplify them or improve their interaction with the regulatory framework governing the banking sector.

Since the rules were last revised in 2013, the regulatory environment in which EU banks operate has changed significantly. Enhanced bank regulatory requirements were adopted through the Capital Requirements Regulation (‘CRR’) 9  and the Capital Requirements Directive (‘CRD’) 10 . New EU rules were put in place to manage bank crises, preserve financial stability, and protect depositors: the so-called Crisis Management and Deposit Insurance Framework (‘CMDI framework’). 11  In addition, the first two (of three) pillars of the so-called Banking Union were established: the institutional mechanisms for centralised supervision and resolution of banks (‘SSM’ and ‘SRM’ respectively), providing a single rulebook for banks in euro area countries and in those non-euro area Member States opting in. This new regulatory set-up leads to interactions between the exercise of State aid control and the actions of bank supervisory and resolution authorities.  12

Furthermore, market realities have also evolved. The financial crisis that started in 2008 has abated. At the same time, pockets of vulnerability related to EU banks may remain, while new risks for the EU banking sector have emerged. The COVID-19 pandemic, followed by the Russian aggression against Ukraine, caused a continuous period of upheaval that has impacted the financial services markets. Even though the EU banking sector has managed to withstand the negative economic effects, risks for the sector remain, as illustrated by banking failures in 2022 13 and 2023. 14  Beyond that, new risks arise, such as those stemming from the increased use of information and communication technology (ICT) in the provision of financial services.

In conclusion, given the overhaul of the regulatory framework for banks and the evolution of the market conditions, an evaluation of the State aid rules for banks in difficulty is warranted. This is also in line with the Commission’s commitment in the 2013 Banking Communication to review its State aid rules for banks as deemed appropriate, in particular to cater for changes in market conditions or in the regulatory environment that may affect those rules. In the same vein, an evaluation of the rules was also recommended in the Special Report of the European Court of Auditors on the control of State aid to financial institutions in the EU that was published in October 2020 (the “2020 ECA Special Report”) 15  in view of the changes in the market conditions and the regulatory framework.

Along these lines, the evaluation will inform the Commission about the necessity of a revision of the State aid rules for banks in difficulty and will identify, where relevant, possible areas of improvement that a potential revision of the rules could address.

This SWD reflects the findings and views of the Commission’s staff and does not represent the formal position of the Commission itself. It does not prejudge the final nature or the content of any act or decision by the Commission.

1.3.Scope of the evaluation

All relevant communications setting out the State aid rules for banks in difficulty are within the scope of the evaluation, i.e., the 2008 Banking Communication (repealed), the 2009 Recapitalisation Communication, the 2009 Impaired Asset Communication, the 2009 Restructuring Communication, the 2010 Prolongation Communication, the 2011 Prolongation Communication, and the 2013 Banking Communication 16 .

The evaluation does not cover the following frameworks, which concern aid measures set up by the Member States to support the real economy, even though they were channelled through banks and likely contributed to shielding banks from the negative effects of the sudden economic downturn:

–the 2009 Temporary Framework for State aid measures to support access to finance in the current financial and economic crisis 17 (the “2009 Temporary Framework”, which expired at the end of 2011, following a prolongation Communication 18 ).

–the 2020 Temporary Framework for State aid measures to support the economy in the COVID-19 outbreak, 19  which, following several prolongations, was phased out on 30 June 2022, with some exceptions (the “2020 Temporary Framework”).

–The 2022 Temporary Crisis Framework for State aid measures to support the economy following the aggression against Ukraine by Russia, that, following a number of amendments, was replaced by the Temporary Crisis and Transition Framework for State aid measures to support the economy following the aggression against Ukraine by Russia on 17 March 2023, which was phased out in part on 31 December 2023 (referred to together as the “2022 Temporary Crisis Framework”  20 ).

The timeframe covered by this evaluation is the period from the entry into force of the 2008 Banking Communication up until the present. The main body of analysis and the E.CA study (the “E.CA study” or “the Study”) cover the period until the end of 2022 (as the work on the Study took place in 2023, end of 2022 was the latest full-year data available). However, the report mentions some relevant events that occurred in the course of 2023 (such as the proposal of the CMDI review, the temporary State aid rules for the real economy or the market turmoil in the United States). These events figure in the descriptive part of the report as elements of context.

In terms of geographical scope, the evaluation covers the 27 Member States and the United Kingdom (which was an EU Member State during the largest part of the period covered by the evaluation). 21

Annex III provides more details on the evaluation matrix, including the questions that this evaluation aims at addressing.

1.4.Data sources used for the evaluation & Methodology

The evaluation was launched in March 2022 with the publication of a Call for Evidence, informing citizens and stakeholders about the exercise. It involved a public consultation, a targeted consultation, bilateral meetings with Union and Member States authorities, an expert study prepared by an external contractor 22 and internal analyses by the Commission services.

The public and the targeted consultations were conducted between 17 March 2022 and 15 July 2022. Bilateral meetings with representatives of the Single Supervisory Mechanism of the European Central Bank (“ECB”), the Single Resolution Board (“SRB”) and authorities of several Member States took place between May 2023 and December 2023. These Member States were selected for an in-depth discussion because of their comparatively extensive experience with bank restructuring under the State aid rules for banks in difficulty in the period covered by the evaluation.

The E.CA study was prepared between 24 January 2023 and 24 November 2023 and focused on assessing the application of the State aid rules for banks in difficulty and, in particular, their: (i) impact on financial stability, (ii) impact on competition, (iii) impact on long-term viability of aided banks, (iv) impact on market discipline and moral hazard, and (v) efficiency.

To conduct the Study, a comprehensive data collection effort was undertaken. Proprietary economic and financial data from multiple sources covering European banks in the timeframe covered by this evaluation were combined with information on aid amounts, State aid register details, Commission decisions, and data on the administrative aspects of State aid procedures. Additional macroeconomic information from Member States and the EU complemented the dataset. Applying the statistical method of regression, the experts compared banks that received aid with similar (to the extent possible) non-aided banks. They also investigated how aid impacted the banking sector of a Member State as a whole.

The consultation activities and the Study were complemented by other important data sources, such as available statistical data on the banking industry, data from the Commission’s State aid scoreboard, as well as insights from DG Competition’s case practice and from the recent evaluation of the CMDI framework. 23

Desk research, internal statistics and literature review were also used to gather data. DG Competition used several other publicly available reports and papers as well, such as Commission Staff Working Documents 24 , a 2011 study of the European Parliament 25 , as well as the 2020 ECA Special report 26 . 

Annex I and Annex II provide a detailed explanation of the process and the method of the evaluation.

2.What was the expected outcome of the intervention?

2.1.Description of the intervention, its logic and objectives

2.1.1.Notion of State aid and compatibility of State aid with the internal market

Competition is a major driver of growth. It incentivises enterprises, including new ones, to enter markets and to innovate, improving their productivity and competitiveness in a global context.

State aid control is part of Union rules on competition laid down in the Treaty on the Functioning of the European Union (“TFEU” or the “Treaty”). The basic rationale of State aid control is to avoid undue market distortions and subsidy races, as well as to safeguard the internal market and to create a competitive landscape with a level playing field.

According to Article 107(1) TFEU, State aid is support given by a Member State from State resources that provides an undertaking or a group of undertakings with an advantage over competitors. When exercising State aid control, the Commission must first determine whether a measure constitutes State aid. The Commission has published a notice summarising its case practice and the jurisprudence of the European Courts regarding the notion of State aid. 27

State aid can be granted in a variety of ways, most notably through subsidies or financial instruments (loans, guarantees) granted on terms not available in the market.

While Article 107(1) TFEU lays down a general prohibition of State aid granted by Member States to undertakings, other Treaty provisions allow for several exceptions. Article 107(3) TFEU is of particular relevance for this evaluation; most notably it allows State aid to remedy a serious disturbance in a Member State’s economy (Article 107(3)(b) TFEU) and State aid for the development of an economic activity (Article 107(3)(c) TFEU). State aid control thus does not prevent Member State governments from supporting undertakings. State aid control ensures that any detriment arising from distortions of competition is outweighed by the public purpose pursued with the aid.

The exceptions laid down in Article 107(3) TFEU are discretionary in nature and the Treaty has given the Commission exclusive competence to decide on these exceptions, i.e. on the so-called ‘compatibility’ of State aid with the internal market. In exercising these discretionary powers, when issuing decisions on compatibility, the Commission, in line with the acquis, balances the negative effects of the aid measure on trade and competition in the internal market with its positive effects.

To ensure predictability and legal certainty for Member States and stakeholders on how it applies its margin of discretion in interpreting the compatibility provisions in Article 107(3) TFEU, the Commission adopts rules in the form of ‘soft law’, such as guidelines for particular aid categories with considerations for the sectoral and political context.

As an example, the State aid rules for banks lay down the conditions under which certain types of aid may be compatible with the internal market pursuant to Article 107(3)(b) TFEU, while being subject to the requirement of prior notification under Article 108(3) TFEU.

There is no legal obligation to adopt guidelines. The adoption of such guidelines by the Commission is an instance of the exercise of its discretion. While the guidelines on compatibility set out how the Commission will assess aid measures and allow Member States to grant support under Article 107 TFEU, they do not oblige Member States to grant aid; this remains in their discretion.

Annex VIII provides a non-exhaustive list of the relevant legal provisions in the TFEU.

2.1.2.The State aid rules for banks in difficulty and their objectives: Intervention Logic

The Objectives

The general objective of State aid control, as described in the previous Section, is to safeguard the internal market and create a competitive landscape with a level-playing field so as to support EU economic development and growth. In line with this general objective, the specific objectives of State aid rules for the banking sector – as further detailed below under “the Results” – were to preserve financial stability while minimising competition distortions.

The Needs: Accounting for the special characteristics of the banking sector

Until 2008, the Commission assessed State aid to troubled banks under the general guidelines on State aid for rescuing and restructuring firms in difficulty 28 (as described in Annex X) which applied at the time and therefore according to the same standards as aid to companies in financial difficulty in other economic sectors. However, the start of the financial crisis in 2008 led to difficulties for a large number of European credit institutions, while the exceptional systemic nature of the crisis threatened the sector as a whole.

Due to the magnitude of the crisis and the banking sector’s specific role in the economy (see  Box 1 ), it became evident that State aid to credit institutions could no longer be adequately covered by those general guidelines, which provided limited scope for emergency rescue interventions and did not provide tailored rules for the specificities of the banking sector, which – because of its distinctive nature – is also covered by ample sector-specific regulation and supervision, beyond the scope of State aid rules. A dedicated State aid approach for this sector was then needed to provide a dedicated framework to coordinate aid measures by Member States to swiftly tackle bank failures across the EU. For this reason, starting in 2008, the Commission has developed specific State aid rules for the banking sector. 29  

The inputs: Dedicated State aid rules for banks in difficulty

The Communications setting out the State aid rules for banks were adopted on the basis of Article 107(3)(b) TFEU, which provides that State aid may be compatible with the Treaty where it remedies a serious disturbance in the economy of a Member State. This legal basis was deemed the most appropriate for the situation of an unprecedented global financial crisis, which later translated into a sovereign debt crisis, with those effects lingering in pockets of vulnerability in the years after the crisis.

The Commission developed its guidelines 30  between 2008 and 2013, with the crisis unfolding, to reflect the evolution of the economic environment, as well as the ample experience gained through case practice. Importantly, the Commission gradually moved away from the temporary approval of ‘rescue’ aid, which was particularly used at the outset of the financial crisis, and started requiring ailing banks to demonstrate their long-term viability before it approved a recapitalisation with public resources. Over time, conditions for recapitalisation were tightened further.  

The Communications for the banking sector set out principles, which the Commission consistently applied across all Member States when performing its compatibility assessment informing its decision, while taking into consideration relevant case specificities.

The compatibility criteria set out by the Communications make a distinction between three types of aid:

1) ‘Liquidity aid’ to address temporary liquidity concerns of otherwise solvent entities.

2) ‘Restructuring aid’ to help entities in distress restore their long-term viability and thus support them in preserving their economic activity.

3) ‘Liquidation aid’ to support the orderly market exit 31 of entities in distress for which long-term viability cannot be restored.

In this context, the compatibility assessment criteria set out in these Communications can be grouped under three main ‘pillars’:

The Activities: The Commission’s assessments and decisions on the compatibility of the aid to banks in difficulty

As described in the previous Section, the Commission has exclusive ex ante control power: under Article 108 TFEU, Member States are obliged to notify their intentions to grant State aid and are not allowed to implement the measure before the Commission’s approval. The Commission’s approval takes the form of a Commission decision. Such decisions can be challenged and are subject to scrutiny before the Union Courts. Any aid put into effect in contravention of Article 108(3) TFEU constitutes ‘unlawful aid’. 33  

When assessing the compatibility of the aid, the Commission considers all factual elements related to it, including any possible commitments undertaken by the Member States 34 related to modalities on how the aid would be granted and the beneficiary would consequently act, so as to fulfil the compatibility criteria.

The Outputs: the authorised State aid measures and the Member State’s actions in compliance with the Commission’s decision

Once a measure is approved, the Member State is authorised, on the basis of the Commission decision, to disburse the aid to the beneficiary or beneficiaries. This may be done according to its national administrative setup (at the national or regional level for instance) and depending on the type of the aid measure. Only the Member State is a party to a State aid procedure, the beneficiary is merely considered a third party during the Commission procedure.

The Results: The twin objectives of the State aid rules for banks in difficulty

The objectives of the State aid rules for banks in difficulty are twofold. The rules aim at ensuring financial stability while mitigating distortions of competition between banks and across Member States.

As regards the objective of ensuring financial stability (i.e. a situation without major disturbances in the EU banking sector, in which people can access their bank accounts, financial markets are functioning and banks can continue to provide payment services and lending to the real economy), the rules set out targeted compatibility criteria according to which (i) the temporary funding issues of banks are addressed, (ii) the disorderly failure of fundamentally viable banks is prevented and their long-term viability is restored through in-depth restructuring to the extent necessary, and (iii) the orderly market exit of unviable banks is facilitated. Along these lines, the rules were expected to result in restoring confidence and stability in the banking sector, ensuring inter-bank lending as well as supply of credit to the real economy, limiting the systemic risk of possible disorderly insolvency and avoiding contagion in the banking system and between Member States, and ensuring the long-term viability of the EU banking sector through improved solvency and profitability of credit institutions. Financial stability contributes to increased resilience of the EU banking sector, which in turn is more likely to finance the economy creating growth, including for the benefit of the green and digital transition. Therefore, these objectives best correspond to UN’s Sustainable development goals 8 Decent work and economic growth and 9 Industry, innovation and infrastructure 35 .  

As regards the limitation of competition distortions, the rules set out the principles for appropriate safeguards having regard to the market circumstances of the case and the scale of the State intervention. Thereby, the rules were expected to result in an enhanced level playing field and preservation of fair competition through the limitation of distortions between aided banks and non-aided banks while avoiding fragmentation and market partitioning and creating conditions which foster the development of competitive markets. In this context, the rules also set out principles for limiting the aid to the minimum necessary, inter alia, by requiring appropriate burden-sharing, which were also expected to result in reduced moral hazard, while, incidentally, reducing the burden on taxpayers.

The compatibility criteria, as presented above under "the Inputs”, and the twin objectives are closely interlinked in the intervention logic chain, as the former constitute the pillars for the latter, and are – to a large extent – specific, measurable, achievable, relevant and time-bound (i.e. “SMART”) 36 . 

The Impacts

In terms of overall impact, by reaching their twin objectives by enabling necessary and proportionate support by Member States to the banking sector, the rules were expected, together with other relevant EU policies, to re-establish trust in the EU banking sector, contributing to an economic climate conducive to investment, consumer welfare and growth.

The External Factors

The ability of the State aid rules to reach their objectives (results and impacts) is also dependent on a number of external factors, which include notably the EU and the global macro-economic conditions, the regulatory framework applicable to the banking sector and the other policy initiatives having an effect on the banking sector. All these elements are described in detail in Sections 3.1 , 3.4  and 4.1.1.1 .

Table 1: The Intervention Logic

2.2.Points Of Comparison

An evaluation needs an appropriate point of comparison to be able to assess the change that the EU action has brought forth over time. In general, the main baseline (or counterfactual) is a situation without the EU intervention.

In the context of this evaluation, the EU intervention is the adoption and application of the State aid rules for banks in difficulty, which started with the entry into force of the 2008 Banking Communication and evolved over time. Therefore, the baseline scenario is one in which the Rescue and Restructuring Guidelines for non-financial firms, 37 which were the rules in place at the time, would have continued to apply as they were.

The current evaluation does not assess the scenario where the rules in force prior to the 2008 Banking Communication would have simply been abolished or expired without having been replaced. Since the Rescue and Restructuring Guidelines constitute a long-standing instrument that has been enhancing legal certainty for Member States and market actors in the situations covered by their scope, this scenario is unlikely. In any event, the consequence of the absence of dedicated substantive rules would have been the direct application of the TFEU, i.e. the notification of each and every measure constituting State aid in the meaning of Article 107(1) TFEU and its compatibility assessment by the Commission directly under the TFEU, without any substantive guidance provided to Member States by relevant soft law. The absence of State aid control as such is excluded, as the general prohibition of State aid is enshrined in the Treaty since 1957.

Given the specificities of the banking sector (as summarised in Box 1) and the differences between the Rescue and Restructuring guidelines for non-financial firms and the State aid rules for banks in difficulty (see Annex X), under the counterfactual scenario, Member States would not have been able to provide compatible aid, with swift timing, the design of aid instruments tailored for the sector, and related commitments, as was possible under the dedicated rules under evaluation.

Although this constitutes the main baseline scenario, the Sections below present various other points of reference depending on the specific assessment. For example, Section 4.1.1 assesses the effectiveness of the intervention with respect to, among others, the aimed results/objectives. Section 4.1.2 assesses the efficiency of the intervention in comparison with, among others, other geographical areas and different legal frameworks. Sections  4.1.3  and 4.3  take into account how the context evolved over time to assess whether the intervention is still consistent and relevant, e.g. in light of the main policy developments and changing economic and legal environments, in particular the introduction of the CMDI framework, which is currently under review.

3.How has the situation evolved over the evaluation period?

3.1.Key Macroeconomic developments and the EU Banking Sector

In terms of macroeconomic developments, the European banking sector faced a sequence of shocks, notably in the wake of the financial crisis of 2008, which propagated itself through the European financial sector, with a substantial impact on the real economy. More recently, the COVID-19 pandemic, the Russian military aggression against Ukraine and the normalisation of the previously extraordinarily accommodating monetary policy across the Atlantic also created pressure for the banking sector at large.

Annex IV provides additional details on the main macro-economic events and policy responses for the period under evaluation, including the EU strengthening of the regulatory and institutional banking framework, e.g. through the setup of the bank supervisory and resolution frameworks and the enhancement of the bank regulatory requirements. Among those policy initiatives, Section 3.4 focuses on the CMDI and its interaction with the State aid rules.

The global financial crisis and the euro sovereign debt crisis

In the first phase of the crisis, namely the global financial crisis, financial institutions faced acute liquidity shortage, as uncertainties around their exposures to U.S. subprime assets increased. Following the collapse of a major U.S. bank (Lehman Brothers) in September 2008, the crisis revealed contagious solvency problems related to a significant number of institutions holding poorly performing assets. This included, among others, some Irish banks. In the second phase of the crisis, namely the euro area sovereign debt crisis of 2010-2012, the banking sectors of Greece, Portugal, Spain, and Cyprus in particular (in addition to Ireland) came under significant pressure.

From a macroeconomic standpoint (see  Figure 1 ), the financial crisis of 2008 prompted a substantial economic downturn, with the global economy experiencing its deepest and most widespread recession in the post-war era. In 2009, within the EU, GDP and investments fell by 4.3% and 11.3% respectively and imports and exports sharply decreased. Although to a lesser extent, the euro area sovereign debt crisis also weighed on the EU economy, which registered a GDP and investment decline of respectively 0.7% and 2.8% in 2012.

Figure 1: EU macroeconomic indicators (2007-2022, chain linked volumes, percentage change from previous period)

Source: Eurostat. The United Kingdom not included.

The COVID-19 pandemic, the Russian military aggression against Ukraine and the latest developments

The COVID-19 pandemic was recognised as a major shock to the global and EU economies. The need to mitigate those negative repercussions on the EU economy was recognised as well. From a macroeconomic point of view, the COVID-19-related crisis generated a severe recession in the EU, with a GDP decline of 5.6% in 2020. In this context, the Commission adopted, on 19 March 2020, the Temporary Framework, amended several times afterwards. 38  

On 24 February 2022, Russia launched an unprovoked and unjustified military aggression against Ukraine. The EU and international partners immediately reacted to the serious violation of the territorial integrity, sovereignty, and independence of Ukraine by imposing restrictive measures (for example, sanctions) against Russia and Belarus 39 . As a result, on 23 March 2022, the Commission adopted a Temporary Crisis Framework to enable Member States to use the flexibility foreseen under State aid rules to support the economy in the context of Russia's military aggression against Ukraine 40 .

Under the 2020 Temporary Framework adopted following the outbreak of COVID-19, the aggregate aid element provided by all EU27 Member States in 2021 amounted to EUR 190.65 billion. By the end of 2022, out of nearly EUR 672 billion of aid approved during that period under the 2022 Temporary Crisis Framework adopted following Russia’s war of aggression against Ukraine or directly under the Treaty, EUR 93.52 billion was granted to non-financial corporations. Although State aid measures under both the 2020 Temporary Framework and the 2022 Temporary Crisis Framework were not granted to banks but channelled through the banking sector with a view to benefit the real economy, such measures may have prevented a deterioration of banks’ balance sheets, notably by contributing to shielding them from an increase in non-performing loans. 41

Most recently, in March 2023, the failure of three medium-sized banks in the United States – Silicon Valley Bank, Signature Bank and later First Republic – as well as the takeover of Credit Suisse in Switzerland by UBS, led to broader market concerns over the resilience of banks, amid the context of the increasing interest rates, in relation to their exposure to long-term fixed income securities, the cost and stability of deposit funding, as well as their risk management practices. 42 However, EU banks have remained unaffected by these shocks so far, in part due to the unparalleled reforms put in place in the aftermath of the financial crisis, as mentioned above. 43  This turbulence seen in spring 2023 has in the meantime abated, although risks to financial stability remain. 44

The structure of the EU banking sector today

Against this backdrop, from a structural standpoint, the number of EU credit institutions declined from 8 525 in 2008 to 5 076 in 2022 45 . In terms of profitability, banks’ average Return on Equity rebounded from the lowest level of -2.8% in 2008 (and 0.5% in 2012 in the context of the sovereign-debt crisis) to 4.0% in 2022. Currently, the size of the banking sector, when measured in total assets, is the largest in France, followed by Germany, Italy, Spain, and the Netherlands (see  Figure 2 ).

Figure 2:

3.2.Key figures and types of State aid measures

As set out in Section 2.1 , the State aid rules for banks in difficulty make a distinction between three types of aid based on their aim: (i) liquidity aid, (ii) restructuring aid, and (iii) liquidation aid. Based on the type of involved instruments, aid can instead be classified as liquidity or capital support 47 . Liquidity support encompasses (i) State guarantees on liabilities, and (ii) direct lending by the State or other types of liquidity support. Capital support can take the form of (iii) equity or hybrid capital instruments (e.g. preference shares, contingent convertible bonds) and (iv) impaired asset measures 48 .

From 2008 to 2022, the State aid for banks in difficulty approved by the European Commission amounted to EUR 6 811 billion 49 , of which EUR 2 904 billion 50 , or 42.6%, was granted by Member States to banks. The remaining aid was authorised by the European Commission but never used by the Member States. When looking at the aid instruments, the bulk of the approved aid (78%) was for liquidity purposes, in the form of commitments by the State mostly to guarantee banks’ liabilities, while the remaining aid (22%) was committed for capital purposes, in the form of direct equity injections or impaired asset relief measures (see left graph in Figure 3 ). In terms of used aid, the picture is more balanced with liquidity and capital instruments each accounting for roughly half of the aid (see right graph in Figure 3 ). Accordingly, the ratio between used and approved aid is much lower for liquidity instruments (30%) than for capital instruments (90%). These results are in line with the instruments’ features and the logic of the related interventions. 51 In particular, Member States have typically announced commitments to guarantee bank debt as a first response in moments of extraordinary market stress, with the aim of enabling the banks to cover their liquidity needs. Such commitments were sufficient by themselves to calm down market stress in a number of cases, hence reducing liquidity outflows and actual liquidity needs.

Figure 3:

The highest amounts of State aid were approved at the outset of the financial crisis in 2008, for a nominal amount of EUR 3 457.5 billion, representing 26.4% of EU GDP and half of the total amount of authorised aid in the period under review. After a subsequent significant decline, the State support authorised by the Commission increased at moderate levels in 2012 (EUR 621.5 billion) in the context of the euro area sovereign debt crisis, and in 2016 and 2017 (EUR 319.2 billion and EUR 368.4 billion respectively) against the backdrop of persisting pockets of vulnerability in some Member States as well as legacy issues ( Figure 4 ).

Figure 4: State aid approved by type of aid (EUR, billion), 2008-2022

Source: European Commission

In terms of overall used amounts of aid by Member States, after a sharp increase following the beginning of the financial crisis, the highest levels were reached in 2009 and 2010 (EUR 1 042 billion per year or 8% of EU GDP). The vast majority of this increase was driven by the liability support through guarantees, the amount of which has constantly declined since then. The other types of financial instruments also underwent a gradual decline over the years, with the notable exception of recapitalisations, which recorded a sizeable rebound at EUR 112 billion in 2012 in the midst of the euro area sovereign debt crisis. ( Figure 5 ).

Figure 5: State aid used by type of aid (EUR, billion)

Source: European Commission.

Notes: For guarantees and other liquidity measures, the amounts represent outstanding aid in a given year (in nominal amount) and not only the new liquidity aid granted in that year.

Over the period under review, the Member States for which the largest amounts of State aid were authorised were the United Kingdom (EUR 767,1 billion), followed by Germany (EUR 654,6 billion), Ireland (EUR 569,6 billion), Spain (EUR 544,2 billion), and France (EUR 362,3 billion). 52  These Member States are among the ones with the largest banking sectors in the EU (see  Figure 2 ) 53 . Significant amounts of State aid were also authorised in Member States such as Belgium, the Netherlands, Italy, and Greece, whereas State aid in other Member States was more limited, with no or marginal aid being authorised in Czechia, Estonia, Croatia, Malta, Romania, Bulgaria, Slovakia, and Finland.

In terms of types of aid, the largest amounts of recapitalisation and impaired asset measures (left graph of Figure 6 ) were authorised in the United Kingdom (EUR 360 billion), Spain (EUR 314 billion), Germany (EUR 197 billion), and Ireland (EUR 153 billion). With the UK banks making barely any use of the impaired asset measures because of the concurrent use of direct recapitalisations, the main providers of impaired asset measures were Germany, mainly in the form of asset protection for dedicated bad banks, as well as Ireland and Spain in the form of centralised AMCs 54 . With regard to guarantees on bank debt and direct liquidity provision (right graph of Figure 6 ), the largest amounts were authorised at the outbreak of the crisis in Denmark (EUR 580 billion), Germany (EUR 448 billion), Ireland (376 billion), and the UK (EUR 364 billion). However, Danish banks made only very minor use of them, making Irish, UK and German banks the main beneficiaries of guarantees on their liabilities.

Figure 6:

Source: European Commission

In the first phase of the financial crisis, the most significant amounts of State aid were used in Germany and Ireland, followed by France and Belgium, whereas at the height of the euro area sovereign debt crisis (2011 and 2012), Ireland, Spain, and Greece recorded the highest levels (see  Figure 7 ).

Figure 7: State aid used by a selection of Member States (EUR, billion)

Source: European Commission

Notes: For guarantees and other liquidity measures, the amounts represent outstanding aid in a given year (in nominal amount) and not only the new liquidity aid granted in that year.

3.3.Case practice of the Commission

Member States can grant State aid either in the form of a ‘scheme’ or as ‘individual aid’. An aid scheme is a measure which defines beneficiaries in a general and abstract manner and gives the authorities in charge of applying that scheme no margin of discretion in its application. 55 On the contrary, individual aid means (i) aid that is either not awarded on the basis of an aid scheme or (ii) notifiable individual awards on the basis of an aid scheme. 56  

Over the period under review, the Commission adopted 730 decisions relating to aid to the banking sector, either in the form of schemes or of ad hoc support to individual institutions. Individual aid decisions represented 55% (or 403) of the overall decisions and were related, on average, to much larger institutions than  scheme aided institutions. Whereas, from 2008 to 2010, the number of decisions on aid schemes was only slightly lower than that of individual aid decisions, its share in the total number of decisions declined in later years (see  Figure 8 ). As a general rule, aid schemes were used to address non-bank-specific, usually sector-wide problematic issues (such as liquidity shortage), while individual aid decisions were targeted solutions addressing bank specific situations.

Figure 8:

Source: European Commission

When considering the number of beneficiary banks over the period under review 57 , 444 credit institutions received public support under an aid scheme and 122 in the form of an individual support. Out of the 444 scheme-aided banks, 90% used liquidity aid only. Of the individually aided banks, 85% used capital support, with a large part receiving liquidity aid on top of the capital support (57%). The use of liquidity aid without capital support was more limited (15%). Notably, 93 individually aided institutions received restructuring aid and 22 institutions received liquidation aid. See Annex IX for some examples of individual cases and schemes.

From a case practice standpoint, the Commission considered liquidity measures as the least distortive instruments for competition, due to their temporary nature and because liquidity is generally authorised for banks that are fundamentally sound. For this reason, the Commission’s compatibility assessment of liquidity measures remained relatively light. Only limited measures to mitigate competition distortions were required and there was no need to submit a restructuring plan ex ante or to implement burden-sharing. In contrast, restructuring aid was generally considered to be the most distortive type of aid. Therefore, a strict compatibility assessment was required, with dedicated measures to mitigate the severe competition distortions stemming from the aid and to protect non-aided competitors. As regards liquidation aid, market exit was realised through the sale of parts of the liquidated bank to and integration into a competitor as an alternative to a wind-down (i.e., “sale-or-wind-down decisions”).

Out of the adopted Commission State aid decisions over the period under review, 36% included structural measures, 33% quasi-structural measures, 40% behavioural measures and 1% market opening measures. (See Box 3).

3.4.Relevant policy developments: Interaction between State aid control and the CMDI framework

Since the State aid rules for banks in difficulty were last revised in 2013, the regulatory environment in which EU banks operate has changed significantly, notably with the adoption of the Bank Recovery and Resolution Directive (BRRD) 58 , the Single Resolution Mechanism Regulation (SRMR) 59 , and the Deposit Guarantee Scheme Directive (DGSD) 60 , together referred to as the CMDI framework. This brought about a new regulatory and institutional setting, with new powers for bank supervisors and the creation of national resolution authorities. For Member States participating in the Banking Union, the Single Supervisory Mechanism and the Single Resolution Mechanism were set up, with the adoption of the Single Supervisory Mechanism Regulation (SSMR) 61 and the SRMR, introducing institutional mechanisms for centralised supervision and resolution of banks, respectively consisting of the European Central Bank (ECB) and national supervisors, and of the Single Resolution Board (SRB) and national resolution authorities.

Since 2015, the CMDI framework and the State aid rules for banks in difficulty have applied in parallel, each referring to each other but following their own underlying logic. 62 Thus, while pursuing their twin objective to preserve financial stability and mitigate competition distortions, the State aid rules for banks in difficulty no longer constitute the main framework for coordinated action in support of the banking sector that allows for ensuring financial stability.

In fact, the CMDI framework aims at protecting financial stability, depositors, and taxpayers, while limiting recourse to State aid (albeit without precluding it entirely) to support the banking sector, by enabling authorities to handle bank crises through the use of industry-funded safety nets, such as the Single Resolution Fund (SRF) in the Banking Union, 63  national resolution funds outside the Banking Union and financing means of national deposit guarantee schemes (DGSs). Along these lines, the introduction of the CMDI framework has provided new tools for the regulatory treatment of failing banks. The BRRD and SRMR set out the circumstances in which the competent supervisory (or resolution) authority will determine a bank as “failing or likely to fail” (FOLF) and then resolve the bank if this is assessed to be in the public interest (positive public interest assessment, PIA) or allow it to be liquidated in accordance with national insolvency laws if the resolution is not assessed to be in the public interest (negative PIA). In resolution, before the resolution funds (also called Fund aid in cases involving the use of the SRF) can be accessed, shareholders and creditors should effectively support losses (through the so called “bail-in”). The framework further establishes a number of resolution tools for the authorities to deal with banks in resolution. 64

To enable the resolvability of banks, Member States have set resolution strategies and a minimum requirement for own funds and eligible liabilities (MREL) 65 to be met by 1 January 2024. The very large majority of banks under the remit of the SRB has met the MREL final targets 66 , with the SRF being in place to support resolution should this become necessary. 67 In addition, the SRB, together with the national resolution authorities, has by now developed resolution plans for the major EU banks.

This new regulatory environment has led to interactions and interdependencies between bank supervision, bank resolution and State aid control, as further assessed in Section 4.1.3 . Such interactions arise when State aid (whatever its form) 68 or Fund aid 69  is provided to banks as both State aid rules and bank prudential rules and the CMDI framework apply in parallel. The CMDI framework mentions the following possibilities for external support to banks before and during resolution as well as in national insolvency proceedings, all of which may fall under State aid control: (i) precautionary State budget support to solvent banks, (ii) measures to prevent the failure of a bank by a DGS, (iii) resolution funding from the (Single) Resolution Fund, a DGS or (as a last resort) a Member State (government financial stabilisation tools) or (iv) DGS measures to preserve access to deposits in national insolvency proceedings after a public interest for the resolution of bank has been denied. In that period after a negative public interest assessment, also (v) State aid from national budgets is possible, subject to national insolvency rules and the State aid rules for banks but without further provisions in the current CMDI framework. 70

Table 2: Correspondence between BRRD/SRMR/DGSD regulatory scenarios and State aid typology

Drawing on practical experience on its application so far, the CMDI framework is currently subject to revision, the outcome of which will further impact its interaction with State aid control. Notably, in April 2023, the Commission has proposed a reform to the CMDI framework 75 , aiming at facilitating the application of the resolution tools for failing smaller and medium-sized banks, including through the use of DGS funds in the financing of the tools, when necessary to safeguard financial stability and protect taxpayers and depositors. The reform is currently negotiated by the co-legislators who will decide on its ultimate shape.

4.Evaluation findings

4.1.To what extent was the intervention successful and why?

4.1.1.Effectiveness

This Section evaluates the extent to which the State aid rules for banks in difficulty have achieved their objectives. As described in the “intervention logic”, presented in Section  2.1 , the first objective of these rules has been to ensure financial stability, namely a situation without major disturbances in the EU banking sector, in which people can access their bank accounts and deposits without interruption, and banks can continue to provide payment services and lending to the real economy. The second objective of these rules has been to preserve a level-playing field by mitigating competition distortions that may result from State aid, both between banks and across Member States. Those twin objectives are interlinked and must be seen alongside the general objective of State aid control to safeguard the internal market and support a competitive landscape with a level-playing field.

As further presented in Section 2.1, to achieve these twin objectives, three main ‘pillars’ of compatibility assessment criteria are set by the State aid rules for banks in difficulty:

In accordance with this logic, this Section first assesses the overall impact of State aid - in the forms and amounts approved under State aid rules - on financial stability, taking into account external factors and other EU policies (as summarised in Annex IV). It then assesses how each individual compatibility criterion performed in achieving the overarching twin objectives.

As set out in detail below, the evaluation suggests that the State aid rules for banks in difficulty have largely met their twin objectives of preserving financial stability while mitigating competition distortions, and hence were largely effective as a State aid framework.

4.1.1.1.Preserving financial stability: overall impact on financial stability and the real economy

Over the period under review, the financial system faced a series of shocks, as highlighted in Section 1.1  and further summarised in Annex IV. The adverse effects of such shocks on the banking sector and, more broadly, the financial system, can be illustrated by well-established financial instability indicators 76 , such as SRISK, which measures banks’ contribution to systemic risk and financial market distress 77 .  Figure 9 shows that systemic risks increased and remained at high levels until 2012/13, i.e. in the midst of the global financial crisis and the euro sovereign debt crisis 78 , before starting to decrease until 2019, when the risks moderately increased again and stabilised amidst the COVID-19 pandemic and the Russian military aggression against Ukraine. Furthermore, as described in Section  3.2 , most of State aid was deployed until 2010/11, with the outstanding amount gradually and constantly decreasing up to the present date. 

Figure 9: Banks’ contribution to systemic risk (SRISK) and stock of State aid at EU level

Source: E.CA and partners based on MS database.
Note: The left-hand side vertical axis is in percentages. The right-hand side vertical axis is in billion EUR.

With the aim of assessing the impact of State aid on financial stability in the short run, E.CA included a market event study focusing on major banks’ Credit Default Swaps 79 (CDS) spread changes. In this context, CDS spreads were used as a proxy of the way market participants perceived the fact that a bank receives State aid. More specifically, the chosen approach aimed at assessing whether the public support authorized by the Commission decisions is perceived by the market as decreasing the risk of default of beneficiary banks.

The E.CA study suggests that market participants have reacted positively to the interventions related to EU significant banks 80 as they have acknowledged a lower risk of default of the banks concerned within the 60-day window around the announcement of individual State aid decisions. In this respect, the markets’ perceived risks of default of significant banks tend to decrease following the adoption of the State aid decisions, as reflected by a 20 basis points decline, on average, of banks’ CDS spreads in the 30 days following the adoption of the Commission decisions. 

The 2011 Commission Staff Working Paper 81 reached a similar conclusion. The E.CA study results are also consistent with a study of the Bank of International Settlements (BIS) (2009) 82 which has emphasized the strong link between the announcement and use of a State aid measure (either through guarantees, recapitalisation or impaired asset measures) and the decrease in the CDS spreads of banks in the concerned Member States over the following days. The BIS study also concludes that “government interventions [have] been effective in reducing banks' default risk, at least over a short time horizon”. 

When distinguishing between types of State aid measures, the E.CA study shows that capital support, namely recapitalisations and impaired asset measures, seems to have a more positive effect on financial stability than liquidity support, as it is associated with a quicker decrease of financial market distress 83 . These findings are in line with previous studies, which found that most of the benefits of State aid for financial stability pertain to capital-like interventions, and are also significant in the long run. 84  

The E.CA study further looked at a series of indicators to explore a correlation between State aid and the overall improvement in financial stability, finding evidence of a negative and lagged link of State aid and financial instability 85 , but it also recognised that accurately measuring the contribution of State aid to financial stability, especially in the long term, faces methodological limitations. Notably, changes in system-wide financial instability can be caused by factors that can be endogenous and sometimes unobservable. 86  The assessment of the compatibility criteria, as presented in Sections  4.1.1.2  -  4.1.1.4 , 87 provides further contribution to the assessment of the impact of State aid rules to financial stability. In fact, this evaluation assesses the effectiveness of EU State aid rules, as opposed to evaluating the use of State aid by disbursing Member States as one type of policy response to the financial crisis. This Section therefore looks at the role of State aid as a contributing factor to financial stability to the extent that it is relevant for the scope of this evaluation.

Against the background of the limitations of the statistical assessment as well as of the scope of the evaluation, before venturing into the assessment of the compatibility pillars, this Section presents a plausible interpretation of the long-term role of State aid based on available evidence. In particular, the observation of the main events in the period under evaluation (as also summarised on Annex IV) suggests that State aid played a crucial role in restoring market confidence in the period of the most acute stress, i.e., 2007-2013, encompassing the global financial crisis and the sovereign debt crisis. The role of State aid became more subdued but still relevant in the following years when financial stress gradually abated and major policy initiatives were put in place. This interpretation is consistent with the findings above, including the lagged relationship between State aid and financial stability and the decoupling between aid stock and financial instability after 2013, as shown by Figure 9 . It is supported by the economic literature and the findings of the stakeholders’ consultation, as further discussed below.

While it is not possible to design an accurate counterfactual to assess what would have happened if State aid could not have been (swiftly and orderly) deployed in EU Member States, 88 it is possible to note that the “unaided” default of some non-EU financial institutions in 2008 triggered an increase of risk aversion, fostering worldwide contagion. This was notably the case as regards the failure of the globally connected U.S. investment bank Lehman Brothers in September 2008, which constituted the climax of the global financial crisis. 89 Albeit to a minor extent, one can also refer to the collapse of the 3 main Icelandic banks (Kaupthing, Landsbanki and Glitnir), which experienced serious difficulties in October 2008 on the back of excessively leveraged activities and – due to their combined size of nearly ten times the country’s GDP – could receive public support almost exclusively for domestic covered deposits, having to then liquidate their foreign activities at significant losses, e.g. for UK depositors. 90 Amid this context, banks became more and more reluctant to lend to each other, as also shown at that time by the increase in the spread between the (unsecured) 3-month euro interbank offered rate (Euribor) and the (secured) 3-month euro overnight index average (EONIA) swap rate. In this context, some banks lost market access, risking an immediate default on that basis. State aid to banks aims at fostering financial stability exactly by avoiding disorderly liquidations, absent other tools to provide equivalent results.

Between October 2008 and December 2009, 18 EU Member States provided aid to banks, in particular as support to access liquidity (see Section 3.2 ). Such interventions, combined with the easier liquidity provision by the ECB 91 , were overall successful in addressing the most urgent issues of the sector on aggregate, as shown by the gradual normalisation of the 3-month Euribor-EONIA spread. 92  However, the Member States’ ability to support a more fundamental bank balance sheet repair hinged on their relative fiscal capacity. Amid this context, 5 Member States (Ireland, Greece, Portugal, Spain, Cyprus) had to request external financial assistance 93 to deal – in the context of the globally impaired markets’ confidence and great recession – with the consequences of the bursting of serious macroeconomic imbalances 94 . This took a toll on these countries’ economy as well as on their interlinked sovereign and banks, facing very impaired (if any) market access 95 . All these five countries, which – except Ireland – were not among the five largest initial grantors of aid to banks (in proportion to their GDP) 96 , had to continue providing aid, in 2011-13 (see Section 3.2 ), under the umbrella of the adjustment programmes to enable the restructuring of the banking sector by facilitating the exit of unviable players and equipping the viable ones with sufficient capital 97  to continue adjusting their balance sheets. This process helped restore confidence in these Member States’ banking sector, which gradually regained market access 98 . Based on this, it could be said that State aid was instrumental in stabilising EU financial markets in the midst of the crisis, in combination with the monetary policy and the external financial support to countries for which the threats to financial stability were more deeply rooted in their economy.

As the emergency gradually phased out, further major EU and multilateral policy initiatives were adopted from 2013 onwards, laying the basis of a more structural solution to the lessons learnt from the financial crisis, with notably the adoption of enhanced bank regulatory requirements reflecting the Basel III principles 99 , and the set-up of single bank supervisory and resolution frameworks. 100 State aid rules themselves were adjusted to embed the principles emerging from the discussion on these parallel policy initiatives, e.g. with the introduction of the explicit requirement of burden-sharing of subordinated debt under restructuring and liquidation since 2013. While some Member States 101 had yet to disburse some residual aid to deal with the pockets of vulnerability from the crisis, the combination of the policy initiatives mentioned above was associated with further improvements in financial stability in 2014-19, as shown by the SRISK indicator in  Figure 9 . The improved resilience of the EU banking system has been shown in 2020-23, amidst the tensions due to the COVID-19 pandemic, the Russian aggression against Ukraine and the stress in the U.S. and Swiss banking markets. In fact, any rising issue has been dealt with in a timely manner 102 , without tensions spreading across the European banking sector, as also shown by the SRISK indicator that moderately increased but broadly stabilised. In conclusion, the combination of all EU policy initiatives, including the adoption of the enhanced capital requirements and the CMDI framework, eventually ensured that threats to financial stability were effectively addressed, and the EU was well equipped to face upcoming shocks.

Against the background of significant improvement in financial stability and resilience of the banking sector, moments of sporadic increases in the stress related to the banking sector of EU Member States could still be observed through the years under evaluation. Notably, as mentioned by some public authorities, these moments mostly corresponded to the occasions when losses were suffered by unsecured depositors, because aid or alternative means were not available to absorb the bank losses. 103 This was the case of the bail-in of uninsured depositors and senior bond holders of the two main Cypriot banks in 2013, resulting in a short-term need to impose temporary capital controls, with spillovers in Greece and Romania, and in long-standing “flight to cash” in the country 104 . To a lesser extent, it was also the case in the resolution of some Polish cooperative banks in 2020. 105  However, as noticed by other public authorities, not all the cases of bail-in of unsecured depositors fed financial stress, as demonstrated by the failure of the Danish cooperative banks JAK Slagelse in October 2015 and Københavns Andelskasse in September 2018, where a minor write-down was applied to unsecured depositors, while ensuring uninterrupted access to the bank’s deposits and critical functions. 

As regards the impact of State aid measures on the real economy through their positive impact on financial stability, the E.CA study shows overall positive, albeit limited, effects. These are reflected by the slight decrease of the cost of banks’ lending to non-financial corporations and of the EU Member States’ 10-year sovereign bonds yields. The lack of fully conclusive results regarding the impact of State aid measures on the real economy is consistent with the findings of past studies (as presented in the subsequent developments on economic literature) suggesting the difficulties to delineate such an impact, given numerous effects at play.

From a descriptive analysis standpoint, Figure 10 shows the development of the supply conditions of euro area banks’ loans to non-financial corporations (NFC) over the period under review, based on the ECB Bank Lending Survey 106 . A worsening of banks’ loans supply conditions to NFC (e.g. by rendering more difficult/expensive for NFC to obtain bank loans) is illustrated by the increase of the net percentage of banks reporting a tightening of their credit standards. This has been witnessed in particular during the global financial crisis, the euro area sovereign debt crisis, the outbreak of the COVID-19 crisis and the Russian aggression against Ukraine.

Figure 10: Supply conditions of banks’ loans to non-financial corporations (NFC) and amounts of State aid used in the euro area

Source: ECB Bank Lending Survey, Commission services
Note: Credit Standards to NFC have a time horizon of three months forward-looking indicator and are calculated as a weighted net percentage (tightened minus eased or reverse) based on the share of each country in the total loan outstanding amounts of the area aggregate. The figure shows the net percentages of banks reporting a tightening of credit standards (lhs). The figure does not include the aid granted under the 2020 Temporary Framework and the 2022 Temporary Crisis Framework. Although the State aid measures under these frameworks were not granted to banks but channelled through the banking sector with a view to benefitting the real economy, such measures may have prevented a deterioration of banks’ balance-sheets notably by contributing to shielding them from an increase in their non-performing loans. In addition, they may have mitigated the tightening of loan supply conditions to NFC.

More specifically, in terms of contributing factors behind these trends, the ECB bank lending survey points out that euro area banks’ net tightening of credit conditions (making it more difficult/expensive for NFC to obtain bank loans) in the third quarter of 2008 was due to the expectations regarding future economic activity and the industry or firm-specific outlook. At the same time, the impact of banks’ funding costs and balance sheet constraints also contributed to the net tightening, particularly banks’ ability to access market financing. Differently, in the third quarter of 2009, the ECB lending survey underlines that some of the supply-side factors, namely banks’ access to market financing and banks’ liquidity position, supported an easing of credit standards for loans to enterprises. The reversal of this positive trend in the third quarter of 2011 should be seen, according to the ECB, against the background of a re-intensification of the sovereign debt crisis that undermined the perceived soundness of euro area banks. Survey results also indicate that constraints on banks’ liquidity management and the deterioration of funding conditions were key factors behind the rebound in the net tightening of credit standards. It was also partly due to a deterioration in both the general and the industry-specific economic outlook, in line with the weaker economic conditions expected for the euro area in the second half of 2011. According to the April 2012 bank lending survey, the net tightening of credit standards by euro area banks declined substantially in the first quarter of 2012, both for loans to NFC and for loans to households. This drop mainly reflected milder pressures from cost of funds and balance sheet constraints, in particular as regards banks’ access to funding and their liquidity position. In terms of financial institutions’ net lending to the total economy in the euro area, expressed in volumes, Figure 11  shows that the most important negative trends were also registered during the first years of the financial crisis starting in 2008, with some rebounds in 2009 and 2011.

Figure 11: Lending to the total economy in the euro area by financial institutions (million, EUR)

Source: ECB data, Commission services
Note: Lending flows correspond to the Net lending (positive territory) / net borrowing (negative territory)

As regards the access to finance of companies, some discrepancies remained depending on the size of the companies, as shown by Figure 11. Hence, from 2009 until 2014, while the changes in the availability of financing through bank loans became punctually positive for large euro area companies in 2010, 2011 and 2013, euro area small and medium size enterprises (SMEs) continued to face negative trends (although subdued) during these years as well as the whole period. The more difficult access to banks’ lending by SMEs can be attributed to the intrinsic higher riskiness of such companies, which is taken into account by banks’ risk management and lending procedures as well as the applicable regulatory requirements. Furthermore, the credit squeeze for SMEs was accentuated by the lack of alternative financing mechanisms, contrary to larger companies, which shifted as early as 2009 to bonds issuances to find substitution funds.

More specifically, following the outbreak of the global financial crisis, the ECB lending survey for the third quarter of 2008 points out that for both large enterprises and SMEs, the expectations regarding general economic activity and the industry or firm-specific outlook were the most important factors in the tightening of credit standards. At the same time, banks’ funding costs and balance sheet constraints were more important for large firms than for SMEs, which is likely to be related to the greater importance of market-based bank funding for loans to large firms. In the following years and until 2013, the reports on the joint European Commission/ECB surveys on access to finance of companies 107 highlight that difficult access to finance was among the top concerns of European SMEs. In this respect, about one third of the SMEs did not get the finance they had planned for. In general, SMEs considered that the conditions of bank financing were negative in terms of the interest rate and other costs, collateral and required guarantees. The 2011 report underlined that the highest rejection rate was among the micro companies employing less than 10 people and among SMEs active between 2 and 5 years. Regarding equity financing, it was used by a small portion of the SMEs and the main challenge concerning this source of financing is the lack of investment readiness or financial knowledge.

Figure 12: Changes in the availability of external financing through bank loans for euro area large companies and SMEs

Source: ECB Survey on the access to finance of enterprises (SAFE), Commission services
Note: changes are expressed in weighted percentages

Overall, insofar as most of the State aid in the EU over the period under review was granted during the financial crisis, it is likely that it contributed to an improvement or preservation of financial institutions’ lending capabilities to the real economy in the subsequent years, as reflected by Figure 10 and Figure 11 . In the same way as for the impact on financial stability, the positive effect of State aid on banks’ financial intermediation role becomes however less obvious over time, against the background of a progressive decrease of State aid measures. Since 2020, however, it is worthwhile noting that the very significant amounts of liquidity aid granted under the 2020 Temporary Framework 108  following the COVID-19 outbreak and under the 2022 Temporary Crisis Framework 109 in the context of the Russian aggression against Ukraine contributed to mitigating the tightening of banks’ credit standards in times of crisis (see Figure 10 ).

These results are consistent with past studies, which found that State aid has contributed to higher financial stability which, in turn, has resulted in improvements in real economy outcomes. However, these studies focus on the aftermath of the financial crisis of 2008 during which limited alternatives to the use of State aid were available. The Beck et al. (2020) study 110 on shocks that have the potential to affect financial stability concluded that in some EU Member States, more prone to provide State aid rather than bail-ins, systemic risk contributions were less important after large shocks. More specifically, that study highlights that, differently from State aid support or bailouts, resolution measures such as bail-ins may reinforce uncertainty, under certain circumstances, in the middle of a crisis and may give rise to contagion effects, therefore exacerbating system-wide shocks. Importantly, that study covered a period that predates the entry into force of the fully-fledged CMDI framework in the EU, including its crucial components that increase loss absorption and recapitalisation capacity of banks (e.g. through MREL) and improve the authorities’ and financial market actors’ preparedness for resolution in general and for bail-ins in particular, thereby limiting the contagion effects that any disorderly bank failure would have on the economy. The Barucci et al. (2019) study 111 on the real effects of State aid found that State financial support was able to enhance economic conditions by restoring trust in financial markets. More specifically, improvements in financial stability brought about by State aid enhanced non-financial companies’ capabilities to issue bonds and shares (as a response to reduced bank lending), which is interpreted as State aid improving the credit provision to the real economy. As far as the impact of State aid on the real economy is concerned, the Berger (2018) study 112  included findings in the context of the assessment of the Troubled Asset Relief Programs (TARP 113 ) bailouts in the United States. Hence, that study points to the difficulties to delineate such effects, given both positive and negative impacts at play. Furthermore, it is not known to what extent the benefits outweigh costs (or vice versa). For instance, it can be noted that State aid for banks increases overall supply of credit and lowers cost of capital, leading to more investment and boosting economic growth. On the other hand, increased credit supplies can limit investment by reducing risk-taking, thereby restricting overall economic growth.

The above findings are also consistent with the stakeholders’ replies to the public and targeted consultations (see also Annex VI). In the public and targeted consultations, most respondents agreed with the statement that the State aid rules for banks in difficulty have been successful in achieving the objective of contributing to the preservation of financial stability by enabling the continued smooth functioning of individual banks and the banking sector. More specifically, while 14 respondents (including 7 business organisations/associations, 3 public authorities, 1 EU citizen) were neutral as regards the question, 13 (7 public authorities, 4 EU citizens and 2 Trade Unions) considered that the achievement of this objective was rather successful and 4 (2 public authorities, 1 EU citizen and 1 business organisation) that it was very successful. By contrast, 5 respondents (of which 3 business associations/organisation, 1 public authority and 1 non-specified) considered that the fulfilment of the financial stability objective was rather not successful, and 3 (2 non-governmental associations and 1 company organisation) that it was not successful. Furthermore, aside from State aid to banks in difficulty, other financial stability drivers were also referred to, such as the implementation of the CRR 114  and the CRD 115 package, the establishment of a macro-prudential framework and the Banking Union in 2013, as well as the accommodative monetary policy conducted by the ECB. To note also that some respondents referred to the entry into force of the CMDI framework and the need to ensure consistency with State aid rules in order to, e.g. further limit the amount of public support to banks in difficulty while addressing the objective of financial stability.

As regards the long-term impact of State aid rules on the real economy, whereas most respondents (between 21 and 22) did not express any specific view, some of them (between 9 and 12 116 ) agreed that the rules have been successful in ensuring that creditworthy enterprises were able to get the bank loans or other forms of credit they needed, with no significant differentiation between small and medium-sized and large enterprises (see  Figure 13 ).

Figure 13: Consultations’ replies on the extent to which State aid rules for banks in difficulty were successful in contributing to long-term impacts related to banks’ lending.

Source: European Commission

In bilateral meetings held with EU and Member States’ authorities, the authorities underlined the important role played by State aid measures in preserving financial stability, especially during the financial crisis. The swift implementation of such measures was also pointed out as a key factor for achieving this objective. Some authorities were nevertheless of the view that, as of 2015, the measures taken under the CMDI framework, including precautionary measures and resolution, should have increasingly fulfilled this function instead.

4.1.1.2.Restoring viability 

As stated in Section 2.1 , in order to achieve its objective, the State aid rules under evaluation set out targeted compatibility criteria. Accordingly, Member States should encourage the exit of non-viable 117 players in an orderly manner, with the support of liquidation aid if needed to preserve financial stability. Aid, either in the form of liquidity or capital, to banks remaining in the market should be limited to institutions expected to preserve or restore their viability, including – where applicable – through the implementation of a restructuring plan, submitted by Member States as part of their commitments, analysed by the Commission as part of the initial compatibility assessment and subsequently monitored in its implementation, with the support of a trustee, during the restructuring period (which is normally expected to last up to 5 years).

Against this background, the evaluation assesses whether the State aid rules for banks in difficulty have been effective in ensuring that aid was properly channelled based on the ex ante assessment of the viability prospects of the beneficiary bank, and – in particular – whether restructuring aid was granted to banks that managed, through the implementation of their restructuring plan, to return to viability.

The 2015 Competition State aid brief argued that the restructuring plans – as approved by the Commission as part of its decision on the compatibility of the aid measure with the rules under evaluation – helped the banks that had benefited from restructuring aid improve their operational and risk indicators, and their funding and solvency positions, and thus converge towards their unaided peers. 118 Gerhardt and Vander Vennet (2017) 119 suggest that any turnaround of the aided banks was arguably slow. Lamers at al. (2022) 120 confirm the convergence of the weakest banks towards the industry average as well as the slow pace of this process. In short, the literature provides evidence to conclude that aided banks remaining in the market have slowly restored their viability, although the contribution of State aid rules to that result remains uncertain. While acknowledging this trend, the 2020 ECA Special Report noted that not all the banks that had received restructuring aid properly restored their viability.  121

Against this background, the Study has assessed the evolution of relevant performance indicators of aided banks, in terms of profitability, asset quality, cost structure, capital structure and liquidity profile. In doing so the E.CA study ran: (i) a descriptive analysis where the evolution of indicators for banks that at some point in time received aid is compared to the full sample of non-aided banks; (ii) a comparison of the indicators between aided banks with a matched sample of non-aided banks with similar size and business models; (iii) an econometric difference-in-differences analysis 122  aiming at assessing, to the extent possible, the effect of aid on a selected number of performance indicators as a function of the time elapsed since aid was received.

Evidence of convergence of the indicators between aided and non-aided banks suggests the restoration of viability for aided banks, to the extent that non-aided banks can be expected to be viable on average. While the return to viability of aided banks has an impact on the viability of the banking sector at large and on financial stability, the State aid rules under evaluation do not aim at addressing by themselves the viability of the aggregate banking sector, which goes beyond the remit of State aid control, as described Section 2.1.2.

The E.CA study found that the levels of broadly all the tested indicators recorded by the aided banks converged, after aid was received, towards the levels recorded by the non-aided banks. This convergence was typically achieved within the timeframe of five years targeted by the Commission, with some exceptions, such as for the non-performing loans (NPLs) ratio. This finding is robust across the three different methodological approaches described above. In particular, the econometric method further allows us to observe that the evolution of the performance indicators during the restructuring period depends on the type of State aid procedure employed (individual vs. scheme aid), while the return to long term viability after more than five years is largely independent of the framework under which this aid is administered. This evidence may suggest that the aid procedure contributed to the restoration of viability but cannot confirm whether it was the (main) driver of such restoration.

With specific regard to the ratio of NPLs of aided banks, which – as mentioned above – converged to the one of non-aided banks with a slower pace than expected, it could be mentioned that their high levels negatively affect not only banks’ profitability but also their ability to finance new lending, with wider repercussions on the real economy and potentially on financial stability. Recognising the importance for banks to address high NPL ratios swiftly, the restructuring plans of aided banks, as agreed with the Commission, have virtually always contained explicit and timely targets on NPL reduction. Against this background, in line with the already mentioned difficulties to estimate “causality” in this context, significant factors other than State aid control should be mentioned to explain the relatively slow decrease in NPL levels in the context of an unprecedented increase of such assets. 123 This is certainly the case of (i) the prolonged negative macro-economic environment during the global financial and sovereign debt crises 124 , (ii) the slow or partial improvements of the insolvency and debt enforcement frameworks in some Member States 125 , (iii) the gradual introduction of dedicated regulatory and supervisory actions 126 , and (iv) the difficulties in the development of markets for distressed assets 127 .

The E.CA study also found that the profitability of individually aided banks, while converging toward the profitability of non-aided banks, tended to remain below the level recorded by those aided banks before they had received aid (see Figure 14  for return on average equity and return on average assets). Among the possible explanations, the E.CA study considers plausible that a bank in need of restructuring aid had typically deployed - before the aid was needed - higher leverage and riskier business models, both feeding higher profitability in stable times and unfolding their negative effects in crisis times, possibly resulting in the request for aid. To this extent, the evidence summarised above, that restructured banks tend to converge toward their peers rather than their past levels, may suggest that the restructuring process was ultimately effective in reaching a more sustainable viability, even if this possibly required some time to clean up the balance sheet and reshuffle it towards a more sustainable business model.

Figure 14: Return on average equity (RoAE) (left) and ron average assets (RoAA) (right)

 Source: E.CA and partners
Notes: The figure shows the estimated size of the effect of aid for scheme and individually aided banks in the dynamic DiD approach. See footnote 122 and Annex II for more details on the methodology. The vertical axis shows the changes in percentage points of the levels of the given indicator (RoAA and RoAE) between aided and non-aided banks; a level of zero indicates convergence between aided and non-aided banks. The horizontal axis presents the interval of time, expressed in number of years, before and after the time (“T”) of the granting of the aid.

Moreover, E.CA studied the main features and outcomes of the restructuring processes. While some banks that received restructuring aid needed additional aid, Figure 15 (left graph) shows that almost all those cases of repeated aid (orange bars) occurred at the peak of the crisis. Accordingly, the need for additional public support disappeared relatively fast, compared to other financial crises. 128  Subsequent aid measures were not always used to further support the restructuring processes of the concerned banks but sometimes to facilitate their subsequent market exit, whenever the planned return to viability proved unrealistic. While this can be interpreted as the Commission’s ex ante viability assessment not always being proved correct ex post, it contributed to the finding - shown by Figure 15 (right graph) – that banks that benefitted from restructuring aid (orange bars) eventually exhibited similar exit rates 129  as banks that did not receive any aid (yellow bars), on aggregate, over the period under evaluation. Banks that had benefitted from restructuring aid but ultimately exited the market did so on average after 3.23 years from the first receipt of restructuring aid, i.e. relatively swiftly. In other words, restructuring aid did not structurally distort the typical market survival dynamics, as it did not maintain artificially in the markets banks with no viability prospects. 

Figure 15 : Additional aid and exits

Source: E.CA and partners
Note: The figure on the right shows the percentage of banks that use additional aid in a given year in the different groups. The percentage is computed as the share of aided banks of a given type that receive additional aid in a specific year, relative to banks of that type that had been aided for the first time in that year or before. The figure on the left shows the probability that a bank of a given type exits the sample in a given year. The probability for aided banks is computed as the share of banks of a given type that exit the sample in a specific year, relative to banks of that type present in that year that had been aided in that year or before. The probability for non-aided banks is computed as the share of non-aided banks that exit the sample in a specific year, relative to non-aided banks present in the sample in that year.

The Study further analysed the factors that could potentially be used to distinguish ex ante fundamentally viable banks from banks that should exit the market and could hence help to avoid potential problems in the restructuring process. Interestingly, the Study found that the restructuring process has been more difficult not just – as expected – for banks with relatively worse ex ante performance indicators (e.g. higher NPLs) but also for the once more profitable. This can further confirm that banks requiring aid may typically do so because of riskier and/or more leveraged business models that get exposed to a shock - which may in turn result in the need of more dramatic turnaround from the banks in question to return to a new viable steady state. The study also highlights that restructuring of large banks seems to be more difficult than that of smaller banks: larger banks need more time to return to profitability and more often continue to exhibit losses after the restructuring period.

At the same time, it is not possible to find a set of statistically significant indicators and related thresholds easily applicable to clearly distinguish, ex ante and with sufficient confidence, banks that could reasonably be expected to restore their viability and those that could not. 

In other terms, the ex ante assessment of the viability of aided banks is hindered by the same uncertainty applying to any financial or business decision and, as such, has natural limitations. For this reason, the assessment of the restructuring plan is a delicate exercise that deserves proper and close follow-up monitoring. 130  When the reality turns out different than initially forecasted (e.g. because of unforeseen changes in the macro-economic conditions), a swift adaptation of the restructuring plans (including through – if needed – the provision of additional aid and/or the market exit of the beneficiary) may be needed to preserve financial stability.

In the context of the stakeholders’ consultation, a significant number of respondents (namely 16 who did not express any opinion and 11 that were neutral 131 ) were not able to confirm whether the return to viability of the troubled banks was the result of the application of the State aid rules under evaluation. Such replies are consistent with the statistical difficulty in distinguishing “causation” and “correlation” in this context. Most of the 7 respondents (namely 5 public authorities, 1 citizen and 1 non-governmental organisation) who had a positive view acknowledged that the State aid rules have been effective in addressing the liquidity issues faced by some banks and in ensuring the orderly market exit of unviable banks.

When asked about the types of restructuring measures that were more effective in restoring the bank’s viability, most of the respondents who replied to this question supported those aiming at reforming internal risk management policy and corporate governance (viewed positively by 3 public authorities and 6 business organisations/associations), the divestment of loss-making activities and more generally the balance-sheet de-risking (viewed positively by 3 public authorities and 6 business organisations), as opposed to, e.g., measures aiming at improving the aided bank’s revenue-generating potential (viewed negatively by 1 public authority and 4 business organisations/associations) (see Figure 16 ). Recalling the need to strike the right balance in the fundamental trade-off between the objectives of restoring viability and curbing competition distortions, both enshrined in the State aid rules and reflected in the restructuring plans, respondents pointed out that due attention should be paid to measures that actually risk limiting banks’ long-term viability, such as requirements to divest profitable subsidiaries by specific deadlines. 

Figure 16: Consultations’ replies on the extent to which the implementation of the following measures to restore the long-term viability of banks have been effective

Source: European Commission

In the bilateral meetings, some public authorities pleaded in favour of a bolder approach aiming at either a swift exit or a prompter return to viability of the beneficiary banks, as opposed to a more complex and gradual restructuring process aiming at balancing both the viability and competition objectives. However, some public authorities also highlighted the uncertainty linked to the ex ante viability assessment and pointed to the two opposing scenarios of (i) providing restructuring aid to a bank ultimately unable to return to viability or (ii) refusing restructuring aid to a potentially viable bank. On the one hand, granting restructuring aid to a bank that would ultimately exit the market would likely result in higher net costs due to the protracted adjustment process. On the other hand, not granting restructuring aid to a bank that could have ultimately restored its viability could also result in higher costs for the bank’s stakeholders, including, e.g. its employees and suppliers, and ultimately also for the State which may have to counteract potential negative effects on the economy and/or financial stability if it does not grant the aid resulting in the potentially disorderly failure of the bank. To that extent, they pleaded in favour of a flexible approach towards the restructuring processes.

Considering all available evidence, it can be concluded that the State aid rules under evaluation were overall effective in supporting the restoration of viability of the banks that received restructuring aid and the market exit of other banks receiving liquidation aid. The ex ante viability analysis, performed by the Commission as part of its compatibility assessment based on the rules under evaluation, was satisfactory, as viability has been restored in the majority of cases of banks having received restructuring aid. The limited cases of beneficiaries, which had ex ante been assessed as potentially viable and had to receive subsequent aid to exit the market, occurred almost exclusively at the peak of the crisis. It is important to note that these cases were promptly identified, through close monitoring of the implementation of their restructuring plans, and that the provision of liquidation aid, whenever necessary to the banks exiting the markets, has helped minimise any ensuing market turbulence.

The return to viability has taken on average 5 years, with some delay in certain cases and/or for certain indicators (e.g. NPLs). While weak banks can be expected to implement a turnaround plan regardless of the State aid rules, the requirement of a restructuring plan has added discipline to the adjustment process, with the aim of achieving a viability that was sustainable, e.g. by avoiding simple leveraging-up or market share grabbing. Accordingly, while it can be argued that some measures introduced in the restructuring plans, e.g. to curb competition distortions and/or to minimise the amount of aid, such as divestments of certain profitable businesses, may have added some complexity to the restructuring process, this should be read in light of the objective of the State aid rules under evaluation, which aim not only at preserving financial stability in the short-term but also at supporting it in the medium- to long-term, e.g. by fostering a healthy banking sector, through the minimisation of competition distortions.

4.1.1.3.Mitigating competition distortions

One of the key objectives of the State aid rules under evaluation is to minimise competition distortions stemming from granting such aid. Indeed, State aid may provide a competitive advantage to the recipient banks at the expense of competitors that have not received aid. The Commission recognises these problems and therefore the authorisation of aid to banks that continue to act on the market has typically relied on a series of measures (laid down in commitments) intended to mitigate competition distortions (see Box 3 in Section 3.3 ).

In this context, the E.CA study investigated the impact of State aid to banks on competition within the banking sector. Effective State aid control (via effective measures to mitigate competition distortions) would imply no significant distortive effect of the State aid on competition.

The literature on the effects of granting State aid to banks in difficulty on competition in the banking sector is rather limited. The findings resulting therefrom are mostly not sufficiently clearly pointing to any relationship between the level of State aid and the level of competition. For example, the 2011 Commission Staff Working Paper 132  analysed how State aid given in response to the financial crisis to Member States related to concentration in the European banking sector between 2007 and 2009 and did not find any immediate relation between State aid to the banking sector and the evolution of the concentration of the European banking market. Significant State support led to higher concentration of the market in some Member States and to lower market concentration in other Member States.

Similarly, Cardillo et al. 133 (2023) looked at a different angle and analysed a sample of 256 commercial banks from the EU, Switzerland and Iceland. The bank data covered the period from 2007 to 2017. Using a difference-in-differences analysis, 134  that study found that government interventions led to lower margins and higher risk. However, these results hold only when government intervention did not come with restricting conditions for the aided banks. In other words, no significant negative impact on competition was found when constraints were attached to the government intervention. The results of some studies analysing the banking sector in the United States contrast with the above results from the European or global context. 135

Building on and expanding the existing literature, the E.CA study provides an empirical assessment of the impact of State aid on competition. The main insights from this assessment are based on a bank-level analysis. The underlying question of this assessment is whether, following the reception of aid, competition indicators of banks that have received State aid followed a different evolution than those of non-aided banks. To answer this question in a methodologically sound way, a difference-in-differences approach 136 with propensity score matching 137 was used, allowing to establish relevant counterfactual observations.

The E.CA study assesses the effect of aid on competition through proxies of banks’ market power (raw markup, Lerner index), cost structures (marginal cost) and other measures of the level of competition (net interest margin, market shares). 138 The joint interpretation of the aid impact on these five indicators allows for robust conclusions about the overall effect on the competitive environment in the banking sector. The analysis is undertaken separately depending on the type of the State aid decision, i.e. distinguishing between banks that received aid on the basis of a scheme and those that received aid on an individual basis.

As regards banks that received State aid on the basis of a scheme, which are much smaller than the individually aided banks and their matched peers, the analysis reveals that those banks experienced a temporary increase in their income relative to their costs (the “raw markup” indicator), suggesting that the aided banks were able to generate additional revenues with unchanged costs after being aided. In essence, these higher raw markups were achieved by scheme-aided banks during a three-year period following the granting of State aid, as opposed to their matched non-aided counterparts. A further narrowing down of the observed sample revealed that the increase was driven mainly by non-significant banks and banks located in Member States highly affected by the financial crisis. This observation possibly suggests the banks’ ability to exercise some market power after being aided and thus benefitting from an advantage liable to distort competition, albeit on a temporary basis. However, although statistically significant, the increase in the raw markup was limited to around +5%. Its magnitude was therefore relatively limited even for these subsets of banks. Moreover, looking at the development of the other relevant indicators mentioned above, no such change following the granting of aid was observed with respect to the aided banks’ market power or cost structure that would support this hypothesis. Therefore, the result based on the indicator of raw markup cannot be overinterpreted. Given the temporariness of the change in the indicator of raw markup, and the lack of further supporting empirical evidence, it is not possible to conclude that the aid under aid schemes caused a significant market distortion.

Figure 17: Development of raw mark-up and Lerner index indicators

Source: E.CA and partners
Note: the figure shows the development of the mean raw markup (left panel) and the mean Lerner index (right panel) over the nine-year window around the treatment (grant of State aid), separating the sample into scheme and individually aided banks, as well as their respective matched controls (non-aided banks).

The findings related to scheme-aided banks are likely mostly attributable to aid schemes comprising mostly liquidity aid. Indeed, when further restricting the sample only to those scheme-aided banks that benefitted from liquidity instruments and no capital support, the results are almost the same as in the baseline results and indicate that the effects for scheme-aided banks are attributable to those scheme-aided banks that received aid involving liquidity instruments.

Conversely, the Study has demonstrated that banks that had received individual aid experienced a decline in raw markups, meaning that the banks’ profitability worsened after they had received aid. The Study shows that this decrease in markups seems primarily tied to an increase in marginal costs. In economic terms, the aided banks became less cost-efficient compared to their non-aided peers. The observed cost changes most likely result from the restructuring processes or more assertive loan loss recognition undertaken by banks, as also suggested by insights from the assessment of the banks’ viability as well as existing literature.

When considering only those banks that were aided by capital support (alone, or in combination with liquidity aid), the baseline results are even more pronounced in magnitude and in significance. This highlights that the observed effects for individual aid are driven by banks that received aid in the form of capital support.

The E.CA study thus shows that banks that received aid under individual State aid decisions were not in a position to significantly distort competition. The Study has not identified any lasting signs of increased market power of the aided banks, nor an improved competitive position of these banks in the market.

The Study thus explicitly analysed the impact of the imposed measures on market structures and addressed one of the issues raised by the European Court of Auditors as missing in the analysis of the existing practice.

In search for possible explanations of the observed outcomes, the Study then explored the role of State aid conditionality in the mitigation of competition distortions caused by the State aid. The analysis of commitments for individually aided banks sheds further light on the possible causes of the findings of the analysis at bank level. In particular, individual aid to banks has been typically authorised on the basis of certain commitments designed to mitigate competition distortions caused by the aid. Also, many such banks faced multiple commitments in parallel: more than half of the individually aided banks were bound by structural, quasi-structural and behavioural commitments simultaneously. For capital support, commitment intensity correlated positively with bank size and aid volume.

The findings of no significant and lasting distortions of competition for individually aided banks, e.g. in connection with increased market power or improved competitive market position, are consistent with the idea that commitments involved in cases of individual aid have likely played a role in mitigating competition distortions. This aligns with previous studies that emphasise that conditions attached to bailouts are relevant with regard to their impact on competition. In addition, the E.CA study also looked more specifically at the case of divestitures as one of the strictest categories of commitments and found that the observed results could not be attributed to the divestitures alone.

Views of stakeholders that expressed their opinion in the consultations were rather diverse. Yet, many respondents (with 10 neutral opinions and 8 positive views, from 6 public authorities, 4 business organisations/institutions, 3 EU citizens, 2 academics and 1 trade union) agreed on the importance of minimising competition distortions that possibly arise as a result of providing State aid to banks in difficulties. Respondents who considered that State aid rules to banks in difficulty have (rather) not been successful in minimising competition distortions between aided and non-aided banks included 5 public authorities, 6 business organisations/institutions, 3 citizens, 2 non-governmental organisations and 1 trade union.

However, when it comes to prioritising the goal of minimising competition distortions among different policy objectives, some respondents (including 7 public authorities, 5 business associations/institutions, 1 academic, 1 EU citizen, 1 non-governmental association and 1 trade union) opined that the goal of preserving financial stability should not take precedence over others, including competition distortions. They observed that in the past cases, the preservation of financial stability was ensured in some cases to the detriment of limiting distortions of competition. Other respondents (including 4 public authorities, 6 business organisations/institutions and 1 academic), on the other hand, argued that in case of systemic crises, where most banks receive State aid, the risk for competition distortions is very limited and the preservation of financial stability is crucial for the whole sector.

4.1.1.4. Burden-Sharing

Burden-sharing measures under State aid control aim at limiting the amount of State aid needed, thereby protecting the interest of taxpayers, and at reducing moral hazard, while ensuring market discipline, by obliging the aided bank, its shareholders and some of its creditors to contribute to absorbing the bank’s losses. Otherwise, the bank’s management, shareholders and/or creditors may have incentives to take excessive financial risks because they may count on being shielded from the bank’s losses by the State.

The 2013 Banking Communication tightened the initial burden-sharing rules by requiring that banks with a capital shortfall obtain shareholders’ and subordinated debtholders’ contribution before resorting to public recapitalisations or impaired asset measures. Burden-sharing measures, broadly speaking, can also include divestments and limits on management remuneration or pricing constraints.

The effectiveness of this requirement was assessed on the basis of two key indicators: ensuring market discipline and mitigating excessive risk taking of banks/moral hazard. However, from the outset, it is noted that State aid rules alone are not an instrument to tackle moral hazard in general and exhaustively.

Economic literature focusing on market discipline is quite abundant.  139  A specific area of market discipline relates to implicit subsidies. 140 Implicit subsidies are defined in the literature as an advantage that some banks benefit from due to a perceived higher probability of receiving State aid in case of need. A common case of implicit subsidies is a lower cost of funding that banks considered too-big-to-fail (TBTF) have to pay in relation to smaller banks, which have a lower probability of being bailed out. 141 The implicit subsidy is the difference in interest costs paid by banks identified as too-big-to-fail (TBTF banks) and other banks due to the expected bailout.

The E.CA study provides an analysis of the implicit subsidies during the evaluation period, accounting for the entry into force of the 2013 Banking Communication and of the CMDI framework. FSB (2021) indicates that credible reforms aimed at reinforcing market discipline should result in a reduction of implicit subsidies. Implicit subsidies are not directly observed, but they may be estimated using two main methodologies: the contingent claim model and the funding advantage model. The E.CA study uses the methodology based on funding cost advantages of large versus small banks and differentiates implicit subsidies regarding interbank deposit pricing, client deposit pricing and overall liability pricing. The implicit subsidies calculated for the three types of liability pricing show pricing decreases in the period after the entry into force of the 2013 Banking Communication and of the CMDI framework. A major change in the 2013 Banking Communication was the introduction of an explicit requirement of burden-sharing of subordinated debt and equity under restructuring and liquidation scenarios. 2013 was therefore chosen as one of the milestones, and the Study compared the level of implicit subsidy prior to this change in the rules and after the change. The second such milestone was 2015 with the entry into force of parts of the BRRD. Accordingly, the E.CA Study tests whether the evolution of the implicit subsidies recorded a “structural break” in 2013 and in 2015.

The results indicate that when looking at systemically important and large banks in all the analysed countries, the pricing of the calculated implicit subsidies on the interbank market strongly converged with that of the smaller institutions after 2012. This may be linked with the decrease of potential benefits for large banks after the introduction of stricter rules on burden-sharing with the 2013 Banking Communication and the bail-in rules under the CMDI framework. The estimated impact related to implicit subsidies for client deposits, as well as for overall liabilities, is much smaller than on the interbank market but still shows convergence between large and small banks in relation to the pre-2013 period. The implicit subsidies observed for the largest European banks decreased when the 2013 Banking Communication entered into force, and this decrease was even higher after the CMDI framework entered into force. This indicates that market discipline on the part of banks perceived as TBTF also increased, both in terms of deposit pricing and overall liability pricing.

The E.CA study also provides a descriptive assessment of the main changes to the methodologies by the rating agencies as a consequence of the entry into force of the 2013 Banking Communication and, more importantly, the CMDI framework. The main rating agencies (Standard & Poor’s, Moody’s and Fitch Ratings) changed their methodologies and rating practices to account for the introduction of the CMDI framework. Those changes in the rating methodologies were mostly focused on the areas accounting for government support and loss absorbing capacity relating to the resolution regime. Given that credit ratings have an impact on market pricing, the revised methodology accounting for burden-sharing contributes to market discipline.

As to the second success indicator, the effect on moral hazard, it is first noted that economic literature specifically focusing on the link between public support and moral hazard is scarce. Duchin and Sosyura (2014) 142 show that banks that have received U.S. government support under the TARP have higher default risk. Other studies find that government guarantees increase risk-taking of competitor banks. Gropp et al. (2011) 143 demonstrate that government guarantees strongly increase the risk to competitor banks and Gropp et al. (2014) 144 also find that German banks that experienced a removal of government guarantees reduced credit risk, with no such effect visible for the control group.

When assessing moral hazard, in conjunction with State aid, the E.CA study considers two types of risk: (i) general default risk proxied by Z-score 145 and standard deviation of Return on Assets (sd ROA) 146 , and (ii) credit risk, represented by loan loss provisions (LLP) 147 . The Study finds that there is a strong and statistically significant link between State aid and risk for banks in the sample. Banks that received State aid have on average higher default probability (lower Z-score), higher ROA fluctuation and create more loan loss provisions compared to banks with similar characteristics that did not receive aid. The results are in line with the literature, and they are shown in descriptive statistics for the sd ROA and the LLP (see Figure 18 ).

Figure 18: Developments of default risk (sd ROA, left graph) and credit risk (LLP, right graph)

Source: E.CA and partners

The E.CA study, however, points to methodological limitations of this analysis and cautions that the results should be interpreted as links rather than causal effects. This is chiefly due to strong pre-trends (aided banks were riskier before they encountered difficulties and it is not possible to isolate the effect of State aid alone), but also because banks increased risk before they received State aid because they counted on future State aid. The E.CA study therefore concludes that it could not be proven that banks increased risk as a result of receiving aid.

The E.CA study finds that the introduction of burden-sharing measures in 2013 did not significantly change the risk reported by the aided banks after they received aid. The same findings appear when controlling for the intensity of burden-sharing measures, since there are no significant changes in the risk profile of the banks. However, referring to the methodological limitations above, overall, the evidence on excessive risk taking at the level of the aided banks is not conclusive.

The replies to the public consultation and the targeted consultation broadly considered that the different burden-sharing measures, applied since the 2008 Banking Communication and reinforced with the entry into force of the 2013 Banking Communication, namely with the burden-sharing measures to shareholders and subordinated creditors, have been effective.

The burden-sharing measures were identified and valued in a different manner by the respondents to the aforementioned consultations. At least 10 respondents, including at least 5 business organisations/institutions and 5 public authorities, 148  to the public and targeted consultations expressed that burden-sharing measures contribute to reinforcing market discipline and reducing moral hazard. At least 4 respondents, including public authorities and business organisations/associations, considered that the effectiveness of the individual burden-sharing measures is difficult to measure. 1 public authority and 2 business organisations/associations also highlighted the different levels of burden-sharing measures. Some measures like dividend bans or restrictions on coupon payments are less intrusive than the write-down of existing shareholders and subordinated creditors.

A selection of Member States presented their opinions on the application of the State aid rules for banks during dedicated bilateral meetings. In the context of measures applied to reinforce market discipline and tackle moral hazard, some of the selected Member States mentioned that behavioural measures contributed to limiting moral hazard, while other Member States considered that certain measures were not sufficiently effective when applied to the aided banks. For example, the change in management was a successful measure but a static remuneration cap may have posed obstacles to hire and retain the best managers for ensuring a successful turnaround of the aided banks, and not being able to hire the best managers may have delayed or posed challenges to the completion of restructuring. Some Member States underlined that a dividend ban may not be an effective measure because private investors may not find the investment attractive anymore, and thus be detrimental to any potential private recapitalisation efforts, while others expressed the view that the dividend ban may not have had a significant impact as the aided bank was already in distress and hence not able to pay dividends in any case.

The application of burden-sharing measures to shareholders and subordinated creditors also raised divergent opinions among Member States. Some Member States expressed their support regarding the current application of burden-sharing to shareholders and subordinated creditors as being the most effective option and not being problematic. Other Member States stated that the current burden-sharing requirements under the State aid rules for banks are not sufficient and the objective should be to ensure their consistency with the bail-in requirement under the CMDI framework. For specific cases, evidence was presented that the pricing of capital instruments subject to burden-sharing was not affected after the State aid intervention. In addition, some Member States raised the issue that the application and related impact of burden-sharing measures may differ in systemic crises and idiosyncratic bank failures. In their view, the context in which burden-sharing measures were applied to shareholders and subordinated creditors should also be considered.

It follows from the above that State aid rules for banks have been effective in reinforcing market discipline. The analysis of the implicit subsidies for large systemic banks demonstrates their reduction after the entry into force of the 2013 Banking Communication and the CMDI framework. Similarly, changes in the methodologies of rating agencies, following the entry into force of the 2013 Banking Communication and the CMDI framework, prove the impact of these rules on the assessment of banks’ ratings as stricter assessments were applied. Finally, as the evidence on mitigating risk taking by the banks was not conclusive, the effect of State aid rules at mitigating moral hazard by not increasing the risk of the aided banks could not have been satisfactorily evaluated. The SWD therefore relies on the robust evidence on market discipline (decrease of implicit subsidy).

4.1.2.Efficiency

This Section aims at evaluating the efficiency of the rules subject to the evaluation.

It should first be noted, when assessing efficiency from the Commission’s perspective by means of a comparison between the inputs (i.e. the Communications dedicated to State aid to banks in difficulty) and the outputs (i.e. the authorised State aid measures), that the administrative efforts required to draft and adopt the relevant 7 Communications 149  seem proportionate to the unprecedented number of adopted decisions (ca. 700, as described in Section 3.3 ) and approved and disbursed aid (ca. EUR 7 trillion and ca. EUR 3 trillion, respectively, as described in Section 3.2 ), in the period under evaluation 150 . When further looking at the Commission’s perspective, it is worth mentioning that the 2020 ECA Special Report found that the Commission had the powers to exercise State aid control efficiently. 151

When assessing efficiency of the overall intervention under evaluation (as described in Section 2.1.2 ), it should first be considered that the quantification of the aggregate costs and benefits (as identified in Annex V) is subject to significant limitations. 

With regard to the costs,

–It could be roughly estimated that the administrative costs for Commission services’ activity of applying the rules under evaluation over the relevant period amount to ca. EUR 25 million 152 (or ca. EUR 35 000 per decision); 

–while the administrative costs arising from the application of those rules by the national administrations and/or the concerned business cannot be estimated precisely, with no known studies having been able to do so, 153  they can be considered on aggregate proportionate to the costs borne by the Commission 154 ; 

–it could be roughly estimated that - for the restructuring of their banking systems - EU Member States incurred fiscal costs of ca. EUR 650-900 billion. 155  

With regard to the benefits, as also discussed in Section  4.1.1.1 , the contribution of State aid to the objectives of the rules cannot be fully disentangled by other contributing factors and hence properly quantified. 

–It could be recalled that the other side of the token of the granted State aid is the benefit received by the beneficiary bank. This economic benefit does not however correspond exactly to the fiscal cost of the aid, as quantified above. The benefits for the recipient banks are also influenced by the actions undertaken by the beneficiaries, in line with the State aid rules, to minimise competition distortion.

–By supporting the banks in difficulty, State aid also provided a benefit to their stakeholders, notably the depositors that have typically been shielded from losses beyond the levels protected by the DGS, the clients at large that benefitted from the preservation of the bank payment functions, the employees and suppliers for which the skills and added value may have been protected, etc.

–Ultimately, through the protection of financial stability, State aid enabled the continuous flow of lending to governments and the real economy, with a further positive effect on the economic growth, only limited by the negative effects of aid on competition distortion.

In conclusion, as the administrative costs are a small fraction of the costs entailed by the granting of aid, the overall balance of the costs and benefits broadly corresponds to the trade-off between the negative effects of aid on the public finances and competition and the positive effects on financial stability and hence the economy. While a proper quantification is not possible, the evidence that financial stability at large has been preserved, through the combined contribution of various elements including State aid (as found in Section 4.1.1.1), and the negative effects on competition have been effectively minimised (as found in Section 4.1.1.3 ) indicates that the benefits are likely to have outweighed the costs.

It is not in the remit of this evaluation to assess whether the recourse to State aid was among the most efficient means to preserve financial stability, as compared to other solutions. This is a broader policy question to which EU policy makers have reacted – notably through the adoption of the CMDI framework (as described in Section 3.4 ) – by envisaging less recourse to State aid and more reliance on industry funds, combined with a given contribution by the banks’ shareholders and creditors. This SWD assesses efficiency within the frame of the defined intervention (as described in Section  2.1.2 ), diving in the assessment of how the administrative costs and State aid costs evolved over time and testing how these costs were affected by the specific rules under the evaluation. 

The overall body of evidence, when taken together, suggests that the State aid rules for banks in difficulty have facilitated the reasonably limitation of the administrative burden related to State aid control. There still seems to be room for improvement, in particular with regard to the clarification of certain concepts and the interactions with the regulatory framework, as further detailed below, as well as with regard to the consolidation of the rules. The overall body of evidence further suggests that, overall, the State aid rules for banks in difficulty allowed for an efficient State expenditure.

4.1.2.1.Administrative efficiency

For the analysis below, it is useful to recall that Member States can grant State aid either in the form of a ‘scheme’ or as ‘individual aid’ (these concepts are explained in Section  3.3 ). The use of schemes has a particular impact on Member States’ authorities and on beneficiaries, since due to the omission of the specific ex ante procedure with the Commission with respect to each of the individual beneficiaries, they may have access to aid faster. The rules under evaluation have defined a dedicated set of conditions applicable to the schemes.

The E.CA study has assessed the administrative burden associated with the implementation of through the construction of an index (“admin effort index”). The index is constructed as a composite indicator of five effort measures, for which data is available for each specific State aid case: (i) total number of decisions dedicated to the specific State aid case; (ii) number of pages across all State aid decisions; (iii) total duration of the related State aid procedures; (iv) number of all registered documents across all relevant State aid decisions; (v) team size (i.e., total number of assistants, case handlers, support, chief economist, and experts). As these measures are detailed and available for all State aid decisions adopted under the rules under evaluation, the index overcomes - in a reliable manner - the unavailability of “worked hours” data for some of the State aid cases under the evaluation 156 . Moreover, based on the reasonable assumption mentioned above that the administrative costs incurred by beneficiaries and granting authorities due to State aid control, at bank level by Member State, are proportionate to the ones incurred by the Commission, the index allows to approximate – in relative terms – the efforts made by Member States.

Figure 19  below presents the resulting administrative effort index at bank level by Member State, for aid granted based on schemes and as individual aid, across three periods: before the entry into force of the 2013 Banking Communication, after the entry into force of the 2013 Banking Communication but before the entry into force of the CMDI framework, and after the entry into force of the CMDI framework. 157

Figure 19:    Admin effort index at bank level by Member State, type of aid procedure and time period

Source: E.CA and partners
Note: Individual aid considers both ad hoc decisions and/or specific applications within a scheme. Additionally, the category includes also banks receiving both scheme and individual aid. No admin effort index is presented for Czechia, Estonia, Malta, Romania, and Slovakia since these Member States did not grant any State aid and, consequently, require any administrative effort. In the case of Finland, the existing administrative effort led to no aid and is, therefore, not considered in the analysis. Finally, Bulgaria reports both administrative effort and State aid but could not be processed into the index due to data inconsistencies.

The analysis indicates that aid granted on the basis of aid schemes was associated in general with lower levels of administrative burden compared to individual aid. In fact, Figure 19 shows - across the various Member States - orange observations (indicating the administrative efforts for individual decisions) generally below the blue observations (indicating the administrative efforts for schemes). This is consistent with the features of the approval process in the case of aid schemes as set out above.

However, it should be also noted that reducing the administrative burden through aid schemes has not been a specific objective of the State aid rules under evaluation. Yet State aid schemes contributed to the minimisation of competition distortion. Aid schemes are considered as less distortive than individual decisions from a competition distortion perspective, because they are authorised only for a limited period, subject to conditions and only accessible to selected beneficiaries (solvent banks) which are usually small credit institutions. When compatible aid is granted under an aid scheme, no individual State aid decision by the Commission is required for that aid to be authorised. The lighter administrative burden associated with aid schemes therefore reflects the associated lower risk of competition distortion, both within the Member State concerned vis-à-vis other credit institutions, and across the EU, compared to individual State aid measures which apply to larger credit institutions, with higher amounts of State aid.

The analysis further shows that, regardless of the form under which aid is granted, i.e. on the basis of a scheme or on an individual basis, the level of administrative effort per bank gradually increased over time. These findings are consistent with the evolution of the State aid rules under evaluation based on the changing market conditions. In particular, given the scale of the financial crisis, the 2008 Banking Communication enabled Member States to swiftly put rescue guarantee and recapitalisation schemes in place, also for large entities, while not excluding the availability of ad hoc interventions, thereby succeeding in averting panic and restoring market confidence. Subsequently, the 2013 Banking Communication allowed Member States to continue putting schemes and individual interventions in place, while, however, tightening the conditions for their approval, having regard to the evolution of the market conditions and the lower need for structural rescue measures granted on an emergency basis (see above Section 1.1 ). 158  Interestingly, the Study finds that the administrative efforts related to State aid activities did not increase further with the introduction of the CMDI framework, which introduced further conditions for the provision of support to banks in difficulties, the compliance of which were also checked, together with compliance of the relevant State aid rules, under the Commission’s decisions covered by the evaluation.

A significant number of stakeholders (between 21 to 24, including business organisations/associations and some public authorities) in the targeted consultation chose not to express any opinion on the question whether aid schemes reduced the administrative burden. As regards the neutral and positive replies, 5 concerned liquidity and liquidation aid schemes (vs respectively 1 and 4 negative replies) and 4 recapitalisation and restructuring schemes (vs 4 negative replies) (see  Figure 20 ). In this respect, the qualitative replies provided by 3 public authorities confirmed that aid schemes contributed to administrative simplification and reduced the administrative burden for both authorities and banks and opined that aid schemes reduced the uncertainty and extra coordination when managing a crisis in a bank which eases the process. In relation to the negative views expressed by respondents, certain replies pointed to overlaps between State aid schemes and CMDI provisions which could possibly lead to more administrative burden for national administrations and aided banks.

Figure 20: Consultations’ replies on the extent to which aid schemes have contributed to administrative simplification and reduced the administrative burden

Source: European Commission

As regards administrative efficiency, it should be further recalled that the efficiency of the rules is also linked to their clarity. In this respect, the 2020 ECA Special Report observed that the rules under evaluation are well drafted, clear and largely consistent with each other 159 . The replies to the consultations point to some room for improvement. 6 respondents (4 public authorities, 1 business organisation and 1 EU citizen) highlighted that the Commission communications were easy to understand, while 12 respondents were neutral and 18 negative (including 9 business organisations/associations, 3 public authorities, 3 EU citizens, 2 non-governmental organisations and 1 trade union). In the targeted consultation, 22 respondents also considered that certain aspects or concepts related to the State aid rules for banks in difficulty could have been further clarified or defined more precisely, whereas 7 were neutral. Many stakeholders (20 to be precise, including 9 public authorities, 6 business organisation/associations, 2 non-governmental organisations, 1 trade union, 1 EU citizen) have also emphasised that the existence of multiple communications applying simultaneously makes it difficult to have a clear overview of all applicable rules. Furthermore, 15 respondents were of the view that better predictability of the State aid rules would be beneficial for the framework. 

The stakeholders commented in their replies that they would also welcome clarification, including through cross-references, with regard to the interaction between the State aid rules and the CMDI framework as well as with respect to the criteria for the classification of support to banks as State aid, for instance in the case of alternative financing by statutory deposit guarantee schemes and/or other industry funds.  The latter, however, relates to the notion of aid which is an objective concept (see Section 2.1 ) and, as such, is not dealt with under the State aid rules under evaluation which only concern the assessment of the compatibility of aid measures.

The analysis, thus, concludes that the State aid rules for banks in difficulty have, to a reasonable extent, facilitated the containment of the administrative burden, particularly in the wake of the financial crisis, when measures had to be processed swiftly to contain the effects of the crisis. There still seems to be some room for improvement with regard to the consolidation of the rules and the clarification of certain aspects, in particular the interaction between the State aid rules under evaluation and the CMDI framework (see also Section 4.1.3 below).

4.1.2.2.Efficiency of State expenditure 

The E.CA study has carried out a descriptive benchmarking analysis, comparing the long-term effects of the financial crisis that started in 2008 on the economy of the EU Member States against the effects of banking crises in countries that are members of the World Trade Organisation excluding the EU Member States (‘WTO countries’) and other countries. However, the Commission has chosen not to draw conclusions on the basis of this analysis given the insufficient comparability of the different crisis episodes (covering several decades) and jurisdictions.

Stakeholders in the public and targeted consultation were divided on the question on whether the State aid rules for banks in difficulty have ensured that Member States used State expenditure efficiently when providing aid to banks in difficulty: while 14 respondents agreed or were neutral as regards this statement, 13 had a negative view (see  Figure 21 ). In their qualitative answers, certain stakeholders referred in this regard to cases in which a bank received restructuring aid but turned out to be non-viable. However, other stakeholders considered that the State aid rules have, in general, ensured an efficient public expenditure.

Figure 21: Consultations’ replies on the question on whether State aid rules for banks in difficulty have ensured that Member States used State expenditure efficiently when providing aid to banks in difficulty

Source: European Commission

4.1.2.3.Overall balance of costs and benefits

The State aid expenditures were assessed both in terms of their effectiveness (i.e., whether they achieved their objectives in the respective areas of assessment), and in terms of their efficiency (i.e., whether costs (expenditures themselves) were commensurate and proportionate to the benefits (i.e., achieved results)).

The available evidence in the present evaluation suggests, to the extent possible and despite the impossibility of an exact quantification of all the elements, that the benefits associated with the intervention under evaluation have generally been proportionate to the costs they have generated. Moreover, the findings of the E.CA study and the results of the public and targeted consultations provide some indications that the State aid rules governing the intervention have possibly contributed to limit the costs and hence to the efficiency of the intervention.

The following take-aways can be drawn from this analysis;

–The use of schemes, particularly in the wake of the financial crisis, has resulted in smaller administrative effort and thereby efficiency gains. With the benefit of hindsight, maintaining schemes mostly for liquidity and liquidation aid, while favouring individual notifications for restructuring aid, following the wake of crisis, largely struck the right balance between effectiveness and efficiency, considering that restructuring aid has a larger potential of distorting competition than liquidity and liquidation aid, while individual aid decisions (through the commitments attached to them) are more effective in minimising competition distortions than schemes (see Section  4.1.1.3 ).

–The introduction of the CMDI framework has contributed to minimise the amount of State aid, without having caused any significant increase in the administrative burden. However, some stakeholders pointed out that a further reduction of the administrative costs could have been achieved by more clarity on the interaction between State aid and the CMDI frameworks and possibly from the consolidation of the applicable State aid rules in one single communication.

4.1.3.Coherence

This Section evaluates the coherence of the State aid rules for banks in difficulty. As a first step, it examines the so-called ‘internal’ coherence, namely, whether the State aid rules in question are coherent with each other. As a second step, it examines the ‘external’ coherence, i.e. whether the State aid rules in question are coherent with other EU policies/legislation.

As set out in more detail below, the analysis indicates that, as regards internal coherence, the State aid rules for banks in difficulty are coherent among themselves and operate well together to achieve their objectives. As regards external coherence, however, there is a need for stronger coherence between the rules under evaluation and other EU policies and legislation. It appears that the rules do not reflect more recent developments which occurred after their adoption, such as the CMDI framework. Adjustments of the State aid rules for banks in difficulty would therefore seem warranted in this regard.

As to internal coherence, the Commission’s case practice shows that the six Communications (currently in force) setting out the State aid rules for banks in difficulty are overall coherent with each other. For the purposes of the evaluation, the Commission’s case practice has been analysed. The assessment of the cases adopted under the State aid rules for banks in difficulty did not reveal any indications that the rules would lack coherence with each other. Stakeholders were asked whether the State aid rules for banks in difficulty are coherent with each other. While a relative majority chose not to answer this question, most of those stakeholders who expressed an opinion said that the rules are coherent at least to some extent, while the rest of the respondents remained neutral. None of the respondents, however, identified any instance of incoherence within the State aid rules under evaluation when asked for explanation in the follow-up question. In conclusion, we have no indication from the Commission’s case memory or from the consultation that the State aid rules for banks in difficulty would not be coherent with each other.

With regard to external coherence, the Commission’s case practise and the stakeholder consultation suggest that the State aid rules for banks in difficulty are overall coherent with other competition rules, such as the 2020 Temporary Framework and the EU merger control rules. As pointed out in the reply of a stakeholder in respect of the 2020 Temporary Framework, the latter included specific provisions cross-referring to the State aid rules for banks in difficulty and the principles underlying the assessment of support to banks or support through banks in that context. None of the stakeholders stated that the rules under evaluation are not coherent at all with the above-mentioned competition rules 160 .

However, the analysis also shows that the State aid rules for banks in difficulty are only partially coherent with other EU policies and legislation, specifically the CMDI framework. The term “crisis management and deposit insurance” (CMDI) captures the EU bank restructuring and resolution legislation (BRRD, SRMR) and the EU deposit insurance rules (DGSD). It refers to both of these closely interlinked frameworks at the same time. Naturally, the State aid rules do not fully reflect the legislative developments that occurred after their last amendment. Only a small fraction of respondents to the targeted consultation thinks that the State aid rules for banks in difficulty are coherent with these other acts. The need to improve coherence between the State aid rules and the CMDI framework was also noted in the 2020 ECA Special Report. As pointed out therein, since the entry into force of the CMDI framework, State aid rules and the CMDI framework apply in parallel. The text of the instruments of the CMDI framework (BRRD/SRMR/DGSD) makes direct reference to the State aid rules for banks in difficulty. The rules under evaluation, in turn, do not refer to the CMDI framework and do not identify clearly which rules apply to the CMDI interventions that could qualify as State aid. 161  

While the State aid rules, due to their earlier adoption and amendments, are almost silent on the existence of the CMDI framework 162 , the Commission assesses the CMDI requirements in each of its State aid decisions on banks as provisions that are intrinsically linked to the compatibility of State aid.

Since the evaluated State aid rules were designed before the introduction of the CMDI and are founded on another legal basis, they follow a different structure. Consistent with the Commission’s Treaty mandate to mitigate competition distortions, the State aid rules distinguish more distortive restructuring aid, where a bank stays on the market, from less distortive liquidation aid, where a bank exits the market. Within these two categories, more distortive capital aid is distinguished from less distortive liquidity aid. In a given case, the Commission applies the existing State aid rules bearing in mind the CMDI rules. The Commission verifies that a support measure is foreseen in the CMDI framework and is compliant with its requirements, and identifies the objective of the measure. Where the aided bank is supposed to remain on the market (precautionary measures, imputable DGS measures to prevent the failure of a bank, and the bail-in resolution tool if applied to recapitalise the bank and accompanied by aid), the compatibility criteria of restructuring aid are applied. Where the support is provided to a bank that exits the market (transfer strategies in resolution – i.e., sale of business and bridge bank tools, if accompanied by aid), liquidation aid criteria are applied. 163  This practise has allowed the State aid rules to be interpreted in line with the CMDI framework, but the different structure and terminology of the two sets of rules make their application complex and are a potential source of inconsistencies.

The evaluated rules (Point 63 of the 2013 Banking Communication) recognise that DGS interventions to restructure a bank, as part of the CMDI framework, may constitute State aid and are assessed under the rules. This may apply to the use of a DGS to prevent failures or to support the wind-up of a bank, if e.g. the DGS intervention is imputable to the State, is financed by State resources and provides an advantage to the beneficiary bank. The Tercas judgement 164 of the European Court of Justice is of specific relevance in the assessment of imputability of a DGS intervention to the State. 165  Some respondents in the consultation recommended a clarification of DGS treatment in future State aid rules.

Coherence issues of substance occur where the CMDI framework and the State aid rules regulate the same requirements differently, as is the case for burden-sharing. Burden-sharing requirements under the State aid rules for banks in difficulty require that, after losses are first absorbed by equity, contributions by hybrid capital holders and subordinated debt holders are necessary before State aid is granted. Contributions from senior debt holders and depositors are not required as a mandatory component of burden-sharing. Thus, in certain circumstances, this burden-sharing requirement can be less demanding than the corresponding bail-in requirements under the bank resolution framework, which entail that losses are absorbed by shareholders and creditors, potentially including senior bondholders or depositors (e.g. through bail-in), for a minimum of 8% of total liabilities including own funds before the resolution fund can be accessed. This difference in the scope of burden-sharing results in inconsistent protection of depositors and debtholders depending on the nature of the tool used to address the bank crisis (e.g. resolution or liquidation under national insolvency proceedings).

This finding is consistent with the findings set out in the evaluation of the CMDI framework, which complemented the impact assessment accompanying the 2023 Commission proposal on the CMDI framework’s reform. 166 It is observed therein that the coherence between the CMDI framework and the State aid rules could be further improved, for instance, as regards the conditions to access funding to support tools within and outside resolution. 167  Against this background, it could be considered whether the State aid rules could entail a progressive approach with different criteria for assessing the compatibility of State aid in the context of precautionary/preventive measures, resolution measures or liquidation outside resolution (i.e. reflecting the different scenarios resulting from the application of the CMDI framework).

The CMDI framework is currently under review. The 2023 Commission proposal on the CMDI framework reform 168  left unaltered the main elements of the framework. The core objective of the review proposal is to widen the scope of resolution to smaller banks and unlock additional resolution funding from deposit guarantee schemes and resolution funds. This SWD’s findings regarding the consistency of the State aid rules with the currently applicable (pre-review) CMDI framework, including as above on burden-sharing, hence remain applicable to the CMDI review proposal, while taking into account the attempt in the Commission CMDI review proposal to closer align the conditions for preventive and alternative DGS measures with State aid principles. The outcome of the review would have to be taken into account when revising the evaluated rules to maximise coherence between the two frameworks. 

Relevant rules on banking crisis management can also be found in more general European banking legislation such as the CRR 169 and the CRD 170 , which lay down minimum capital and liquidity requirements and other prudential requirements that may trigger a bank failure in case of breach. They also foresee certain supervisory powers to avert such failures. In cases in which existing buffers or the use of such supervisory powers, like restricting dividend payouts or requesting a capital restoration plan, would be effective or sufficient alternatives to State aid, the Commission would deny the necessity of State aid in its assessment. However, by the time of adopting a State aid decision, capital and liquidity buffers and/or supervisory options are typically exhausted or insufficient.

With regard to coherence of the State aid rules with banking supervision, the stakeholder consultation and this SWD (Section 4.1.1.2 ) recognise a trade-off between commitments to mitigate competition distortions made in the context of a State aid decision and the return to viability of the aided bank – a main priority of banking supervisors. The SWD presents the related views gathered during the consultation.

4.2.How did the EU intervention make a difference and to whom?

This Section seeks to assess the added value resulting from the fact that the Commission has adopted State aid rules for banks in difficulty, compared to what could have resulted in the absence of such rules.

Overall, the analysis indicates that the State aid rules for banks in difficulty provided a clear EU added value compared to a situation without such rules, since they allowed for a swift treatment, increased predictability, and legal certainty in the context of the assessment of the relevant State aid measures to the banking sector by the Commission.

As explained above in Section 2.1 , the provisions on State aid, as part of competition policy, are enshrined in the TFEU. Competition policy represents an area of exclusive EU competence pursuant to Article 3(b) TFEU and therefore the subsidiarity principle does not apply. The rules covered by the current evaluation, i.e. the State aid rules for banks in difficulty, belong to the field of State aid law, an area where the TFEU gives the Union exclusive competence. Only the EU can act in this area.

Even though it was not possible to separate and quantify an isolated effect and contribution of the application of state aid rules for banks in difficulty to resolving the global financial crisis due to methodological constraint of impossibility of separating an impact of a multiplicity of contributing factors being concurrently in play in addressing the crisis (e.g., such as monetary policy measures) 171 , undoubtedly, in terms of size, impact, and frequency of the interventions, the analysed state aid measures granted by Members States and approved by the Commission under the rules in question, were one of the biggest contributing factors that helped to resolve the crisis.

In the absence of the State aid rules for banks in difficulty, dedicated rules taking into account the specificities of the banking sector and allowing for swift action would have been lacking. The relevant State aid measures would have had to be notified to the Commission individually by Member States and the Commission would have had to assess them directly under Article 107 TFEU and take individual decisions on each of them, since the Rescue and Restructuring Guidelines for non-financial firms were not tailored to address the urgent needs of the banking sector. The mere existence of such State aid rules thus intrinsically reduced the administrative burden and ensured a swift treatment, which was crucial, particularly in the early years of the financial crisis. In addition, the existence of the State aid rules for banks in difficulty allowed Member States and potential beneficiaries to know ex ante the rules that the Commission would use to assess the compatibility with the internal market of the aid measures notified by Member States for the banking sector. This guaranteed predictability and increased legal certainty.

The application of the State aid rules for banks in difficulty also contributes to the objectives of the EU’s competition policy, enhancing the competitiveness of EU companies.  Box 5  presents an analysis based on Section 4.1.1 on effectiveness and Section 4.1.2 on efficiency, indicating the benefits on EU competitiveness as a result of applying the rules.

In order to evaluate the EU added value of the framework under consideration, stakeholders in the targeted consultation were asked whether the State aid rules for banks in difficulty provided an added value in comparison to a situation without such rules, in which case each individual State aid measure would have to be dealt with separately, directly applying the TFEU. In the targeted consultation, respondents, including a certain number of public authorities and a business association, highlighted in their replies the benefits in terms of the increased transparency, predictability and ultimately enhanced legal certainty and noted that the existence of the rules allowed the Commission to assess the State aid measures in question in a more uniform and expeditious manner and increased the legal certainty for the relevant national authorities, as well as the banks concerned, while allowing for the necessary flexibility.

At the same time, stakeholders indicated that the added value of the rules could increase, if the rules were updated having regard to the CMDI framework.

4.3.Is the intervention still relevant?

This Section assesses whether the objectives of the State aid rules for banks in difficulty still correspond to the needs within the EU.

In a first step, it examines whether the overall objectives were appropriate and whether they are still appropriate in the light of potentially changing needs, and therefore whether the action as set out in the intervention logic described in Section 2.1  continues to be justified. In a second step, it examines how well adapted these rules are to subsequent market developments and policy developments.

The analysis suggests that the twin objectives of the State aid rules for banks in difficulty – i.e. ensuring financial stability while minimising competition distortions – have been to a large extent appropriate for meeting the needs within the EU so far. In addition, there seems to still be a need for a State aid regime tailored to the specificities of the banking sector. However, the current rules do not fully reflect more recent EU policy developments, in particular the CMDI framework, and the evolution of market conditions.

In particular, as evidenced by the findings of the 2020 ECA Special Report 174 and of the E.CA study, the replies to the public and targeted consultations and bilateral meetings with EU and Member States authorities, the rules under evaluation corresponded to the needs within the EU and enabled swift and appropriate action in the years since the start of the financial crisis, which was followed by the sovereign debt crisis.

Initially, the State aid rules under evaluation had been specifically designed to address the effects of the most serious financial crisis faced by the European Union since its creation and to safeguard the internal market, following calls by the European Council, who had expressly stated its support for the Commission’s approach on the State aid rules “to be implemented in a way that meets the need for speedy and flexible action”. 175  The State aid rules for banks in difficulty provided an effective policy response, while being regularly updated and adapted, taking into account market realities.

As evidenced also by the findings in Section 4.1.1 , following the implementation of the CMDI framework since its various provisions entered into force, the uniform application of State aid control continued to contribute to safeguarding financial stability and to making the EU banking sector more robust through the instigation of deep restructuring and the market exit of the least efficient players. It has also preserved fair competition by requiring aided banks to implement measures to mitigate competition distortions and has required private loss-sharing by the aided banks’ shareholders and subordinated creditors.

However, while the State aid rules for banks in difficulty have overall met the EU’s needs throughout the period under evaluation, they do not fully reflect EU policy and legislative developments that took place since they were last revised, even though they have been applied consistently with such developments. In particular, the rules are not fully reflecting the structure of the CMDI framework or the creation of the Banking Union. These developments have impacted the context in which the State aid rules under evaluation operate, by making a distinction between different types of interventions specific to the banking sector, which are undertaken by different actors (e.g. DGS, a resolution authority etc.) and are governed by specific underlying considerations (e.g. precautionary support measures prior to a bank’s failing-or-likely-to-fail (FOLF) determination, aid in resolution after a bank has been declared FOLF, etc.). They also introduced a division of roles and responsibilities in the regulatory environment that should be taken into account when assessing State aid control in the banking sector (see in further detail Section 3.4  and Section 4.1.3 ).

With the introduction of the CMDI framework, bank resolution replaced State aid as the primary crisis management tool for banks. This stemmed from the decision of the EU co-legislators to have shareholders and creditors bear losses through ‘bail-in’, to rely on industry-funded safety nets as a second line of defence and to avoid using taxpayer money (‘bail-outs’) unless as last resort. Nevertheless, the CMDI framework continues to recognise the necessity for State aid in exceptional situations and distinguishes three possible time periods of aid: (i) aid to prevent failure before it occurs (i.e., in the form of precautionary recapitalisation or liquidity from the State, as well as through DGS measures 176 ), (ii) in resolution while the bank is failing or risks to fail (i.e., resolution fund aid, DGS contribution or aid from the State budget through the government stabilisation tools that Member States may use according to Articles 56-58 BRRD), or (iii) during wind-up after resolution has been rejected as not in the public interest (i.e., DGS alternative measures or ‘traditional’ State aid from the State budget 177 ).

For all stages, the CMDI framework explicitly refers to and continues to rely on the State aid rules. The CMDI framework itself does not include rules on the assessment of State aid and has therefore not replaced the State aid rules for banks in difficulty.

Thus, the CMDI framework has not replaced State aid rules but has introduced a crisis management approach that primarily relies on burden sharing by the shareholders and creditors of the bank. It allows State, resolution fund or DGS support only in exceptional and clearly ringfenced situations. While it stipulates the criteria under which so-called ‘extraordinary public financial support’ can be granted without causing the failure of a bank, it leaves the State aid compatibility assessment to the Commission and its State aid framework.

The State aid rules for banks therefore continue to be of relevance and are needed to provide a harmonised framework offering transparency to market participants and supporting an enhanced level playing field. Against this background, as the 2020 ECA Special Report also notes, it should be kept in mind that State aid control might have to play a key role in the future and the Commission’s role continues to be crucial and challenging at the same time. 178  

The above findings as regards the current relevance of the State aid rules for banks in difficulty are also supported by the outcome of the public and targeted consultations, as well as the views expressed in bilateral meetings with Member States’ authorities. The replies to the public and targeted consultations show support for maintaining a set of State aid rules tailored to the specificities and sensitivities of the banking sector. In their replies, Stakeholders underlined the pivotal role of the banking sector for financial stability and the real economy, as well as its structural interconnectedness, by contrast with other economic sectors.

Furthermore, the consultations have shown that additional clarifications in the State aid rules would be appreciated by market participants. Abandoning targeted rules and relying solely on the Treaty or the general 2014 Rescue and Restructuring Guidelines for non-financial undertakings in difficulty 179 would contrast with that wish, ignore the specific circumstances of the banking sector described in the SWD, and the specific requirements of the CMDI framework for State aid for banks. Creating such a gap in the State aid rules, which are organised by sector, would reduce clarity and efficiency for all involved parties and would likely impede the effectiveness of State aid control in the banking sector.

The replies to the targeted consultation and the views expressed in bilateral meetings with Member States’ authorities also show support for the fundamental concepts that underpin the State aid rules under evaluation, namely the three main compatibility pillars (i.e. minimisation of competition distortions, burden-sharing, restoration of long-term viability or market exit), which they still deem relevant and appropriate, though there is no clear agreement on the exact balance to be drawn between them. However, it has been emphasised that regulatory developments, particularly the CMDI, and the evolution of macroeconomic circumstances, including the observed improvement of the macroeconomic conditions since the global financial crisis 180 , need to be reflected in the State aid rules.

With the gradual phaseout of the financial and sovereign debt crises in Europe, and the broader macro-economic support during the Covid and Ukraine crises, in particular facilitated through the Commission’s temporary State aid frameworks and many other initiatives, bank failures have become less frequent. The State aid rules remain nevertheless relevant whenever a bank failure occurs or is prevented with public help, or whenever approved aid measures from the past have to be amended. The last decision under these rules was adopted in November 2023.  181 Depending on the outcome of the CMDI review process, access to funding in resolution from DGS and resolution funds might become easier, so that State aid control within resolution proceedings might become more important. Whether it is to prevent failure, facilitate resolution or ensure an orderly wind-up through DGS alternative measures, State aid rules will remain relevant to govern the exceptional public support tools recognised by the CMDI framework. State aid rules will also continue to play a role for wind-up aid from the State budget, in particular as the CMDI framework does not contain conditions on that form of support. The CMDI review proposal recognises wind-up aid from the State budget as a form of support, but only stipulates that it may be granted on an exceptional basis in the context of the winding up of an institution (i.e. after a negative public interest assessment) if in compliance with the State aid framework (proposed Article 32c BRRD).

5.What are the conclusions and lessons learned?

5.1.Conclusions

The present evaluation aims at assessing the State aid rules for banks in difficulty as a whole.

Overall, as regards effectiveness, the evaluation demonstrates that the State aid rules for banks in difficulty have proven to be largely effective in achieving their objectives to preserve financial stability while mitigating competition distortions and have surpassed the baseline scenario in this regard.

More precisely, the evaluation suggests that State aid, particularly capital support granted under the State aid rules for banks in difficulty, was one of the elements associated with an improvement of financial stability. While contributing to the preservation of financial stability, State aid granted in accordance with the rules under evaluation has also had a positive impact on the real economy, by supporting the improvement of credit institutions’ lending capabilities, including – to some extent – to SMEs. The analysis further indicates, having regard to the evolution of the performance indicators of aided and non-aided banks, that the State aid rules for banks in difficulty were largely successful in ensuring that banks that received restructuring aid returned to viability. According to the analysis, market discipline has also increased, while the State aid rules under evaluation were, at least to a certain extent, effective as regards containing moral hazard, thus further contributing to conditions that support medium- and long-term financial stability. The rules have therefore been largely effective in contributing to achieving the objective of preserving financial stability and, in turn, have supported the efforts to maintain a healthy European banking sector to support the single market.

As regards the objective of mitigating competition distortions, the analysis did not give rise to any findings of significant and lasting distortions of competition in connection with banks that received aid on an individual basis, e.g. in terms of increased market power or improved competitive position. It is likely that this observation can be explained by the minimisation of the disbursed aid, including the effect of the burden-sharing measures, and the comprehensive sets of commitments that were implemented for the purpose of the authorisation of the aid measures in question by the Commission in accordance with the State aid rules under evaluation. The above demonstrates that the rules under evaluation have been effective in reaching their objective to mitigate competition distortions that might arise from the granting of the aid. Importantly, the analysis has shown that the burden-sharing measures compulsory in State aid rules since 2013 and in the CMDI framework since 2015 led to increased market discipline.

With regard to efficiency, the evaluation suggests that the State aid rules for banks in difficulty have had a positive impact on the reduction of the administrative burden, particularly in the wake of the financial crisis. There could however still be room for improvement regarding the clarity of rules, in particular with reference to the interactions between the State aid rules and the CMDI framework, and/or the consolidation of the rules in one single communication. The evaluation has also indicated that the rules contributed to ensuring the efficiency of State aid expenditure, and that, overall, the benefits associated with the implementation of the rules have most likely outweighed their costs.

With regard to coherence, the evaluation suggests that the State aid rules for banks in difficulty are overall coherent with each other as well as with other competition rules, such as 2020 Temporary Framework and the EU merger control rules. The analysis, however, suggests that the State aid rules under evaluation are only partially coherent with other EU policies and legislation. In particular, EU policies and legislation which occurred after the adoption of the rules under evaluation, specifically the CMDI framework, are not yet fully reflected therein; hence, there appears to be a need to enhance the coherence between the rules under evaluation and such recent EU legislation, in particular the CMDI framework, which is also currently subject to review. In the absence of consistency, there could be a risk of regulatory arbitrage between the different frameworks.

Overall, the State aid rules for banks in difficulty provide an EU added value that is acknowledged by stakeholders. According to the available evidence, the State aid rules for banks in difficulty guaranteed predictability and increased legal certainty for the relevant public authorities and the banks concerned while allowing for sufficient flexibility. Furthermore, the existence of the rules allowed for a more uniform and swift assessment of aid measures by the Commission. At the same time, updating the State aid rules would improve their added value, insofar as it would allow the provision of State aid to the banking sector, where appropriate, having regard to transparent and consistent rules.

As to the relevance of the rules, the evaluation indicated that the objectives of the rules have been to a large extent appropriate for meeting the needs within the EU so far. A State aid regime tailored to the specificities of the banking sector has been and remains of relevance. However, the current rules do not fully reflect recent EU policy and legislative developments. In particular, they do not take account of the updated EU regulatory banking framework and its particular institutional and substantive structure.

Thus, the analysis suggests that further adjustments of the rules could be considered; the State aid rules under evaluation would have to be adapted to fully meet the current needs within the EU, having regard to the ongoing development of the policy and regulatory framework and the evolution of market realities.

5.2.Lessons learned

The evaluation indicates that there are some lessons to be learned from the past years of application of the State aid rules under evaluation.

Overall, the State aid rules for banks in difficulty have been broadly fit for purpose. The rules seem to have been largely effective in reaching their twin objectives, i.e. preserving financial stability while mitigating distortions to competition.

However, the State aid rules for banks in difficulty need to be updated to reflect the latest legislative developments and market developments. The review of certain rules and/or the update of certain concepts appear to be necessary to further clarify the interactions between the State aid rules for banks in difficulty and the CMDI framework, and to take into account the institutional and regulatory setting introduced in the EU legal order since the last revision of the rules. For instance, the State aid rules could entail a progressive approach with different criteria for assessing the compatibility of State aid in the context of preventive measures, resolution measures or liquidation aid outside resolution. It could also be assessed how, in the scenario of a revised CMDI framework allowing for easier access to industry-funded safety nets, the State aid rules could further facilitate a more effective use of resolution.

This would allow the rules to be exploited to their full potential and would help to ensure, inter alia, that stakeholders are provided with the legal certainty that they are looking for.

The evaluation also indicated room for further clarification of the rules, as well as further streamlining and simplification, for instance, by means of consolidation of the rules, which are currently set out in various separate communications, in one single Communication.

Annex I: Procedural Information

1.Lead DG, Decide Planning/CWP references

Commission Directorate-General for Competition (DG Competition).

2.Organisation and timing

In the second half of 2021, the Commission services announced to the Member States at the High-level Working Group of the Council its intention to launch an evaluation exercise, the purpose of which was to evaluate the application of the State aid rules for banks in difficulty since the entry into force of the 2008 Banking Communication.

The Call for Evidence for the evaluation was published on 17 March 2022 and set out the context, purpose and scope of the evaluation exercise, as well as its Better Regulation aspects (consultation of citizens and stakeholders, data collection and methodology). Stakeholders had the opportunity to provide their feedback concerning the Call for Evidence until 15 July 2022.

An Inter-Service Steering Group (ISSG) was set up which met for the first time on 26 January 2022 and gathered representatives from the Commission’s Secretariat General (SG), the Legal Service (LS), and Directorates-General: FISMA, ECFIN, GROW, REFORM, JUST, JRC. The ISSG was consulted on the scope of the evaluation of the State aid rules for banks in difficulty and the evaluation to be carried out.

The second ISSG meeting was held on 17 February 2023 to discuss the exact scope of the tasks and objectives to be addressed by the external study. The third ISSG met on 30 May 2023 to discuss the replies and contributions to the public and the targeted consultation that are included as an annex to the SWD. The fourth ISSG meeting was held on 7 February 2024 to discuss the draft version of the present SWD. The fifth ISSG meeting took place on 6 March 2024 and focused on how the other services’ comments on the draft version of the SWD had been addressed. On that basis, all services agreed in principle with the revised version of the present SWD and its submission to the Regulatory Scrutiny Board (RSB).

A public consultation was open from 17 March 2022 to 15 July 2022 on the Better Regulation Portal. During the same period, DG Competition launched a targeted consultation addressed to the main stakeholders on selected issues related to the evaluated rules. Both consultations were in the form of online questionnaires (EU Survey tool). The factual summary report of replies and contributions to the public consultations was published on 11 October 2022, and their extensive summary is included herein as Annex V.

The evaluation was also supported by a study on the impact of State aid rules for banks in difficulty. The Study was procured in the framework of a tender under the reference number COMP/2022/OP/0003 published on 1 July 2022 and the contract started on 24 January 2023. The Study was carried out to assess the application of the State aid rules for banks in difficulty, in particular their: (i) impact on financial stability, (ii) impact on competition, (iii) impact on long-term viability of aided banks, (iv) impact on market discipline, and (v) efficiency. It was undertaken to analyse the available specialised literature and market data in detail and provide an independent quantitative and qualitative assessment of the above-mentioned aspects in terms of effectiveness and efficiency. The analyses were supported by thorough collection of evidence with respect to EU Member States and State aid decisions during the evaluation period, from 2008 until March 2022. The final version of the Study was submitted to DG COMP on 24 November 2023.

Between May and June 2023, targeted consultations were also carried out by way of bilateral dialogues with selected Member States most relevant in terms of the past experience with the application of the evaluated rules. Two additional European regulatory authorities were also consulted on bilateral basis.

Agenda Overview

3.Exceptions to the Better Regulation Guidelines

No exceptions were made to the Better Regulation Guidelines 182  during this evaluation.

4.Consultation of the RSB

The draft Staff Working Document was sent to the RSB on 22 March 2024 and the hearing took place on 24 April 2024. The RSB issued a positive opinion on 26 April 2024.

5.Evidence, sources and quality

The evaluation was supported by the external study 183 described above. Primary data sources included the State aid Scoreboard 184 , which comprises aid expenditure made by Member States falling under the scope of Article 107(1) TFEU. Also, additional available statistical data on the banking industry as well as the Commission’s extensive case practice experience (including internal data aggregation) were used. In addition, relevant insights from the evaluation of the bank crisis management framework conducted in the first half of 2021 (in particular, feedback to its public and targeted consultation, part of the ongoing review of the crisis management and deposit insurance framework) was also used. The Commission services also used responses collected during the public consultations as well as targeted consultations conducted by way of several bilateral meetings with relevant Member States and two European regulatory authorities.

Annex II: Methodology and Analytical Models Used

The current Evaluation was based on a wide range of data sources/inputs.

As already mentioned in this SWD, the evaluation involved both internal analyses by the Commission services and an expert study prepared by an external consultant.

Moreover, the Commission services also used the results of the public consultation and the targeted stakeholder consultation, as well as already existing, publicly available studies and evaluation reports published by the Commission services, internal statistics, and the State aid Scoreboard. The Evaluation also benefitted from the relevant insights and observations resulting from the Commission services’ application experience and the Commission services’ own case practice, as well as from the results of the Commission’s evaluation of the current bank crisis management and deposit insurance framework.

1.Consultation activities

1.1.Public consultation

The open public consultation on the evaluation of the State aid rules for banks in difficulty took place between 17 March 2022 to 15 July 2022 on the Better Regulation Portal.

The objective of this public consultation was to obtain the views of citizens, public authorities and other relevant stakeholders on the effectiveness, efficiency, coherence, relevance and EU added value of the currently applicable State aid rules for banks in difficulty.

The public consultation took the form of an online survey, with a mix of closed and open questions. Participants were able to reply in any of the EU’s official languages.

This public consultation was also promoted through Twitter (now X), DG Competition’s State aid Newsletter and DG Competition’s website. The statistics computed in this summary are based only on contributions to the public consultation submitted through the online questionnaire. The input has been analysed using a data analysis tool, complemented by manual analysis.

The factual summary of the answers is available in Annex V.

1.2.Targeted consultation

At the same time of the public consultation, (i.e., also between 17 March 2022 and 15 July 2022), the Commission launched a targeted consultation, addressed to stakeholders with specific expertise and Member States directly impacted by State aid rules for banks in difficulty. The targeted survey was an extension of the survey submitted for the public consultation. However, it included additional, more detailed questions specifically targeted to the experience of Member States with the State aid rules for banks in difficulty. Given that it is the Member States which grant the State aid and apply the State aid rules, their responses are of particular relevance to the Evaluation.

The factual summary of the answers is also available in Annex V.

2.Expert study 185

The Commission services commissioned an external study with the specific aims of (i) producing quantitative and qualitative evidence on the effectiveness and efficiency of measures to mitigate competition distortions and restore the long-term viability of fundamentally viable aided banks, and on the effectiveness of burden-sharing measures to strengthen market discipline and fight moral hazard; and (ii) assessing the evolution of indicators on financial stability in selected EU countries and at aggregate EU level, and performing a quantitative and qualitative analysis of the extent to which such indicators were influenced and/or correlated with the State aid control for banks in difficulty over the evaluation period.

The Study was conducted by E.CA Economics and its academic partners and is published together with this SWD. It was carried out in the course of 2023. The Study is ‘backward-looking’, focusing on the period following the entry into force of the 2008 Banking Communication through all the relevant changes thereof, as well as the adoption of the applicable EU resolution framework and its interaction with State aid rules, until the end of 2022. To the extent that it uses its insights in the report, the Commission takes ownership of the Study, agreeing with the corresponding methodology and analysis.

The Study evaluates the impact of State aid for banks in difficulty in five areas of assessment: (i) financial stability, (ii) competition, (iii) banks’ viability, (iv) market discipline and moral hazard, and (v) efficiency of State aid rules. Based on a unique dataset combining European bank-level data between 2007 and 2021 with information on State aid from the Commission, the Study compared relevant outcome indicators for aided banks and their matched non-aided control banks via difference-in-differences regression analyses at the bank level. Additional descriptive insights resulted from regressions at the Member State level.

The Study was based on a number of data collection tools. It derived data from several databases, covering banks from all EU Member States and the United Kingdom, State aid decisions for banks adopted from 2007 until the end of 2022 and numerous public data sources. The key data sources among them were: (i) the Decision database which contains all relevant State aid procedures along with their timelines, decisions issued under these procedures, and additional information about characteristics of these decisions; (ii) the Bank database, which includes relevant bank-level information on a yearly basis for the period between 2005 and 2022 in relation to banks across Member States. In addition, it features information regarding which banks received State aid, in which years, and to what extent, collected from confidential files provided by the Commission; (iii) the Bank-decision database, which brings together information about aid beneficiaries from the Bank database and connects it with the Commission’s decisions in the Decision database, particularly for banks aided in individual procedures where such match is possible based on the identity of the beneficiaries; and (iv) the Member State (MS) database, which is the core panel dataset for the MS and EU-level analysis, as it is a source of information at the MS level on a yearly (quarterly) basis, covering the period between 2005 and 2022.

In order to assess the impact of State aid to banks in difficulty at Member State-level, the Study compares several indicators (of financial stability and competition) and aid amounts (standardized using Member States’ pre-crisis GDP) across different Member States. The development of relevant indicators over time is presented. In order to obtain deeper insights into the Member State and EU level associations between the State aid granted and the relevant outcome variables, simple regressions holding other explanatory factors constant were used. This regression analysis allows to disentangle how several different “explanatory variables” (in the case at hand State aid, but also other factors that are independent from State aid such as GDP growth influence one “dependent variable” (in the case at hand the outcome variables in the assessment of financial stability and in the assessment of competition where the Member State assessment is performed).

Furthermore, to assess the impact of State aid to banks in difficulty at the bank level, the Bank database was used. A descriptive analysis describing how the economic outcome indicators and the characteristics of the banks have developed over time and how they differed between the aided and non-aided banks is provided. It sheds light on the possible differences between the aided and non-aided banks, which would indicate a selection on observable characteristics that can be accounted for by a matching procedure.

The descriptive analysis is followed by a thorough econometric analysis that aims at estimating the causal impact of the provided State aid. In a setting where part of a population is treated by a policy intervention (i.e., State aid rules) and the rest is not, a difference-in-differences strategy was used, i.e. the outcomes of the group of aided banks before and after the intervention were compared with the corresponding outcomes of a group of non-aided banks. Since treated banks received State aid at different points in time, the Study has relied on stacked dynamic difference-in-differences models (“dynamic DiD"), in combination with a matching approach (see below) to identify control banks. This allows to zoom in and investigate whether and how the effects of receiving State aid have developed over time and across banks. It also allows to explicitly model the possibility that the effect of aid may take time to materialise. For all aided banks, an “event window” is defined to study aid effects. The event is the first inflow of aid. The window goes back three years before and lasts until several years after the first inflow. The exact end date depends on the specific focus of the assessments.

To deal with the observed differences in the characteristics of aided and non-aided banks (e.g., aided banks being significantly larger on average), a matching approach is used before performing the difference-in-differences regressions. In particular, the propensity score matching methodology finds for each aided bank one or more banks with (1) similar probability of getting aided based on pre-intervention characteristics and (2) with very similar pre-intervention in their characteristics. In this way, the treatment and control groups are not different from each other conditional on observed characteristics. The matched non-aided banks serve hence as relevant counterfactuals to which the aided banks are compared. It allows to compare banks that were similarly exposed to the crisis but had similar observable characteristics before the arrival of the financial crisis.

The search for the best match is carried out in the year 2006 where banks and their matching covariates were expected to perform “normally”. Knowing that both sets of banks were similar in their “healthy” state enables a more accurate assessment of the impact of the aid, while also controlling for the development of non-aided banks during the financial crisis. The set of matching criteria includes variables capturing the size of banks along various dimensions (total assets, total deposits, and total loans), profitability of banks (return on assets) and variables reflecting the business model, product portfolios and operational strategies (overheads to asset ratio, net loans to assets ratio, net interest margin). There is no requirement for the aided and non-aided banks to operate in the same Member State, since this is too restrictive in the context of this study and would even render analysis of banks from some Member States impossible. In the matching procedure, some aided banks are lost, most notably due to the requirement that a specific treated bank is active before the financial crisis in 2006, or simply due to the inability of the procedure to find a reasonably good match. Before matching, aided and non-aided banks were very different from each other. After matching, the distributions for both aided and the matched non-aided banks show a similar propensity for receiving aid, indicating that the selected control banks resemble the aided banks in terms of their characteristics. The absolute differences in means are substantially smaller for the matched sample than the unmatched sample. The matched sample means are also statistically indistinguishable from each other.

3.Other data sources

DG Competition has also conducted its own internal assessment of the application of the State aid rules derived from the adopted State aid decisions. Internal Commission data used for the internal assessment include for instance monitoring results and the State Aid Scoreboard.

Court judgments, desk research, literature review and internal statistics have additionally played a role in data gathering. DG Competition used several other publicly available reports and data such as data from EUROSTAT and the OECD.

Finally, bilateral meetings were held with selected stakeholders – Member States, the Single Supervisory Mechanism of the ECB, and the Single Resolution Board as deemed relevant by DG Competition.

4.Limitations and challenges of the evaluation

One obvious limitation of the evaluation stems from the fact that the observable data are a result of a complex concurrent interaction of a multitude of variables which are difficult to disentangle even when applying the methodology described above. Along with the provision of State aid to concrete banks, several other measures have been applied or introduced that simultaneously contributed to avoiding systemic financial collapse, calming down financial markets and gradually reestablishing financial stability, as well as confidence in soundness and stability of the financial situation. Such complex social phenomena are never the result of a change in a single factor or a variable, be it State aid, or any other. Even when observing a correlation of relevant data sets within relevant confidence intervals, the causality between the observed sets of variables are not easy to establish when other fast moving and changing factors are at play concurrently, which is inevitably the setting of a financial crisis.

A concrete shortcoming of the descriptive EU and Member State analysis is that it does not measure causal relationships, as there might be several unobserved factors that cannot be accounted for, and could be the drivers of the observed correlations. However, the patterns developed in such analysis can help to guide the understanding of the context of the evaluation and provide a basis for the more sophisticated analyses.

While the difference-in-difference approach is more sophisticated than a descriptive analysis, its validity to measure a causal effect of the treatment (i.e., receiving State aid) relies on the key assumption of random assignment to the treatment group. In the present setting, this means that whether a bank is being aided should be randomly assigned. This is very unlikely to hold when comparing aided banks to all other non-aided banks. In fact, it is an endogenous decision by the Member State to grant aid to a bank in difficulty. In addition, also other decision-makers play a role in deciding whether the aid is granted or not. Earlier research also suggests that worse performing viable banks were more likely to have received State aid which would mean there is a negative selection problem. Also the Study found significant differences between the aided and non-aided banks in the sample. In cases like these, the random-treatment assumption can be partially replaced by the less demanding assumption of parallel trends. The parallel trend assumption requires that the counterfactual outcomes of the aided banks absent intervention should have moved in parallel to non-aided banks before the intervention. If this holds, then non-treated banks – or at least a selected subsample of them – can be seen as reasonable counterfactual to treated ones. To achieve this, “conditional independence” is assumed. This suggests that the selection of being aided or not could be as good as random conditional on observable variables. To ensure this is practice, one widely used strategy is to “match” aided banks with non-aided banks (as explained in section 1.2 of this Annex). By doing so, aided banks should be similar enough to the matched non-aided banks, at least in terms of observed characteristics and, therefore, be considered as a good counterfactual. While this approach allows capturing the underlying observed differences between the aided and non-aided banks, it cannot exclude that unobserved factors are correlated with whether a given bank is aided. Although, the inclusion of bank fixed effects can further capture some time-invariant bank-specific factors, there might still be some unobserved time-varying factors that are correlated with the selection of treatment and that also affect banks' post-treatment performance. Yet, while one should be careful in claiming that the estimates fully capture the causal effect of State aid on bank performance, the research design (combining dynamic DiD with propensity score matching and bank fixed effects) addresses some of the issues in causal analysis to the extent possible and is suitable to answer the main questions of this evaluation.

For the dynamic DiD approach, the choice of the first aid inflow as an event was the most natural as a bank receives aid for the first time shortly after it has started to face difficulties. This definition of a window is largely unproblematic for banks aided only once. However, when banks have been aided repeatedly for longer periods, the major aid amounts and their effects might have come later than at the time the aid was first identified. Hence, it is possible that the measured effect of the first aid for these banks does not capture the effect of all State aid to the full extent.

Another major limitation stems from the fact that in some areas the data are not available or there are insufficient observations to draw strong conclusions on their basis – be it due to the low number of cases involved, low number of banks in question, etc. In other areas, the available data are not sufficiently granular in order to enable a full analysis of all types of aid. It also has to be recalled that in some cases, limited ex ante information relevant for assessing the impact of the measure in question is available.

The assessment of the potential roles of the different legal frameworks (i.e. up to the 2013 Banking Communication, up to the CMDI framework, and as from the entry into force of the CMDI framework) at the bank level is complex. A bank could have received aid inflows multiple times in several years, possibly spanning several regulatory periods. In addition, as explained earlier, the various elements of the 2015 CMDI framework do not have a unified application date. In addition, there are only 8 banks in the matched sample aided under the 2013 Banking Communication prior to the entry into force of the 2015 CMDI framework and 11 banks in the matched sample aided after the entry into force of the 2015 CMDI framework, limiting the explanatory power of the regression analysis. Several other factors strongly correlate with these two frameworks. Banks that were aided at later points (particularly 2015 and beyond) possibly had different structural problems that led them to requiring aid at this point, which in turn may require lower average aid and thereby have different impact on the economy. This selection problem (arising from the fact that cases falling under different frameworks can be inherently different) limits not only the explanatory power, but mainly the ability of the analysis to identify causal effects.

Furthermore, despite DG Competition’s efforts to make stakeholders aware of the public consultation (including extending the deadline to reply and making the consultation available in all official languages of the EU), the total number of replies was limited. The public consultation generated only a limited number of replies, which is very small compared to the reference population of citizens, companies and public authorities potentially affected by the rules in question.

The evaluation does not assess and compare different legal regimes resulting from the various amendments to the Basel regulatory framework, since the Basel standards continue to evolve. These standards were adopted at international level in their current form only after the 2008 financial crisis (in the EU by way of adopting in 2013 the Capital Requirements Regulation (EU) No. 575/2013 and Capital Requirements Directive IV No. 2013/36/EU) and they are being implemented by different countries continuously at different stages with varying degrees of compliance. This makes a comparison between individual non-EU countries and Member States on this basis particularly challenging. Various continuous substantive amendments following the adoption of the so-called Basel III standards do not allow to separate the impact of these individual regulatory changes on the performance and soundness of banks (whether aided or non-aided).

Finally, this SWD does not directly assess the impact of the COVID-19 crisis and of the Russian war of aggression against Ukraine, which are unprecedented and unique situations, and were therefore deliberately not made part of the evaluation. For the same reasons, the Expert Study also did not take into account the COVID-19 crisis and the Russian war of aggression against Ukraine.

5.Method of the evaluation

An evaluation needs an appropriate point of comparison to be able to assess the change that the EU action has brought over time. In general, the main baseline (or counterfactual) is a situation in the absence of EU intervention.

In the current situation, the EU intervention is the adoption of the 2008 Banking Communications and subsequent Communications setting out rules for State aid for banks in difficulty.

The evaluation questions and criteria are presented in Annex III below.

Annex III: Evaluation Matrix

Annex IV: External factors and policy initiatives over the evaluation period

Annex V: Overview of benefits and costs and Table on simplification and burden reduction

Annex VI: Replies and Contributions to the public and targeted consultation

As part of the evaluation, the Commission sought the views of stakeholders on the effectiveness, efficiency, relevance, coherence, and EU added value of the State aid rules for banks in difficulty. To this end, both a public consultation and a targeted consultation were organised in parallel. The results of these consultations serve as input for the evaluation.

The public and targeted consultations were open for 17 weeks until 15 July 2022, and replies could be provided in all 24 official EU languages. The public consultation contained 13 high-level questions, which were also included in the targeted consultation. The latter incorporated additional technical enquiries, with a total number of questions of 45. The issues raised in the public and targeted consultations were grouped by the five evaluation criteria under consideration, namely the effectiveness, efficiency, relevance, coherence, and EU added value of the State aid rules for banks in difficulty.

Due to originally low number of responses received in the public consultation, the Commission undertook a number of steps to increase the representativeness and meaningfulness of the responses. Firstly, to complement the results of the public consultation, the Commission conducted in parallel a targeted consultation as well. The deadline to reply to both consultations had been prolonged by five weeks and, to ensure maximal accessibility, the questions had been translated into all official languages. The Commission also informed State aid representatives of all Member States of the organisation and prolongation of the consultation. Such initiative led to an increase of the number of replies.

In addition, in order to further strengthen the relevance of the opinions of the relevant stakeholders, between May 2023 and December 2023 the Commission also conducted a series of bilateral meetings with representatives of the Single Supervisory Mechanism of the ECB, the Single Resolution Board, and the authorities of some Member States selected in light of the high amounts of State aid authorised and granted during the period covered by the evaluation, the relevance of some of their national State aid cases for the Commission’s case practice and/or the significance of the national beneficiary banks and related restructuring processes.

1.Overview of respondents

In total, the Commission received 48 official responses, of which 18 and 30 were respectively provided to the public and targeted consultation. Stakeholders from 22 countries participated to the consultations. All but two respondents (1 from Australia and 1 from China) were stakeholders from the EU. Respondents are notably based in Belgium (7), Germany (6), Italy (6), Spain (4), France (3), Czech Republic (2), Denmark (2) and Greece (2) (see  Figure 22 ).

Figure 22: Participation per country and type of consultation

Responses received were from a variety of stakeholders representing, in particular, public authorities (18), companies and business organisations (7), as well as business associations (6), which replied mainly to the targeted consultation, whereas EU citizens (6) only provided input to the public consultation (see Figure 23 ).

Figure 23: Participation per category of stakeholders and type of consultation

The main field of activity of respondents notably encompasses bank associations (12), Finance Ministries (7), retail bank consumers (5) and consumer associations (4) (see Figure 24 ).

Figure 24: Main field of activity or sector by type of consultation

2.Summary of key messages

This document aims to provide a summary of the responses received in the public and targeted consultations, including statistical information and respondents’ comments. Each subsection contains a brief synopsis of responses received for a specific topic under both consultations, with dedicated developments on the replies provided to the technical questions raised in the targeted consultation. The statistical data provided in this section are notably expressed in number of respondents and cover, where relevant, the answers provided both to the public and targeted consultation. The number of respondents who did not provide answers to the questions and those who chose the option “don’t know/no opinion” answers were not reflected, unless significant, when explaining the participants’ views.

2.1.Effectiveness

17 respondents supported the statement according to which the State aid rules for banks in difficulty have been successful in achieving the objective of contributing to the preservation of financial stability by enabling the continued smooth functioning of individual banks and the banking sector. By contrast, only 8 respondents were positive (while 10 were neutral and 18 negative) on State aid rules’ ability to minimise competition distortions between aided and non-aided banks and only 9 agreed (while 13 were neutral and 17 disagreed) that State aid rules achieved the objective to limit the amounts of aid given to banks to the minimum necessary (see Figure 25 ).

Figure 25: To which extent have the State aid rules for banks in difficulty been successful in achieving the following objectives?

As regards the negative opinions on State Aid rules’ ability in minimising competition distortions between aided and non-aided banks, a respondent highlighted that there is a trade-off between the objectives of minimising competition distortions (e.g. banks’ compulsory divestments of potentially profitable entities that can undermine bank’s return to viability) and the principle of safeguarding financial stability and/or minimising the use of public funds. Respondents also expressed concerns as regards existing incentives to address issues with small and medium sized banks in difficulty at national level, in a way that has prevented their market exit, either at the cost of the banking sector or at the expense of public money. Other replies further referred to concerns for consumer protection as opposed to considerations for financial stability.

In terms of results achieved, 12 respondents considered that State aid rules allowed addressing the temporary funding problems of banks (via the granting of liquidity aid), while 16 were neutral and 6 opined that State aid was not successful in addressing such problems. In the same vein, 13 respondents were of the view that State aid rules ensured the orderly market exit of unviable banks (via the granting of liquidation aid), while 11 opined negatively and 10 were neutral on these achievements. Differently, only 7 respondents were of the opinion that the State aid rules related to restructuring aid contributed to restoring the long-term viability of banks, whereas 14 considered that they were not successful in achieving this result (see Figure 26 ).

Figure 26: To which extent have the State aid rules for banks in difficulty been successful in achieving the following results?

In this last regard, several respondents referred to cases of State aid where, while financial stability was preserved because of the granting of State aid, the long-term viability of the relevant banks was not restored. A respondent was also of the view that the effectiveness of liquidity aid in tackling temporary funding problems has been mixed insofar as liquidity runs can degrade the liquidity position of a distressed bank at a fast pace.

While most respondents were not able to assess the long-term impact of State aid rules, some of them agreed that State aid rules have been successful in contributing to the long-term impacts of ensuring that creditworthy enterprises were able to get the bank loans or other forms of credit they needed, with no significant differentiation between households, small and medium-sized and large enterprises. A minority of respondents (6 out of 48) agreed that State aid rules contributed, in the long run, to the cross-border integration of banks in the EU and supported the enhancement of EU banks’ competition through the offer of better and more innovative products. As regards State aid rules’ successfulness in contributing to restoring trust in banks in the EU, views were split as 9 respondents had a positive opinion whereas 11 were negative and 10 were neutral (see Figure 27 ).

Figure 27: To which extent have the State aid rules for banks in difficulty been successful in contributing to the following long-term impacts?

With respect to the long-term impact on banks’ cross-border integration in the EU, respondents were of the view that State Aid rules are not the appropriate tool to address such an objective, given the role played by other factors, including the regulatory framework applying to banks, the features of banks’ services to retail consumers, as well as the lack of a harmonised tax regime in the EU and the incomplete nature of the Banking Union. Some respondents also pointed to the recourse, over the period under review, to national insolvency procedures, which remain widely fragmented. As regards banks’ competitiveness, respondents reiterated their concerns on the maintenance in the market of banks which were the recipient of multiple public support measures, therefore presenting a risk of distortion of competition for the European banking sector. Some respondents pointed out that, in countries characterized by a broader restructuring of the banking sector, certain aspects of State aid rules for banks in difficulty may have limited the ability of banks to finance the real economy, especially SMEs.

The targeted consultation included questions on the extent to which the application of State Aid measures to reinforce market discipline and tackle moral hazard on behalf of bank management, shareholders and investors have been effective over the period under review. An important number of respondents, namely between 14 and 25, did not provide any opinion on the effectiveness of these measures. Among those who provided a reply, the majority expressed a positive or neutral view on the measures. Some respondents had notably a favourable opinion as regards the effectiveness of measures implying burden-sharing by bank shareholders (10), burden-sharing by hybrid capital holders, ban on paying out dividends and the management replacement (8). Respondents also had a positive view on the effectiveness of the management remuneration cap (7), the ban on paying out discretionary coupons, the burden-sharing by junior bondholders (6) and the obligation to divest certain subsidiaries or activities (5) (see Figure 28 ).

Figure 28: To which extent have the following measures – applied to reinforce market discipline and tackle moral hazard on behalf of bank management, shareholders and investors – been effective?

More specifically, several respondents opined on the need to limit the scope of burden-sharing measures vis-à-vis retail investors in order to take into account the lessons learnt from the mis-selling practices of banks’ debt instruments. A respondent was also of the view that burden-sharing measures should be calibrated along the proportionality principle, depending for instance on whether the bank is going concern or gone concern. Another respondent raised concerns regarding the increasing number of State measures authorized in accordance with the market economy operator principle, which do not necessarily imply burden-sharing measures and do not therefore contribute to the market discipline.

As regards management remuneration cap measures, a respondent was of the view that although useful to limit the amounts of aid, such measure may affect the identification and selection of the best professionals to be entrusted with the management of the bank in crisis. A reply also pointed out that in order to effectively prevent banks from excessive risk taking, it is important to strengthen the measures against those directly responsible for the crisis.

In addition to the measures referred to in the questionnaire, a respondent also mentioned Fit and proper assessments and prudential measures which should be applied to reinforce market discipline and tackle moral hazard.

22 respondents also considered that the application of the State aid rules for banks in difficulty had unexpected or unintended consequences. Discrepancies in national insolvency proceedings were referred to as a contributing factor to the uneven playing field across Member States. Respondents also mentioned incentives to address bank failures outside the CMDI framework, due to a perceived lack of alignment with the CMDI framework. As regards in particular precautionary measures for banks in difficulty, respondents expressed concerns relating to the support of banks that may have been unviable.

In the targeted questionnaire, in response to the question on the extent to which the burden-sharing requirements in the State aid rules for banks in difficulty have been successful in ensuring that an aided bank’s shareholders contribute to cover the losses (e.g. through the write-down of shares, dilution, etc.), an important number of respondents (12) replied positively for the period starting after the introduction of the 2013 Banking Communication, while 4 were neutral and 3 replied negatively. As regards the period running before 2013, 6 respondents considered that the aforementioned objectives were successfully achieved, whereas 7 were neutral and 4 had a negative opinion (see Figure 29 ).

Figure 29: To which extent have the burden-sharing requirements in the State aid rules for banks in difficulty been successful in ensuring that an aided bank’s shareholders contribute to cover the losses (e.g. through the write-down of shares, dilution, etc.)

More specifically, a respondent referred to the importance to introduce safeguards for retail investors to address mis-selling practices of hybrid participation through preferred shares. Another respondent believed the possibility to waive the bank’s shareholders’ and debtholders’ contribution, as foreseen by point 45 of the Banking Communication, contravenes market discipline objectives and should only be used in exceptional cases. Furthermore, banks’ losses should be better assessed, for instance through stress tests. The methodologies for asset quality reviews should also be coordinated between the Commission and the resolution authorities. The respondent also pointed out that the creditors/debtors under State aid in liquidation benefitted from a more favourable treatment than in resolution.

In the targeted consultation, 7 respondents considered that the burden-sharing requirements have not been successful in ensuring that an aided bank’s junior bondholders contribute to cover the losses, as opposed to only 4 with a positive assessment. The response was similar for the period before and after the adoption of the 2013 Banking Communication. Interestingly, most respondents took a neutral view or were unable to comment (see Figure 30 ).

Figure 30: To which extent have the burden-sharing requirements in the State aid rules for banks in difficulty been successful in ensuring that an aided bank’s junior bondholders contribute to cover the losses (e.g. through the conversion and or write-down of bonds, the cancellation of an aided bank’s shareholders contribute to cover the losses (e.g. through the write-down of shares, dilution, etc.)?

More specifically, a respondent highlighted that junior bondholders should not have been targeted by burden-sharing measures, which should only apply to shareholders given their impact on the decision-making process. Another reply pointed out that in some Member States, banks’ junior bondholders’ contribution is now considered as a serious risk in case of State aid, therefore discouraging potential buyers of such financial instruments, with potential detrimental financial impact on many small and medium sized banks.

In the targeted consultation, in response to the question on the extent to which the measures applied to mitigate the competition distortions stemming from aid to banks in difficulty have been effective, most of respondents, namely between 16 and 19, did not know or did not have an opinion on this matter in relation to the specific measures put forward in the questionnaire. As regards those who provided a response, replies were split on the effectiveness of these measures (see Figure 31 ).

Figure 31: To which extent have the following measures – applied to mitigate the competition distortions stemming from aid to banks in difficulty – been effective?

More specifically, several respondents highlighted that despite the relative effectiveness of the measures to mitigate competition distortions, when such measures are applied too conservatively, these may also prevent the aided banks from restoring their viability. In relation to liquidation aid, a respondent was of the view that the market exit of the non-viable entity removes the risk of undue competition distortions resulting from the aid. A broader set of respondents considered, however, that such measures were not consistently applied across Member States and banks, one reply mentioning the possibility to enshrine the related Banking Communication principles in the BRRD for legal certainty. Furthermore, several replies highlighted that aggressive commercial practices are difficult to translate into operational requirements and restrictions on pricing policies can be difficult to monitor.

In the targeted consultation, 5 respondents highlighted that they were aware of other effective measures to mitigate the competition distortions stemming from the granting of aid to banks in difficulty (while 4 responded negatively and 21 had no opinion) (see Figure 32 ).

Figure 32: Are you aware of other effective measures to mitigate the competition distortions stemming from the granting of aid to banks in difficulty?

More specifically, a respondent referred to the need to enhance the predictability of State aid rules to address distortion of competition concerns, in the wake of the European Court of Justice ruling on the Tercas case and including on when the granted support can be considered to be market conform. Another respondent considered that the effective use of the bank resolution framework mitigates competition distortions whereas another reply underscored that, when a bank receives liquidation aid and is in the process of exiting the market, it is important that market exit in such circumstances is time-bound.

In the targeted consultation, in response to the question on whether the contents of the restructuring plan model – as set out in the Annex of the 2009 Restructuring Communication – was appropriate for an adequate assessment of a bank’s long-term viability, while 20 respondents did not express any views, the remaining 10 were split between a positive and a negative opinion (see Figure 33 ).

Figure 33: Are the contents of the model of the restructuring plan – as set out in the Annex of the 2009 Restructuring Communication – appropriate for an adequate assessment of a bank’s long-term viability (e.g. data requested, scenarios to be simulated, time horizon to be considered, etc.)?

The elements put forward in the negative replies included the need, for the Commission, to check restructuring plans’ consistency with relevant guidelines adopted subsequently to the 2009 Commission Communication, in particular the EBA guidelines on the Business Reorganisation Plan and on banks’ Supervisory Review and Evaluation Process. Respondents also considered that the requirement to draw up restructuring plans needs to be strengthened to ensure that these plans allow a return to long-term viability, contrary to what has happened in various recent cases.

In the targeted consultation, in response to the question on whether the appointment of an independent monitoring trustee to verify the compliance of the Member State and aid beneficiary with the relevant State aid commitments (i.e. conditions which reflect the applicable compatibility criteria) was an effective way to ensure the enforcement of the State aid rules for banks in difficulty, while 20 respondents did not express any opinion, the remaining 10 were split between a positive and a negative opinion (see Figure 34 ).

Figure 34: Are the contents of the model of the restructuring plan – as set out in the Annex of the 2009 Restructuring Communication – appropriate for an adequate assessment of a bank’s long-term viability (e.g. data requested, scenarios to be simulated, time horizon to be considered, etc.)?

In the targeted consultation, 18 respondents did not have any opinion on the effectiveness of the State aid related measures to restore the long-term viability of banks. 9 respondents considered de-risking the balance-sheet (e.g. disposal of non-performing assets, risk protection), reforming internal risk management policy and corporate governance, and divestment or termination of less profitable or loss-making activities as effective measures. Some respondents supported the measures to reduce complexity and the measures and/or quantitative targets to reduce operating costs. A limited number of respondents considered as effective investments (e.g. IT infrastructure) to improve operational performance and measures and/or quantitative targets to improve revenue-generating potential were effective (see Figure 35 ).

Figure 35: To which extent have the following measures applied to restore the long-term viability of banks been effective?

The replies highlighted that the achievement of revenue targets may not be under the bank’s strict control, especially in the event of significant changes in the macroeconomic scenario (e.g. Covid-19 pandemic, Russian war against Ukraine). Consequently, more flexibility, through a review mechanism, could be introduced in the restructuring plan. A respondent also underlined that de-risking measures, although effective in restoring long-term viability, can potentially undermine the seller’s position, particularly in case of a fixed timeline to complete such de-risking. A reply also referred to the relevance of IT investments as a means to improve banks’ cost-income ratio in the medium term. More broadly, some respondents considered that State aid measures should be reassessed in light of the EU bank resolution framework, in relation notably to the business reorganisation plans’ requirements which apply when the bail-in tool is used.

In the targeted consultation, in response to the question on whether respondents are aware of other effective measures to restore the long-term viability of banks, while 19 did not express any views, 6 replied positively and 5 negatively. As regards the positive replies, respondents suggested to subject part of the management’s remuneration to the achievement of the restructuring plan’s objectives and to strengthen the requirement to draw-up a restructuring plan. Other respondents were of the view that additional time should be granted to the bank in difficulty (to avoid a forced sales process which can have an impact on profitability), particularly when the entire financial and economic environment requires it.

In the targeted consultation, in response to the question on the extent to which the State aid rules for banks in difficulty have been successful in ensuring that the market exit of unviable banks minimised moral hazard, 7 respondents expressed a positive opinion (vs 4 negative and 3 neutral replies). 5 respondents considered that liquidation aid did not result in aid to the buyer of the defunct bank (vs 5 neutral and 3 negative replies). Opinions were also divided on whether the market exit of unviable banks took longer than the period strictly necessary for the orderly liquidation or whether the liquidation aid was limited to the minimum necessary (See Figure 36 ).

Figure 36: To which extent have the State aid rules for banks in difficulty been successful in ensuring that the market exit of unviable banks (which was supported with liquidation aid)…?

Respondents referred to cases of banks in difficulty that received State aid and which still operate in the market, despite their low profitability, triggering possible competition distortion issues. In this respect, a respondent supported clearer criteria and improved transparency as regards the orderly exit of failing banks. Respondents also expressed concerns as regards the divergence of national liquidation practices and the risk of regulatory arbitrage. A respondent suggested setting up of a public ex post diagnosis of cases of banks in difficulty which received public support in relation to the actions taken, the funds made available, origin of the funds etc. An alignment of burden-sharing rules alongside the CMDI review was also referred to as a means of closing any loopholes of EU rules dealing with banks in difficulty. More broadly, the review of the CMDI was also considered as possibly implying a reduction of the amounts of State aid granted for liquidation purposes.

As regards the selling processes, a respondent raised concerns as regards the (usual) very limited number of buyers of banks in difficulty, implying a risk of aid to the buyers.

In the targeted consultation, in response to the question on the extent to which the entry into force of the CMDI framework in 2015 influenced – positively or negatively – whether the objectives of the State aid rules for banks in difficulty have been achieved, respectively 12 and 8 respondents answered that the CMDI framework contributed positively to preserving the financial stability and the level playing field in the EU by coordinating Member States’ response to the financial crisis (vs respectively 6 and 9 neutral and 4 and 5 negative responses). 8 respondents also considered that the establishment of the CMDI framework contributed to reinforcing market discipline and tackling moral hazard (vs 10 neutral opinions and 3 negative). Differently, 9 respondents were of the view that the CMDI framework did not contribute to limiting the aid amounts given to banks in difficulty to the minimum necessary (vs 7 neutral opinions and 6 positive) (see Figure 37 ).

Figure 37: To which extent has the entry into force of the EU bank crisis management and deposit insurance (CMDI) framework in 2015 influenced – positively or negatively – whether the following objectives of the State aid rules for banks in difficulty have been achieved? In other words, to which extent could the achievement (or non-achievement) of the following general objectives of the State aid rules for banks in difficulty be attributed to the entry into force of the CMDI framework in 2015?

More specifically, several respondents reiterated the need to review the CMDI framework and the State aid rules hand in hand to ensure consistency and reduce the risk of regulatory arbitrage across Member States and an unlevel playing field between banks. In this last regard, some replies referred to (overly) important recourse to national insolvency procedures compared to resolution cases over the period under review, implying State aid with insufficient consistency and less far-reaching safeguards, particularly for medium and small sized banks. Furthermore, a respondent expressed concerns regarding the limitations surrounding the access and use of Resolution Funds which contributed to the granting of national public support. Another reply also pleaded in favour of further clarity in the use of deposit guarantee scheme (DGS) funds and the Single Resolution Fund. Additional comments on the CMDI framework were also related to failing-or-likely-to-fail declarations and the issues surrounding the set-up of Asset Management Companies to deal with banks’ Non-Performing Loans. A respondent also pointed out the complexity of the interlinkages between the CMDI and the State aid frameworks.

In the targeted consultation, on the question on the extent to which other important drivers have – positively or negatively – influenced whether the objectives of the State aid rules for banks in difficulty have been achieved, respondents were split (see Figure 38 ).

Figure 38: To which extent have other important drivers (e.g. market trends, economic developments, policies other than the EU bank crisis management and deposit insurance (CMDI) framework) influenced – positively or negatively – whether the following objectives of the State aid rules for banks in difficulty have been achieved?

As regards the resilience of the banking sector and the preservation of financial stability, respondents referred to drivers such as the set-up of the Banking Union and the implementation of the Capital Requirements Directive (CRD) package, the establishment of a macro-prudential framework as well as the accommodative monetary policy conducted by the ECB, the latter contributing to the normalisation of economic activities after 2013. Large State aid schemes (to support the real economy) approved in the pandemic context were also considered as alleviating the economic impact of the Covid-19 crisis.

As for which objectives should be given priority in the application of the State aid rules to banks, respondents’ views were relatively split between, on the one hand, the preservation of financial stability and, on the other hand, the need to give more weight to the objective of protecting taxpayers (by minimising aid). An important number of respondents (18 and 17 respectively) agreed that State aid rules for banks in difficulty ensured an appropriate trade-off between preserving financial stability vs tackling moral hazard or mitigating competition distortions (even if this would have implied the granting of less State aid or granting of State aid under more stringent conditions) (see Figure 39 ).

Figure 39: Have the State aid rules for banks in difficulty ensured an appropriate trade-off between the following policy objectives?

22 respondents also considered that the application of State aid rules for banks in difficulty had unexpected or unintended consequences. Discrepancies in national insolvency proceedings were referred to as a contributing factor to the uneven playing field across Member States. Respondents also mentioned incentives to address bank failures outside the CMDI framework, due to a perceived lack of alignment with the CMDI framework (in particular as regards burden-sharing requirements). With respect to precautionary measures for banks in difficulty, respondents expressed concerns regarding the support of banks that may have been unviable.

2.2.Efficiency

15 respondents were of the view that the Commission communications containing the State aid rules for banks in difficulty were easy to find (while an equal number of respondents were neutral). However, only 7 respondents considered that the communications were formulated in a way which is likely to lead to a predictable Commission assessment (while 11 respondents were neutral and 15 expressed a negative opinion). Similarly, only 6 respondents highlighted that the Commission communications were easy to understand, while 12 respondents were neutral and 18 were negative. Most respondents (20) were in favour of a single communication. As regards the clarity of the rules, respondents expressed concerns with respect to the lack of alignment with other pieces of EU legislation, such as the CMDI framework. Respondents emphasized the importance of ensuring consistency as regards concepts such as bail-in, write-down and conversion as well as burden-sharing (see Figure 40 ).

Figure 40: To which extent do you agree with the following general statements?

A number of respondents supported further clarification of the existing rules in order to enhance their predictability in light of the European Court of Justice jurisprudence and the individual Commission decisions, which could be directly referred to in a single Commission Communication. Some respondents were also of the view that a simplified framework would be consistent with an alignment of the duration of the Commission decision-making process, with the need of smooth and swift management of bank failures.

In the targeted consultation, 22 respondents considered that certain aspects or concepts related to the State aid rules for banks in difficulty could have been further clarified or could have been defined more precisely, whereas 7 were neutral and 1 respondent replied negatively (see Figure 41 ).

Figure 41: Are there certain aspects or concepts related to the State aid rules for banks in difficulty that could have been further clarified or that could have been defined more precisely?

In the targeted consultation, respondents were asked whether specific key concepts in the State aid rules were understandable and their responses were very much split. For instance, 11 respondents considered that the determination of whether a measure constitutes State aid (including the criteria for public support to be considered market-conform) was not easy to understand (vs 3 neutral and 7 positive opinions) (see Figure 42 ).

Figure 42: To which extent have the following aspects of the control of State aid rules for banks in difficulty been easy to understand?

More specifically, many respondents were of the view that State aid qualification should be clarified as regards the use of DGS funds following the European Court of Justice Tercas judgment. Respondents also pointed to the need to have more guidance on when a measure is considered as market conform. The concrete application of liquidity aid was also referred to as deserving further delineation. Several respondents also considered that the approval process of restructuring aid was overly complex and, content wise, consistency is needed with the BRRD requirements on business reorganisation plans that are required when the bail-in tool is used. More broadly, replies supported a harmonisation with the CMDI framework, including through a consolidated State Aid Banking Communication.

In the targeted consultation, the vast majority of respondents, namely 23, considered that the interaction between, on the one hand, the State aid rules for banks in difficulty and, on the other hand, the CMDI framework (since its entry into force in 2015) has not been easy to understand (vs 5 neutral opinions and 2 positive) (see Figure 43 ).

Figure 43: Has the interaction between, on the one hand, the State aid rules for banks in difficulty and, on the other hand, the crisis management and deposit insurance (CMDI) framework (since its entry into force in 2015) been easy to understand?

Respondents mentioned the need for further consistency and possible cross-references between the State aid rules for banks in difficulty and the CMDI framework. The lack of clarity as regards the use of DGS funds following the Tercas judgment of the European Court of Justice and divergences of views between authorities, with respect, for instance, to the public interest assessment, were referred to by respondents.

Respondents were divided on the question on whether the State aid rules for banks in difficulty have ensured that Member States used State expenditure efficiently when providing aid to banks in difficulty: while 14 respondents agreed or were neutral as regards this statement, 13 had a negative view (see Figure 44 ). On the negative side, respondents referred to the public support of banks, which eventually turned out to be unviable.

Figure 44: To which extent do you agree that State aid rules for banks in difficulty have ensured that Member States used State expenditure efficiently when providing aid to banks in difficulty?

In the targeted consultation, 22 respondents had a neutral view on the administrative burden created by the application of the State aid rules for banks in difficulty and only 5 respondents considered that the burden was disproportionate (see Figure 45 ).

Figure 45: Has the application of the State aid rules for banks in difficulty created any disproportionate administrative burden?

More specifically, a respondent highlighted that the uncertainty related to the use of DGS in preventive measures, especially when operating under private arrangements, created additional administrative burden. A reply also underlined that in some cases the process to meet the documentation requirements set out by the Commission when applying for a State aid approval may be burdensome, as opposed to the reliance on the information already available within the Member State. A respondent was also of the view that as regards resolution, given the importance of timely application of any tool or power, broader possibilities for schemes or exemptions to speed up the process could be considered, such as increasing the limits for liquidation aid regimes or imposing less strict conditions for precautionary recapitalization under Article 32(4) of BRRD.

In the targeted consultation, most respondents did not express any opinion on whether aid schemes reduced the administrative burden. As regards the neutral and positive replies, 5 concerned liquidity and liquidation aid schemes (vs respectively 1 and 4 negative replies) and 4 recapitalisation and restructuring schemes (vs 4 negative replies) (see Figure 46 ).

Figure 46: To which extent have aid schemes contributed to administrative simplification and reduced the administrative burden?

More specifically, one respondent considered that contrary to liquidity aid schemes, which could be justified to swiftly address a liquidity crisis, restructuring and liquidation aid schemes can undermine market discipline by providing an implicit guarantee to eligible banks. Differently, another respondent welcomed pre-approved schemes insofar as they reduce uncertainty and extra coordination. Furthermore, a respondent pointed to the overlap between recapitalization and restructuring schemes and the CMDI provisions, leading to possible administrative burden.

In the targeted consultation, 8 respondents were of the view that the benefits (advantages) achieved by the control of State aid to banks in difficulty outweigh the incurred costs (disadvantages), whereas 4 respondents considered that the costs always outweigh the benefits (see Figure 47 ).

Figure 47: Generally speaking, to which extent do you consider that the achieved benefits (advantages) of the control of State aid to banks in difficulty outweigh the incurred costs (disadvantages)?

More specifically, according to one respondent, when applying the State aid rules to the banking sector, given the sectors’ peculiarities and the overall specific severe legislation applicable, the pivotal objective of financial stability should be taken into account more strongly over the classical competition concerns.

In the targeted consultation, in response to the question on the extent to which the costs (disadvantages) incurred by specific stakeholder groups have been proportional, taking into account the distribution of the benefits (advantages) achieved by the control of State aid to banks in difficulty, most respondents were unable to make an assessment (see Figure 48 ).

Figure 48: To which extent do you consider that the costs (disadvantages) incurred by the following stakeholder groups have been proportional, taking into account the distribution of the benefits (advantages) achieved by the control of State aid to banks in difficulty?

More specifically, one respondent considered that as regards burden-sharing measures, in case of retail creditors among the concerned investors, a dedicated compensation scheme to avoid loss of confidence in the banking sector may be necessary. Another respondent was also of the view that taxpayers are less well protected as public support may not always be considered as State aid and insofar as burden-sharing rules are less stringent under the State aid framework than under resolution. Respondents also underlined that as regards restructuring plans, a right balance should be found between the objectives of long-term viability of the bank and the minimisation of competition distortions.

Respondents further considered that in order to properly answer the question, it would be necessary to distinguish, on a case-by-case basis, what is charged to taxpayers (national Government), to the banks that contribute to the DGS (banks at national level) or to the resolution fund (banks at European level).

In the targeted consultation, in response to the question on the extent to which the measures applied to reinforce market discipline and tackle moral hazard have been proportionate to the operational and administrative cost and burden to implement them, 8 respondents expressed a positive opinion on the ban on paying out discretionary coupons and dividends, management remuneration cap and on burden-sharing of bank shareholders (vs 3 neutral opinions). 7 respondents supported the burden-sharing by hybrid capital holders and junior bondholders (vs respectively 4 and 3 neutral opinions and 0 and 1 negative) and 4 the obligation to divest certain subsidiaries and activities (vs 4 neutral and 2 negative opinions) (see Figure 49 ).

Figure 49: To which extent have the following applied measures to reinforce market discipline and tackle moral hazard on the side of bank management, shareholders and investors been proportionate to the operational and administrative cost and burden to implement them?

More specifically, one respondent highlighted that structural remedies, such as divestments, constitute a useful and appropriate tool from a distortion of competition standpoint. However, depressed market conditions and limited investment appetite may in certain cases hinder the implementation of restructuring commitments in the pre-specified deadlines. Forced sales and pending transactions may indeed have hindered the profitability of the banks and created more administrative burden for them.

In the targeted consultation, in response to the question on the extent to which measures to mitigate the competition distortions have been proportionate to the operational and administrative cost, 8 respondents expressed a positive opinion as regards the obligation to exit the market (in case of liquidation aid) and acquisition bans. 7 respondents also supported constraints on the competitive pricing of banking products (e.g. loans, deposits) and ban on aggressive commercial practices, 6 the obligation to reduce balance sheet total (vs 1 negative opinion) and 4 the obligation to divest certain activities (vs 2 negative opinions) (see Figure 50 ).

Figure 50: To which extent have the following applied measures to mitigate the competition distortions stemming from the granting of aid to banks in difficulty been proportionate to the operational and administrative cost and burden to implement them?

In the targeted consultation, in response to the question on the extent to which measures to restore the long-term viability of banks have been proportionate to the operational and administrative cost, 6 respondents had a positive opinion as regards the measure to de-risk the balance-sheet, divestment or termination of less profitable or loss-making activities, measures to reduce complexity, the reform of internal risk management policy and corporate governance and measures and/or quantitative targets to reduce operating costs. Furthermore, 4 respondents supported investments’ measures to improve operational performance (vs 2 negative opinions) and 3 measures and/or quantitative targets to improve revenue-generating potential (vs 2 negative opinions) (see Figure 51 ).

Figure 51: To which extent have the following applied measures to restore the long-term viability of banks been proportionate to the operational and administrative cost and burden to implement them?

In the targeted consultation, in response to the question on the extent to which the application of the requirements to restore the long-term viability of banks been proportionate to the operational and administrative costs, 6 respondents supported the preparation of a restructuring plan (vs 2 neutral and 2 negative opinions) as well as the independent monitoring trustee (vs 4 neutral opinions). However, a significant number of respondents, namely 20, did not express any views on these subjects (see Figure 52 ).

Figure 52: To which extent has the application of the following requirements to restore the long-term viability of banks been proportionate to the operational and administrative costs and burden to implement them?

More specifically, respondents referred to the need to ensure that restructuring plans pursue the bank’s long-term viability goal, despite the usually significant burden to the involved counterparties, especially for the applicant bank. Some respondents also pointed to the need for restructuring plans to rely on credible assumptions, in coherence with the EBA guidelines and the resolution framework. Several replies further praised the appointment of an independent monitoring trustee, notwithstanding possible room for improvement concerning the monitoring per se.

In the targeted consultation, in response to the question on the conditions for recapitalisation and restructuring aid schemes for small institutions, 5 respondents considered that the limitation in terms of the balance-sheets of the banks that receive aid under a recapitalisation and restructuring scheme is not adequate (vs 1 positive opinion). 6 respondents voiced concerns as regards the cap of an eligible bank at EUR 100 million (vs 1 positive opinion) and 7 regarding the limitation of the recapitalization and restructuring schemes to 6 months (vs 2 neutral opinions and 1 positive). 2 respondents concurred with the requirements to report to the Commission, on a six-monthly basis, the MS implementation of a recapitalisation and restructuring scheme (vs 5 neutral opinions and 3 negative) (see Figure 53 ).

Figure 53: To which extent are the following conditions for recapitalisation and restructuring schemes for small institutions in the 2013 Banking Communication proportionate to mitigate competition distortions and limit the administrative burden?

Some respondents were of the view that the criteria for recapitalisation and restructuring schemes are too limiting when compared to the size and number of institutions that can be concerned. A respondent also highlighted that the six-month limit may not be fully justified, considering notably the market needs and the longer timeline for implementing the State aid. One reply also underlined the need to ensure coherence with the BRRD, with reference to the public interest assessment.

In the targeted consultation, in response to the question on the conditions for orderly liquidation schemes for small institutions, 8 respondents expressed a neutral opinion as regards the MS reporting requirements on a six-monthly basis to the Commission on the use of the orderly liquidation scheme (vs 4 positive and 2 negative opinions). 6 respondents were also neutral as regards the cap at EUR 3 billion of the balance-sheet total of an eligible bank (vs 4 negative opinions and 3 positive) (see Figure 54 ).

Figure 54: To which extent are the following conditions for orderly liquidation schemes for small institutions in the 2013 Banking Communication proportionate to mitigate competition distortions and limit the administrative burden?

More specifically, some respondents welcomed the setting of a quantitative eligibility requirement for orderly liquidation schemes as they introduce a derogation regime for small institutions, pointing out however the need for some flexibility in specific cases to also reflect the local features of the banking sector. As regards the possible increase of the balance-sheet threshold, a reply mentioned the possibility to align it with that referred to in the Capital Requirements Regulation, namely EUR 5 billion, as regards the definition of small institutions.

By contrast however, another respondent considered that such schemes lead to distortion of competition given the implicit State guarantee provided to eligible banks. Another respondent also concurred with the SRB recommendation that the six months deadline for aid schemes should be adhered more strictly.

2.3.Relevance

19 respondents agreed that State aid rules for banks in difficulty took into account the changes in the overall macroeconomic and financial stability context between 2008 and 2013 (including in relation to the government debt crisis in some Member States), whereas 8 were neutral and 6 disagreed. By contrast, only 2 respondents considered that other relevant factors should have been taken into account by the State aid rules for banks in difficulty (vs 5 neutral and 4 negative opinions) (see Figure 55 ).

Figure 55: To which extent did the State aid rules for banks in difficulty, and their changes over time, take into account the following factors?

In particular, some respondents agreed that State aid rules should be tailored to the specificities and sensitivities of the banking sector, including in terms of differentiated situations among MS, compared to other economic sectors. In contrast, some respondents were of the view that the normalization of the economic environment does not plead for a permanent specific State aid treatment of the banking sector. Respondents also raised questions regarding the relevance of State aid rules following the entry into force of the CMDI framework and expressed concerns that State aid rules may benefit banks that are no longer viable whereas consumer rights may not be sufficiently taken into account.

In the targeted consultation, 12 respondents were of the view that changes in the overall macroeconomic and financial stability context affected the relevance and appropriateness of the State aid rules for banks in difficulty over time (vs 4 neutral and 1 negative opinion). Furthermore, 9 respondents considered that changes in banking sector regulation (other than the introduction of the CMDI framework in 2015) affected the relevance and appropriateness of such rules (vs 5 neutral and 1 negative opinion) (see Figure 56 ).

Figure 56: To what extent have the following factors affected the relevance and appropriateness of the State aid rules for banks in difficulty over time?

More specifically, some respondents highlighted that the improvement of the macroeconomic conditions after the global financial crisis contributed to strengthening the banking sector, taking also into account the enhancement of bank supervision through the set-up of the Single Rulebook and the Banking Union. A respondent also referred to the ECB’s role as lender of last resort and provider of large liquidity to preserve financial stability and prevent a credit crunch. According to several respondents, these developments call into question the current State aid rules applying to banks in difficulty, as also mirrored by the Tercas judgment of the European Court of Justice and the broader need to ensure consistency with the CMDI framework and to address unlevel playing field issues. Replies also supported the flexibility of the recent Temporary Framework which allowed the Commission to swiftly approve State aid to the real economy to deal with the COVID-19 pandemic.

In the targeted consultation, in response to the question on the extent to which the compatibility pillars underlying the State aid rules for banks in difficulty are still relevant and appropriate since the entry into force of the CMDI framework in 2015, 13 respondents conveyed a positive view with respect to restoring a bank’s long-term viability (vs 7 neutral and 2 negative opinions) and the absorption of losses by a bank, its shareholders and creditors (the so-called “burden-sharing”) (vs 5 neutral and 5 negative opinions). 11 respondents also supported the minimisation of distortions of competition following the granting of aid to preserve fair competition to a maximum extent (vs 7 neutral and 4 negative opinions) (see Figure 57 ).

Figure 57: To which extent are the following compatibility pillars underlying the State aid rules for banks in difficulty still relevant and appropriate since the entry into force of the crisis management and deposit insurance (CMDI) framework in 2015?

More specifically, a respondent highlighted some parallelisms between these pillars and the objectives of resolution foreseen in Article 14 SRMR. The reply also referred to the complementarity between both frameworks, State aid rules being more focused on the competition perspective, while the resolution rules focus more on financial stability. Respondents also highlighted the need to ensure consistency of the State aid rules with the CMDI framework. Replies further pointed out the need that the aforementioned State aid compatibility pillars should not prevent an effective implementation of the resolution framework. Respondents further noted that a harmonised framework aimed at ensuring the orderly exit of small and medium sized banks from the market is still missing.

In response to the question on the extent to which it has been necessary to have State aid rules tailored to the specificities and sensitivities of the banking sector, compared to other economic sectors, many respondents underlined the pivotal role of the banking sector for financial stability and the real economy, as well as its structural interconnectedness, in contrast with the other economic sectors. These elements support the maintenance of specific State aid rules for the banking sector.

In the targeted consultation, 4 respondents were of the view that the State aid rules for banks in difficulty have been adequate to be applied mutatis mutandis to non-bank financial institutions as well (for instance insurance companies), whereas 3 replied negatively and 23 did not express any opinion in this respect (see Figure 58 ).

Figure 58: Have the State aid rules for banks in difficulty been adequate to also be applied mutatis mutandis to non-bank financial institutions (for instance insurance companies)?

More specifically, respondents underlined that that each sector should have its own set of rules, adapted to the respective activities (e.g. life/non-life insurers, reinsurers) and financial structures (e.g. importance of technical provisions for the insurance sector etc.). A respondent also referred to the specific developments at Council level in respect of the insurance sector and the recovery and resolution of insurance entities, as well as policy holder protection.

In the targeted consultation, 16 respondents were of the view that since 2008, the likelihood that difficulties at one or several banks lead to a serious disturbance in the economy of a Member State – thereby potentially warranting the granting of State aid to such bank(s) – has changed (vs 2 negative responses) (see Figure 59 ).

Figure 59: Do you think that since 2008 the likelihood that difficulties at one or several banks lead to a serious disturbance in the economy of a Member State – thereby potentially warranting the granting of State aid to such bank(s) – has changed?

More specifically, respondents underlined that the setup of the Banking Union as well as the Single Rulebook and the CMDI framework (with a specific reference to the build-up of bail-inable buffers) have contributed to a substantial improvement in the soundness of the banking sector, therefore reducing the probability of a systemic crisis. In some Member States, the restructuring of the sector was also fostered by the implementation of adequate State aid support.

2.4.Coherence

In the targeted consultation, 10 respondents considered that State aid rules for banks in difficulty are internally coherent, whereas 6 respondents expressed a neutral view in this regard (see Figure 60 ).

Figure 60: To which extent are State aid rules for banks in difficulty internally coherent?

More specifically, as regards the potential lack of internal coherence of the State aid rules, some respondents referred to differentiated national situations (with respect to the availability of funding on the market) not fully taken into consideration in the application of such rules.

Respondents had split views on whether State aid rules for banks in difficulty ensured an appropriate trade-off between restoring the viability of banks and mitigating competition distortions. 11 respondents disagreed while 10 and 4 respondents were, respectively, neutral or in agreement with this statement (see Figure 61 ).

Figure 61: To which extent have the State aid rules for banks in difficulty ensured an appropriate trade-off between restoring the long-term viability of banks and mitigating competition distortions stemming from the aid granted to those banks?

More specifically, many respondents pointed out the need to strike the right balance, in terms of objectives pursued, between mitigating competition distortions and ensuring the long-term viability of banks. In this respect, a respondent highlighted that such a balance should be ensured not only at the time the State aid is granted but also during the implementation of the restructuring plan, taking into account relevant (macroeconomic) developments. Several replies also pointed out that due attention should be paid to measures that actually risk limiting banks’ long-term viability, such as requirements to divest profitable subsidiaries or the lack of consideration of the local market features. A good coordination between the Commission and the resolution authorities was also deemed important.

In the targeted consultation, in response to the question on the extent to which the State aid rules for banks in difficulty are coherent with other EU policies and legislation, 8 respondents had a positive opinion as regards the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak (vs 9 neutral opinions and 2 negative). However only 6 respondents replied positively with respect to the bank resolution rules (BRRD/SRMR) (vs 12 negative responses and 6 neutral), 5 as regards the rules applicable to deposit guarantee schemes (DGSD) (vs 15 negative answers and 6 neutral) and 2 as regards the EU merger control rules (vs 10 neutral) (see Figure 62 ).

Figure 62: To which extent are the State aid rules for banks in difficulty coherent with the following other EU policies and legislation?

More specifically, respondents provided extensive qualitative elements supporting in particular further coherence between the State aid rules for banks in difficulty and the CMDI framework, as regards issues such as burden-sharing. Some respondents also underlined the need for a parallel review of both frameworks insofar as the resolution framework is not meant to apply to small and medium sized banks. Furthermore, respondents also mentioned the need to apply State aid rules in case DGS funds are used for support measures.

In the public consultation, between 12 and 13 respondents were neutral or did not express an opinion regarding the extent to which State aid rules for banks in difficulty were coherent with the EU CMDI framework and other EU policies and legislation (see Figure 63 ). In this respect and as regards respondents who raised concerns in relation to the lack of coherence, respondents highlighted the risk of applying the less stringent rule(s) due to the prevailing inconsistencies between State aid rules and the CMDI framework. EU Consumer Protection legislation was also referred to as deserving further attention.

Figure 63: To which extent are the State aid rules for banks in difficulty coherent with the following other EU policies and legislation?

2.5.EU added value

15 respondents were positive (or were neutral) on the extent to which State aid rules for banks in difficulty have ensured a coordinated approach to the financial support given by Member States (with different budgetary capacities) to their respective banking sectors (see Figure 64 ).

Figure 64: To which extent have the State aid rules for banks in difficulty ensured a coordinated approach to the financial support given by Member States (with different budgetary capacities) to their respective banking sectors?

In the targeted consultation, 14 respondents provided a reply to the question on whether the State aid rules for banks in difficulty have provided an added value in comparison to a situation without such guidelines, in which case each individual measure would have to be dealt with separately, directly applying the TFEU. In this respect, respondents welcomed the increased predictability and legal certainty allowed by the State aid rules for banks in difficulty as regards the compatibility assessment performed by the Commission

2.6.Other

4 respondents provided additional feedback aside from the public consultation questionnaire with a series of comments falling outside the current objective of assessing the past implementation of the State aid rules for banks in difficulty.

3.Conclusion

The European Commission will duly consider the views collected in the public and targeted consultations in the evaluation of the State aid rules for banks in difficulty.

Annex VII. Overview of the State aid rules for banks in difficulty subject to the Evaluation

Annex VIII. Relevant Legal Provisions in the TFEU

ARTICLE 107 TFEU

1.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.

2.The following shall be compatible with the internal market:

(a)aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned;

(b)aid to make good the damage caused by natural disasters or exceptional occurrences;

(c)aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division. Five years after the entry into force of the Treaty of Lisbon, the Council, acting on a proposal from the Commission, may adopt a decision repealing this point.

3.The following may be considered to be compatible with the internal market:

(a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment, and of the regions referred to in Article 349, in view of their structural, economic and social situation;

(b) aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State;

(c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest;

(d) aid to promote culture and heritage conservation where such aid does not affect trading conditions and competition in the Union to an extent that is contrary to the common interest;

(e)such other categories of aid as may be specified by decision of the Council on a proposal from the Commission.

ARTICLE 108 TFEU

1.The Commission shall, in cooperation with Member States, keep under constant review all systems of aid existing in those States. It shall propose to the latter any appropriate measures required by the progressive development or by the functioning of the internal market.

2.If, after giving notice to the parties concerned to submit their comments, the Commission finds that aid granted by a State or through State resources is not compatible with the internal market having regard to Article 107, or that such aid is being misused, it shall decide that the State concerned shall abolish or alter such aid within a period of time to be determined by the Commission.

If the State concerned does not comply with this decision within the prescribed time, the Commission or any other interested State may, in derogation from the provisions of Articles 258 and 259, refer the matter to the Court of Justice of the European Union direct.

If, after giving notice to the parties concerned to submit their comments, the Commission finds that aid granted by a State or through State resources is not compatible with the internal market having regard to Article 107, or that such aid is being misused, it shall decide that the State concerned shall abolish or alter such aid within a period of time to be determined by the Commission.

If the State concerned does not comply with this decision within the prescribed time, the Commission or any other interested State may, in derogation from the provisions of Articles 258 and 259, refer the matter to the Court of Justice of the European Union direct.

On application by a Member State, the Council may, acting unanimously, decide that aid which that State is granting or intends to grant shall be considered to be compatible with the internal market, in derogation from the provisions of Article 107 or from the regulations provided for in Article 109, if such a decision is justified by exceptional circumstances. If, as regards the aid in question, the Commission has already initiated the procedure provided for in the first subparagraph of this paragraph, the fact that the State concerned has made its application to the Council shall have the effect of suspending that procedure until the Council has made its attitude known.

If, however, the Council has not made its attitude known within three months of the said application being made, the Commission shall give its decision on the case.

3.The Commission shall be informed, in sufficient time to enable it to submit its comments, of any plans to grant or alter aid. If it considers that any such plan is not compatible with the internal market having regard to Article 107, it shall without delay initiate the procedure provided for in paragraph 2. The Member State concerned shall not put its proposed measures into effect until this procedure has resulted in a final decision.

4.The Commission may adopt regulations relating to the categories of State aid that the Council has, pursuant to Article 109, determined may be exempted from the procedure provided for by paragraph 3 of this Article.

ARTICLE 109 TFEU

The Council, on a proposal from the Commission and after consulting the European Parliament, may make any appropriate regulations for the application of Articles 107 and 108 and may in particular determine the conditions in which Article 108(3) shall apply and the categories of aid exempted from this procedure.

Annex IX: European Commission case practice on the basis of State aid rules for banks in difficulty

1.Liquidity Aid

2.Restructuring aid

In Cyprus, the Cooperative Central Bank (CCB) – the country’s second largest bank with a very high NPL ratio – received restructuring aid in the form of a EUR 1.5 billion capital injection in 2014. 206 The Commission’s authorisation for this public recapitalisation was based on a restructuring plan featuring a major overhaul of the bank’s structure and commercial practices. In 2018, it turned out that the bank was unable to return to viability, and consequently it exited the market.

3.Liquidation aid

4.No aid

a.Market conform public interventions

b.Measures that are not imputable to the State

Another category of cases concern support to banks by national deposit guarantee schemes (DGSs), which under the DGSD are allowed to carry out interventions other than reimbursing depositors, such as interventions to prevent the collapse of a bank if certain criteria are fulfilled (e.g. the least-cost criterion). While the pay-out of depositors by DGSs would not be State aid, alternative interventions aimed at preventing depositor pay-outs by supporting a bank’s economic activity may constitute State aid if they are imputable to the State and are not provided on market terms. In line with the jurisprudence of the Court of Justice, this is a subject to case-by-case assessment by the Commission. For instance, in 2015, the Commission concluded that non-notified support measures by the Italian DGS in the form of a capital injection and guarantees to cover Banca Tercas’ losses and to facilitate that bank’s sale to Banca Popolare di Bari constituted incompatible aid. 225 However, following an appeal, the General Court of the EU in March 2019 annulled the Commission’s 2015 decision, notably finding that the specific actions of the Italian DGS at the time could not be considered imputable to the State. 226 Since imputability is one of the cumulative conditions for a measure to constitute State aid, the General Court of the EU concluded that the Commission had wrongly considered that the measures by the Italian DGS amounted to State aid. In May 2019, the Commission lodged an appeal against the General Court’s judgment, which was however dismissed by the Court of Justice of the European Union on 2 March 2021 227 . In light of the judgment, the Commission adopted a new decision deeming the intervention free of State aid 228 .

Annex X. Main differences between the Rescue and Restructuring Guidelines for non-financial Firms and the State aid rules for banks in difficulty

The State aid rules for banks in difficulty built on the existing, well-established general rules concerning rescue and restructuring aid to non-financial undertakings. 229 These, however, had to be adapted, in order to address the effects of the financial crisis taking into account the specificities of the banking sector, as allowed under the ‘new’ legal basis for the State aid rules for banks in difficulty, i.e. Article 107(3)(b) TFEU. The main changes that they introduced to this end are set out below.

Firstly, they enlarged the scope for rescue aid by allowing aid schemes also for large firms and by allowing rescue aid for more than six months, notably in the form of guarantees on long-term debt or long-term loans, at a time when it was necessary given the scale of the crisis. In addition, structural aid measures, such as recapitalisation and impaired assets measures were accepted as rescue aid, despite their structural nature, while the Rescue and Restructuring guidelines limited such forms of aid to liquidity support.

Secondly, they adjusted the requirements for restructuring aid. In particular, having regard to the objective of financial stability and the difficult economic outlook that prevailed at the time throughout the EU, special attention was paid to ensuring a sufficiently flexible and realistic timing of the necessary restructuring measures. Therefore, the rules extended the maximum duration of the restructuring period up to five years, compared to the usual practice of two to three years.

In addition, the requirement that the banks’ own contribution to the costs of restructuring should meet the 50% threshold fixed in the Rescue and Restructuring guidelines for large firms was set aside. As a result, difficulties in accessing private capital in the crisis context could be taken into account. The ‘one-time-last-time’ principle was also lifted: the Commission did not apply that rule to restructuring aid to banks in times of crisis, reflecting inter alia the uncertainty about the recovery outlook and financial stability concerns.

Thirdly, the State aid rules for banks in difficulty introduced a number of adaptations and improvements compared to the Rescue and Restructuring guidelines. They distinguished more clearly between the different aid instruments and prescribed in more detail the conditions for granting State aid, notably in terms of pricing of the different aid instruments. As they were sectoral, they could define more clearly required elements, such as the content of restructuring plans and viability plans, having regard to the evolving regulatory framework applicable to the banking sector. They clearly outlined the principle that the aid should feature exit incentives. Further, they allowed for a more refined approach as regards competition remedies, based on both the size of the aid as a proxy for the distortion and an assessment of the competitive conditions in the market, and introduced behavioural remedies to compensate for the lack of sufficient structural measures. Similarly, the sectoral nature of the rules allowed the principle of burden-sharing to be set and refined (which was subsequently reflected into the Rescue and Restructuring guidelines applying to non-financial firms, building on the experience gained in the banking sector). 230

Finally, given their sectoral nature, the State aid rules for banks in difficulty were also a precursor of some of the underlying principles of the EU bank resolution framework that was in preparation at the time of their latest review, and were expected to pave the way to a smooth transition to it, while having regard to the implementation of the evolving respective regulatory framework.

(1)      Communication from the Commission – The application of State aid rules to measures taken in relation to financial institutions in the context of the current global financial crisis, OJ C 270, 25.10.2008, p. 8. 

(2)      Communication from the Commission — The recapitalisation of financial institutions in the current financial crisis: limitation of aid to the minimum necessary and safeguards against undue distortions of competition, OJ C 10, 15.1.2009, p. 2.

(3)      Communication from the Commission on the treatment of impaired assets in the Community banking sector, OJ C 72, 26.3.2009, p. 1.

(4)      Commission communication on the return to viability and the assessment of restructuring measures in the financial sector in the current crisis under the State aid rules, OJ C 195, 19.8.2009, p. 9.

(5)      Communication from the Commission on the application, from 1 January 2011, of State aid rules to support measures in favour of banks in the context of the financial crisis, OJ C 329, 7.12.2010, p. 7.

(6)      Communication from the Commission on the application, from 1 January 2012, of State aid rules to support measures in favour of banks in the context of the financial crisis, OJ C 356, 6.12.2011, p. 7.

(7)      Communication from the Commission on the application, from 1 August 2013, of State aid rules to support measures in favour of banks in the context of the financial crisis, OJ C 216, 30.7.2013, p. 1

(8)      The 2008 Banking Communication has been repealed since 2013. It is however covered by the scope of this evaluation.  

(9)      Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and amending Regulation (EU) No 648/2012, OJ L 176 27.6.2013, p. 1, as amended.

(10)      Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC, OJ L 176 27.6.2013, p. 338, as amended.

(11)      In parallel to this evaluation, the CMDI framework is also being subject to review. See https://finance.ec.europa.eu/publications/reform-bank-crisis-management-and-deposit-insurance-framework_en .

(12)      See Section 3.2 .

(13)      In February 2022, Sberbank Europe AG, headquartered in Austria, and its subsidiaries in Croatia and Slovenia, collapsed, following deposit outflows as a result of the reputational impact of geopolitical tensions, further to the Russian aggression against Ukraine. The Slovenian and Croatian subsidiary were placed in resolution in accordance with the EU’s bank resolution framework, while no resolution action was required for the parent company in Austria, which was wound down under national insolvency proceedings.

(14)      In the course of 2023, global market tensions emerged following the failure of three mid-sized banks in the United States (Silicon Valley Bank, Signature Bank, and First Republic Bank), and the loss of confidence in Credit Suisse in Switzerland, which resulted in its takeover by UBS.

(15)      Special Report 21/2020: Control of State aid to financial institutions in the EU: in need of a fitness check, available at: https://www.eca.europa.eu/en/publications?did=54624 .

(16)      See footnotes 1 to 7 above.

(17)      Communication from the Commission — Temporary Community framework for State aid measures to support access to finance in the current financial and economic crisis, OJ C 16, 22.1.2009, p. 1–9.

(18)      Communication of the Commission — Temporary Union framework for State aid measures to support access to finance in the current financial and economic crisis, OJ C 6, 11.1.2011, p. 5–15.

(19)      Communication from the Commission: Temporary framework for State aid measures to support the economy in the current COVID-19 outbreak, OJ C 91 I, 20.3.2020, p. 1, as amended.

(20)      Communication from the Commission - Temporary Crisis Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia, OJ C 131l, 24.3.2022, p. 1, as amended. This Temporary Crisis Framework was replaced by the Temporary Crisis Framework adopted on 28 October 2022, as amended, which was in turn replaced by the Communication from the Commission - Temporary Crisis and Transition Framework for State aid measures to support the economy following the aggression against Ukraine by Russia, OJ C 101, 17.3.2023, as amended.

(21)      The E.CA study included the UK in the dataset and analysis by default. Where the SWD does not rely on the Study, the UK might have been included depending on data availability. The SWD will clarify when the UK is not included, where relevant. 

(22)      See Annex X, Report prepared for the European Commission by the team of E.CA Economics and partners, “Study on the impact of State aid rules for banks in difficulty”, November 2023.

(23)      https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12737-Banking-Union-Review-of-the-bank-crisis-management-and-deposit-insurance-framework-DGSD-review-_en 

(24)      For instance, see Competition State aid brief, Issue 2015-01, February 2015, available at: https://op.europa.eu/en/publication-detail/-/publication/bac6dee1-f714-11e5-abb1-01aa75ed71a1/language-en/format-PDF , (the “2015 Competition State aid brief”); Commission Staff Working Paper, The effects of temporary State aid rules adopted in the context of the financial and economic crisis, SEC(2011) 1126 final, available at: https://ec.europa.eu/competition/publications/reports/working_paper_en.pdf , (the “2011 Commission Staff Working Paper”).  

(25)      Study prepared for the European Parliament's Committee on Economic and Monetary Affairs, State aid crisis Rules for the financial sector and the real economy, June 2011, IP/A/ECON/ST/2010-12, available at: https://www.europarl.europa.eu/document/activities/cont/201107/20110714ATT24010/20110714ATT24010EN.pdf .

(26)      See footnote 15.

(27)      Commission Notice on the notion of State aid as referred to in Article 107(1) of the Treaty on the Functioning of the European Union, OJ C 262, 19.7.2016, p. 1.

(28)      Information from the Commission - Community guidelines on State aid for rescuing and restructuring firms in difficulty (OJ C 368, 23.12.1994, p. 12); Communication from the Commission — Community guidelines on State aid for rescuing and restructuring firms in difficulty (OJ C 244, 1.10.2004, p. 2), (referred to as “Rescue and Restructuring Guidelines”).

(29)      See footnotes 1 to 7 and Annex VII.

(30)      See footnote 29.

(31)      Market exit can happen either by selling and integrating the failed bank or part of it in an acquiring entity or by winding it (or the residual part of it) down.

(32)      The principle of burden-sharing, set out in the 2013 Banking Communication, was confirmed by the Court of Justice of the EU in the Kotnik ruling of 19 July 2016, in C-526/14, Kotnik, C:2016:570. The ruling followed the legal action initiated by affected creditors of Slovenian banks before Slovenian courts. They questioned the validity and interpretation of the 2013 Banking Communication and argued inter alia that their property rights had been violated. The Court of Justice ruled that the 2013 Banking Communication “does no more than establish conditions, designed to ensure that State aid granted to the banks in the context of the financial crisis is compatible with the internal market, which the Commission must take into account in the exercise of the wide discretion that it enjoys under Article 107(3)(b) TFEU” and that it “cannot reasonably be maintained that the burden-sharing measures, such as those laid down by the Banking Communication, constitute interference in the right to property of the shareholders and the subordinated creditors”.

(33)      See Article 1(f) of the Procedural Regulation. Lawfulness (or ‘legality’) of an aid measure is thus a different concept than ‘compatibility’.

(34)      Some examples of typical commitments related to aid for banks in difficulty are presented in  Box   3 , in Section 3.3 .

(35)      See Sustainable Development Goals .

(36)      See tool 15 of the Better Regulation Guidelines as well as Annex 1 for additional details.

(37)      See footnote 28.

(38)      See footnote 19.

(39)      Due to its role in facilitating Russia’s military aggression.

(40)      See footnote 20.

(41)      It is also recalled that in February 2022, Sberbank Europe AG and two of its subsidiaries collapsed, as a result of the reputational impact of geopolitical tensions, further to the Russian aggression against Ukraine, but were effectively resolved in accordance with the EU’s bank resolution framework. See footnote 13.

(42)      See e.g. press articles: https://www.bloomberg.com/news/articles/2023-03-11/svb-fallout-spreads-around-the-world-as-uk-firms-plea-for-help ; https://www.cnbc.com/2023/03/10/european-bank-stock-sink-as-silicon-valley-bank-contagion-spreads.html ; https://www.reuters.com/business/finance/global-markets-banks-instant-view-2023-03-10/  

(43)      See Section  3.4  for additional details, as well as Section  4.1.1.1 .

(44)       ECB Financial Stability Review, November 2023 .

(45)      A more granular look at the data from the ECB indicates the effect of Brexit on the overall reduction of the number of credit institutions in the period 2008-2022. In particular, the number of credit institutions decreased from 5982 in December 2019 (just prior to Brexit) to 5551 in March 2020. Hence, the bulk of the reduction of the credit institutions pre-dated Brexit.

(46)      The United Kingdom is included until 2020.

(47)      When matching the classifications by aim and type of aid, it could be observed that “liquidity aid” may be in the form of liquidity instruments only, “restructuring aid” may be in the form of capital instruments only, “liquidation aid” can be either in the form of liquidity or capital instruments.

(48)      Those latter measures aim to transfer the risk related to banks’ impaired assets to the State. They can take the form of a purchase of the assets by a centralised vehicle owned, funded or guaranteed by the State (the so called ‘Asset Management Company’ (AMC)); alternatively, the assets remain either on the balance sheet of the beneficiary bank or on the one of a dedicated vehicle (a so-called “bad bank”), and the State commits to protect the entity from a certain amount of credit losses.

(49)      This figure is based on the sum of the annual amounts recorded by the State aid Scoreboard without further adjustments (see Box 2 ).

(50)      This figure has been calculated by E.CA as the yearly “aid inflow”, calculated as the positive (only) changes in the “aid stock”, with some adjustments. The “aid stock” is based on the State aid Scoreboard (see Box 2 ).

(51)      Liquidity support and guarantees on liabilities temporarily stabilise the liability side of a bank's balance sheet. Recapitalisations and impaired asset measures (including asset guarantees) are typically granted to cover a capital shortfall.

(52)      These amounts are equivalent to, respectively, 29%, 20%, 127%, 46% and 15% of the countries’ 2022 GDP at constant prices. GDP sources: Office for National Statistics for UK (GBP/EUR exchange rate equal to 1.16), Ameco for the other EU Member States. These nominal amounts do not differentiate for the risk entailed by the specific aid instrument and/or for the timing of the granting.

(53)      The total assets of the Irish banking sector were about 70% larger, at the peak of November 2008, than today. Source: Central Bank of Ireland, Statistics .

(54)      The National Assets Management Agency (NAMA) in Ireland and the Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria (SAREB) in Spain were established in 2009 and 2012 respectively. As a further example of AMC, the Bank Asset Management Company (BAMC) was also established in 2013.

(55)      See Article 1(d) of 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; OJ L 248, 24.9.2015, p. 5, (“Procedural Regulation”).

(56)      See Article 1(e) of the Procedural Regulation.

(57)      Source: E.CA and partners’ calculations. 

(58)      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, OJ L 173, 12.6.2014, p. 190–348.

(59)      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, OJ L 225, 30.7.2014, p. 1–90.

(60)      Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes, OJ L 173, 12.6.2014, p. 149–178.

(61)      Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions, OJ L 287, 29.10.2013, p. 63–89.

(62)      It has been the Commission's consistent practice to apply the same set of rules to a bank in resolution from start to the end, in order to preserve the unity of the resolution process. Therefore, the EU bank resolution framework did not apply to legacy cases that were designed and initiated under the national legal frameworks in place prior to its entry into force. Further aid in those cases continued to be governed by the rules predating the entry into force of the CMDI framework.

(63)      See further information at: Single Resolution Fund | Single Resolution Board (europa.eu) .

(64)      See further information at: https://www.srb.europa.eu/en/content/tasks-tools .

(65)      See further information at: Minimum Requirement for Own Funds and Eligible Liabilities (MREL) / SRB Policy under the Banking Package (europa.eu)

(66)      See the 4Q 2023 MREL dashboard , published by the SRB.

(67)      On 15 February 2024, the SRB announced that target for the build-up of the Single Resolution Fund had been achieved at the end of 2023. Single Resolution Fund: no expected contribution in 2024 as target level reached | Single Resolution Board (europa.eu) .

(68)      While DGS interventions to reimburse depositors, in accordance with Member States’ obligations under the DGSD, do not constitute State aid, DGS interventions intended to assist in the restructuring or wind-up of credit institutions prior to or after the failure of a bank may constitute State aid. Whilst the DGS financing means may derive from the private sector, DGS measures may constitute aid to the extent that they come within the control of the State and the decision as to their application is imputable to the State, in the sense of Article 107(1) TFEU. The Commission has been assessing the compatibility of State aid in the form of such interventions under the State aid rules for banks in difficulty.

(69)      Even though Fund aid does not constitute State aid as such, pursuant to Article 19 of the SRMR, resolution action that involves Fund aid is subject to approval by the Commission under the rules laid down in that Article and the State aid rules.

(70)      The CMDI review proposal lists State support from the public budget as one case of extraordinary public financial support outside for resolution, which may be granted exceptionally and subject to the Union State aid framework, in the context of winding-up, i.e. after a negative public interest assessment.

(71)      DGS preventive measures, as referred to in Article 11(3) DGSD, are interventions by DGS using DGS funds, supporting financially a bank in distress, for example, in the form of guarantees, cash injections, participation in capital increase, before any resolution action is triggered. DGS preventive measures may qualify as State aid, depending, inter alia, on the measure, its context and the circumstances in which it is adopted. When these interventions qualify as State aid, they are assessed under the State aid rules for banks in difficulty. See also footnote 68.

(72)      Bank support using the State budget during national insolvency proceedings is not governed by the CMDI framework. The CMDI review proposal requires a negative public interest assessment to discard resolution, exceptionality and compliance with State aid rules – see above.

(73)      DGS alternative measures, as referred to in Article 11(6) DGSD, are interventions supporting the transfer of deposits and assets of the failing bank to another bank (e.g. in the form of a cash contribution to fill the gap between assets and deposits, guarantees) in the context of a bank’s wind-down to preserve the access of depositors to their money. When these interventions qualify as State aid, they are assessed under the State aid rules for banks in difficulty. See also footnote 68.

(74)      In the case of resolution, jointly with a restructuring or wind-down plan.

(75)      See footnote 11 and, in particular, the Commission’s Communication on the review of the CMDI framework contributing to completing the Banking Union, COM(2023) 225 final.

(76)      Well established financial instability indicators typically include (i) the SRISK index, which measures banks’ systemic risk contributions, (ii) the country level index of financial stress (CLIFS index), (iii) the composite indicator of systemic stress (CISS index). CLIFS is an indicator of financial stress developed by Duprey et al. (2017) that includes six, market-based, stress measures. Specifically, it captures three market segments: equity markets, bond markets and foreign exchange markets. CISS is an indicator developed by Holló et al. (2012) that includes 15 raw, mainly market-based financial stress measures that are split equally into five subindices, namely the financial intermediaries’ sector, money markets, equity markets, bond markets and foreign exchange markets (see the E.CA study).

(77)    Specifically, SRISK can be defined as the expected capital shortfall of a bank in a period conditional on a crisis event and measures how much capital would be needed in a crisis for a bank to maintain a k% capital-to-assets ratio. The larger SRISK is, the higher the systemic risk contributions of banks. The components of SRISK are bank size, leverage, and long-run marginal expected shortfall (LRMES).

(78)      In the same way as the SRISK index, the CLIFS index and the CISS index increased significantly in the early years of the global financial crisis, revealing high levels of financial distress that could put the stability of the financial system in jeopardy. The period of heightened financial distress persisted until mid-2013, at which point the indicators started decreasing.

(79)      A Credit default swap (CDS) is a contract in which a ‘protection buyer’ pays a periodic premium to a ‘protection seller’ and in exchange receives a payment by the ‘protection seller’ if the reference entity (a firm or a government issuer) experiences a credit event (e.g. a failure to meet interest payments). The market price of the premium is thus an indicator of the perceived risk related to the entity concerned. A CDS works similarly as an insurance against a credit event, since it provides the ‘protection buyer’ with protection against a credit event, such as default, a credit rating downgrade etc.

(80)      The analysis in this regard covers credit institutions with assets above €30 billion, or whose total assets represent more than 20% of the GDP of the Member State of establishment.

(81)      See footnote 24.

(82)

     Bank of International Settlements, (2009), An assessment of financial sector rescue programmes (BIS Papers No 48), available at: "https://www.bis.org/publ/bppdf/bispap48.pdf.

(83)

     Specifically, the E.CA study finds that a negative and significant association of State aid with CLIFS and CISS indicators of market distress appears with a one-year lag.

(84)

     See Nistor, S., & Ongena, S, (2023), The Impact of Policy Interventions on Systemic Risk across Banks, Journal of Financial Services Research, available at: https://doi.org/10.1007/s10693-023-00404-8 .  Homar, T, (2016), Bank Recapitalizations and Lending: A Little is Not Enough, available at: SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3723361.

(85)

     In particular, E.CA found that a one standard deviation increases in the stock of State aid three years earlier is associated with (i) a reduction in banks’ systemic risk contributions equivalent to 10% of the sample average, and (ii) a decline in the CISS index of financial market distress equivalent to 22% of the sample average. For more details on CISS, see “CISS – a Composite Indicator of Systemic Stress in the Financial System”, Holló et al., ECB, Working Paper Series, n. 1426, 2012.

(86)      One example is time-varying, country-specific changes in the investors’ perception of the banking sector’s resilience.

(87)      These assessments rely mostly on bank-level data. For additional details on the methodology applied in Sections 4.1.1.1.2-4.1.1.1.4 and its own limitations, see Annex II.

(88)      As specified in Section  2.2 , the evaluation considers the main baseline scenario as the one in which the assessment of compatibility of aid to banks in difficulty would have had to be performed in line with the rescue and restructuring guidelines for non-financial firms, to the extent applicable, or directly under the Treaty, where the rescue and restructuring guidelines had been unfit for purpose.

(89)      See Wiggins and Metrick, (2019), The Lehman Brothers Bankruptcy H: The Global Contagion, Journal of Financial Crisis.

(90)      Financial Stability Institute (FSI) (2020), FSI crisis management series No.1, The banking crisis in Iceland.

(91)      See endnotes iii, vi, x, xiv of Annex IV.

(92)      See “ State aid, Crisis rules for the financial sector and the real economy ”, European Parliament, DG for Internal Policies, 2011; the “2011 Commission Staff Working Paper” (as detailed in footnote 24).

(93)      See endnotes ix and xvi of Annex IV.

(94)

     For further details see: Ex post evaluation of the economic adjustment programme for Ireland (2010-2013) . Institutional Paper 4 - July 2015; Evaluation of the Financial Sector Assistance Programme. Spain, 2012-2014. Institutional Paper 19 - January 2016; Ex Post Evaluation of the Economic Adjustment Programme. Portugal, 2011-2014 . Institutional Paper 40 – November 2016; Ex-Post Evaluation of the Economic Adjustment Programme. Cyprus, 2013-2016 . Institutional Paper 114, October 2019; Ex-post evaluation of the Economic Adjustment Programmes of Greece during the period 2010-2018 . SWD(2023) 90 final.

(95)      With the exception of Spain, where the sovereign continued to finance itself in the markets.

(96)      The top 2008/9 spenders included Ireland, Belgium, the Netherlands, the United Kingdom, Germany. For the purpose of this calculation, capital injection and impaired asset measures are counted at their nominal value, while guarantees and liquidity measures are counted at 20% of their maximum nominal value, to reflect the different risk entailed by the different instruments. See Box 2. 

(97)      Capital needs emerged, among others, as a result of the first EU wide stress tests and the related capital strengthening recommendations. See endnote xiii of Annex IV.

(98)      E.g., Irish AIB and Bank of Ireland received EUR 1.2 billion and EUR 12.7 billion capital injections (including convertible instruments) by the State in 2011 and managed to tap the unguaranteed senior debt market, raising EUR 500 million and EUR 1 billion, respectively, by end-2012.

(99)      See endnotes xix and xx of Annex IV. 

(100)      See Section 3.4 .

(101)      Including e.g., Greece, Cyprus, Portugal, Italy, Slovenia, Austria, Poland.

(102)      E.g., in February 2022, Sberbank Europe AG and two of its subsidiaries collapsed, as a result of the reputational impact of geopolitical tensions, further to the Russian aggression against Ukraine, and were effectively resolved in accordance with the EU’s bank resolution framework. See footnote 13.

(103)      For a more complete but non-exhaustive list of observed depositor runs/outflow in the context of bail-in, see Annex 8.1 of the Impact Assessment Report , accompanying the Commission’s proposal for the review of the CMDI framework, SWD(2023) 225 final.

(104)      See Brown M., Evangelou I., Stix H. (2017), Banking Crises, Bail-ins and Money Holdings , Central Bank of Cyprus Working Paper 2017-2

(105)    See M Iwanicz-Drozdowska (2023), Resolution and depositors’ trust empirical analysis of three resolution cases in Poland .

(106)

 `    The euro area bank lending survey (BLS) was launched by the Eurosystem in 2003. Its main objective is to enhance the Eurosystem’s knowledge of bank lending conditions in the euro area. It provides information on the lending policies of euro area banks and supplements existing statistics on loans and bank lending rates with information on the supply of and demand for loans to enterprises and households. The BLS is conducted four times a year and addressed to senior loan officers at a representative sample of euro area banks, comprising around 150 institutions representing all euro area countries, and takes into account the characteristics of the respective national banking structures.

(107)      See European Commission access-finance/data-and-surveys-SAFE

(108)      See footnote 19.

(109)      See footnote 20.

(110)      Beck, T., Radev, D., & Schnabel, I. (2020), Bank Resolution Regimes and Systemic Risk, SSRN Electronic Journal, available at: https://doi.org/10.2139/ssrn.3593542 .

(111)      Barucci, E., Colozza, T., & Milani, C. (2019), The effect of bank bail-outs in the EU, Journal of International Money and Finance, 95, 14-26, available at:  https://doi.org/10.1016/j.jimonfin.2019.03.004 .  

(112)      Berger, A. N. (2018). The benefits and costs of the TARP bailouts: A critical assessment. Quarterly Journal of Finance, 8(02), 1850011.

(113)      TARP refers to the plan initiated by the US government mainly to purchase large quantities of distressed or “structured” assets from financial institutions when the markets for these assets were not functioning well. See endnote iv of Annex IV.

(114)      See footnote 9.

(115)      See footnote 10.

(116)      Of which, depending on the specific question, 5 to 6 public authorities, 1 to 2 EU citizens, 1 business organisation and 1 trade union.

(117)      Viability is further defined by point 13 of the 2009 Restructuring Communication as achieved when a bank is able to cover all its costs including depreciation and financial charges and provide an appropriate return on equity, taking into account the risk profile of the bank.

(118)      See footnote 24.

(119)      Gerhardt, M., & Vander Vennet, R. (2017), Bank bailouts in Europe and bank performance, Finance Research Letters, 22, 74–80, available at: https://doi.org/10.1016/j.frl.2016.12.028.

(120)      Lamers, M., Present, T., & Vander Vennet, R. (2022), European bank profitability: The great convergence?, Finance Research Letters, 49, 10308.8.

(121)      See footnote 15, paragraph 25.

(122)      A statistical method employed to estimate the causal effect of a treatment, policy, or intervention in observational studies. This technique compares the changes in outcomes over time between a treatment group and a control group. The accuracy of the estimates hinges on the ability to match the treatment and the control groups, ideally defined randomly - which was not possible in the context of this study. See Annex II (Methodology and Analytical Model Used) for more details.

(123)   See Aiya et al. (2015). A Strategy for Resolving Europe’s Problem Loans – IMF Discussion Note.

(124)       See Figure 1 in Section 3.1 .

(125)      See e.g. Coutinho et al. (2023). Insolvency Framework across the EU: Challenges after COVID-19 – Discussion Paper 182 – European Commission.

(126)      In December 2015, EBA strengthened the reporting standards on NPLs. However, the incurred-loss approach to loan provisioning under International Financial Reporting Standards (IFRS) remained backward-looking until the introduction of IFRS 9 in 2018.

(127)      To facilitate that, the Commission has also adopted decisions authorising (i) the set-up - under the State aid rules under evaluation - of aided asset management companies dedicated to the clean-up of NPLs from the national banking systems at larger (e.g. in Ireland and Spain), and (ii) the provision by Member States of market-conform guarantees, available to all banks, to facilitate the securitisation and sale of NPLs (e.g. in Italy and Greece).

(128)      For example, in the case of the Japanese banking crisis, banks received additional capital injections more than ten years after the initial shock. See Hoshi and Kashyap (2010); "Will the US Bank Recapitalization Succeed? Lessons from Japan." Journal of Financial Economics 97 (3): 398-417.

(129)      Exit should not be read as corresponding only to an event of a bank failing, as it could result also from other technical reasons as e.g., a merger or acquisition.

(130)      See footnote15, paragraph 65. ECA found that the Commission assessed restructuring plans very rigorously, requiring detailed information and scrutinising it thoroughly. 

(131)      Of which 5 business organisations/associations, 2 public authorities, 1 trade union and 1 EU citizen.

(132)      See footnote 24.

(133)

     Cardillo, G., Fiordelisi, F. & Ricci, O. (2023), Bank Bailouts and Competitive Distortions, available at SSRN: https://ssrn.com/abstract=3912465 or http://dx.doi.org/10.2139/ssrn.3912465 .

(134)      See footnote 122.

(135)      Berger, A. N., & Roman, R. A. (2015), Did TARP banks get competitive advantages?, Journal of Financial and Quantitative Analysis, 50(6), 1199-1236. Berger and Roman study a sample of 7,323 banks between 2005 and 2012 which were the recipients of the TARP in the United States. Using a difference-in-differences setting, the authors found a negative effect of aid on competition, as aided banks gained market shares, measured by local market shares of assets and market power, measured by the Lerner index.

(136)    See footnote 122.

(137)      A statistical technique used to reduce selection bias in observational studies by making treated and untreated groups more comparable, thus mitigating the methodological limitations highlighted in footnote 122. 

(138)      The indicators can be understood as follows: Raw markup is a performance indicator based on the simple ratio of a bank’s income over costs. An increased raw markup can be read as the banks’ ability to increase their price without a corresponding increase in their costs, hence as increased market power or reduced competition. Lerner index (based on cost function estimation) is a performance indicator measuring the ability of firms to price above marginal costs; conceptually, it relates to the level of firms’ market power. Marginal cost (based on cost function estimation) is a performance indicator providing insight into how banks’ cost structure has developed to shed additional light on whether the changes in the Lerner index are driven by the changes in cost structure or changes on the income side, and hence possible changes in competition. Net interest margin is a performance measure defined as the differential between the interest income generated by banks and the interest expense paid out to their depositors. It may capture several aspects of operations (bank’s risk profile, efficiency, macroeconomic environment, or market power) and, therefore, should be interpreted with caution. Banks’ market share is a structural indicator to capture a bank’s market share at Member State level.

(139)      See e.g., Bennett, R.L., Hwa, V. & Kwast, M.L, (2015), Market discipline by bank creditors during the 2008-2010 crisis, Journal of Financial Stability, 20, 51-69; Balasubramnian, B. & Cyree, K.B. (2014). Has market discipline improved after the Dodd-Frank Act? Journal of Banking & Finance, 41, 155-166.

(140)      FSB (2021) Financial Stability Board’s Report on Evaluation of the Effects of Too-Big-To-Fail Reforms; Kloeck, A. (2014), Implicit subsidies in the EU banking sector, Study commissioned by the Greens/EFA group in the European Parliament.

(141)      Baker, D., & McArthur, T. (2009), The value of the "too big to fail" big bank subsidy, CEPR Reports and Issue Briefs, Center for Economic and Policy Research; Jacewitz, S., Pogach, J. (2018), Deposit Rate Advantages at the Largest Banks, Journal of Financial Services Research, 53, 1–35.

(142)      Duchin, R., & Sosyura, D. (2014), Safer ratios, riskier portfolios: Banks׳ response to government aid, Journal of Financial Economics, 113(1), 1-28.

(143)      Gropp, R., Hakenes, H. & Schnabel, I. (2011), Competition, Risk-shifting, and Public Bail-out Policies, The Review of Financial Studies, 24, 2084-2120.

(144)      Gropp, R., Gruendl, C., & Guettler, A. (2014), The impact of public guarantees on bank risk-taking: Evidence from a natural experiment, Review of Finance, 18(2), 457-488.

(145)      Z-score: the sum of ROA and Equity to Assets divided by the standard deviation of ROA.

(146)      The sd ROA represents the volatility of a bank’s net income.

(147)      LLP show the amount of provisions that are created through the profit and loss statement in a given year. Higher LLP usually imply higher credit risk that may be visible in increased non-performing loan ratios.

(148)      Please note that out of the 48 respondents to the public and targeted consultations, only an average of 14 respondents expressed their opinion with regard to the effectiveness of burden-sharing measures.

(149)      Of which six are currently in force.

(150)      As a point of comparison, ca. 1 300 decisions were adopted and ca. EUR 3.2 trillion aid was authorised under the 2020 Temporary Framework, which was amended six times, after its adoption; Available information: https://ec.europa.eu/commission/presscorner/detail/en/statement_22_2980

(151)      See footnote 15, p.29-20, 37.

(152)      The estimate covers the staff directly dedicated to the cases under evaluation. It does not include either the costs of the supporting functions, such as IT or legal, or any external advice. The Commission has exact data on workload per case since 2012. With this limitation, the evaluation team has estimated the number of staff and hours for the previous years, based on the indicators used to build the “administrative effort index”, presented in Section 4.1.2.1 .

(153)      Similar conclusions were drawn in (i) the evaluation of the State subsidy rules for health and social services of general economic interest (“SGEIs”) and of the SGEI de minimis Regulation, SWD(2022) 388 final, (ii) the evaluation of  the State Aid rules for broadband infrastructure deployment, SWD(2021) 194 final, (iii) the fitness check of the 2012 State aid modernisation package, railways guidelines and short-term export credit insurance, SWD(2020) 257 final.

(154)      This is because the role of national administrations is symmetrical to the one of the Commission in a State aid procedure, in that the Member State prepares a submission later assessed by the Commission services on the justification for the aid and on its compliance with State aid rules. The administrative costs for the banks themselves can be considered relatively limited as the typical deliverables for them, such as the dedicated business plan, are normally implemented by the banks regardless of the requirements under the rules.

(155)      The figures are based on Laeven and Valencia, Systemic Banking Crises Revisited, IMF Working Paper, WP/18/2006. On this basis, E.CA finds the fiscal costs for some selected EU Member States in some selected “crisis time” to be ca. 4.9% of their GDP. On this basis, a further extrapolation of the data for all EU Member States and for the entire period under evaluation has been performed by the evaluation team. The resulting fiscal cost should not be directly compared to the amount of used State aid. For more details on these two concepts, see Box 2 in Section 3.2 . 

(156)      See footnote 152. 

(157)      For the purpose of this overview the entry into force of the CMDI framework is approximated with the date of 1 January 2015. 

(158)      See, for instance, in this sense, paras. 22-23 of the 2013 Banking Communication.

(159)      See footnote 15, p. 33. 

(160)      It is recalled that the 2020 Temporary Framework has in the meantime expired.

(161)      See footnote 15, p.35. 

(162)      The 2013 Banking Communication acknowledges in Points 12 and 13 the upcoming resolution framework and clarifies in Points 63 and 64 that DGS and resolution fund interventions fall under the rules.

(163)      Aid during wind-up in liquidation is also subject to the liquidation aid criteria, but no CMDI provisions apply other than requiring a negative public interest assessment, exceptionality and compliance with State aid rules.

(164)      Judgment of 2 March 2021, Commission v Italy et al. (Tercas), C-425/19 P, EU:C:2021:154.

(165)      See Annex IX, Section 4.b for more details on the judgment.

(166)      SWD/2023/225 final, Impact Assessment Report .

(167)      Idem, see Section 7.4.2 of Annex 5 ‘Evaluation’ to the Impact Assessment Report .

(168)      See further on the Commission’s proposal on the CMDI reform : Reform of bank crisis management and deposit insurance framework - European Commission (europa.eu) .

(169)      See footnote 9.

(170)      See footnote 10.

(171)      For a more detailed description on the methodology used and its constrains, see Annex II. 

(172)      Long-term competitiveness of the EU: looking beyond 2030, COM(2023) 168 final: https://commission.europa.eu/system/files/2023-03/Communication_Long-term-competitiveness.pdf

(173)      European Commission dedicated site on the Capital Markets Union: https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/capital-markets-union/what-capital-markets-union_en  

(174)      See footnote 15, p.33-34.

(175)      See Presidency Conclusions of the Brussels European Council of 15 and 16 October 2008, available at: https://data.consilium.europa.eu/doc/document/ST-14368-2008-INIT/en/pdf .

(176)      Referred to as ‘preventive measures’ in the CMDI review proposals.

(177)      As previously clarified, the CMDI does not govern wind-up aid by State budgets, other than requiring a negative public interest assessment, exceptionality and compliance with State aid rules.

(178)      See footnote 15, p. 14.

(179)      Communication from the Commission — Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty, OJ C 249, 31.7.2014, p. 1–28.

(180)      See also Section 1.1 .

(181)    SA.109418 (2023/N) – Poland – Amendment to the liquidation aid to Getin Noble S.A. in resolution (SA.100687).

(182)      https://ec.europa.eu/info/better-regulation-guidelines-and-toolbox_en.

(183)      https://etendering.ted.europa.eu/cft/cft-display.html?cftId=10963.

(184)      https://ec.europa.eu/competition/state_aid/scoreboard/index_en.html#what.

(185)      This description reuses parts (most notably Section 4) of the Study performed by E.CA and its academic partners.

(186)      This is not equivalent to the amount of used State aid (EUR 2 904 billion) during the period under evaluation, nor to an exact estimation of the fiscal costs entailed by such used aid. For additional details on these two concepts and on the limitations of the estimates see Box 2 in Section 3.2 and footnote 155 in Section 4.1.2 of the SWD.

(187)      For additional details on the construction and limitation of this estimate, see footnote 152 in section 4.1.2 of the SWD.

(188) This assessment is without prejudice to a possible future Impact Assessment.

(189)      N 615/2008 Guarantee and recapitalisation for Bayern LB, Germany. N 574/2008 Measures in favour of Fortis, Belgium/Luxembourg/Netherlands. 93 ( ) NN 45-49-50/2008 Guarantee on liabilities of Dexia, Belgium, N 655/2008 Guarantee for Nord LB, Germany, N 639/2008 Guarantee for IKB, Germany.

(190)      Article 32(4)(d) BRRD or Article 18(4)(d) SRMR

(191)      The aid was temporarily approved in December 2016 (SA.47081 – Liquidity support to MPS Bank, Commission decision of 29 December 2016) and approved in a final way in July 2017, together with the bank’s precautionary recapitalisation (SA.47677 – New aid and amended restructuring plan of Banca Monte dei Paschi di Siena, Commission decision of 4 July 2017)

(192)      SA.47149 – Liquidity support to Banca Popolare di Vicenza, Commission decision of 18 January 2017; SA.47150 – Liquidity support to Veneto Banca, Commission decision of 18 January 2017; SA.47940 – Additional liquidity support to Banca Popolare di Vicenza, Commission decision of 12 April 2017; SA.47941 – Additional liquidity support to Veneto Banca, Commission decision of 12 April 2017

(193)      SA.52917 – Liquidity support to Banca Carige – Cassa di Risparmio di Genova e Imperia, Commission decision of 18 January 2019

(194)      SA.36612 – Aid granted by Latvia to AS Citadele banka and AS Reverta (formerly known as AS Parex Banka) as well as misuse of aid, Commission decision of 9 July 2014.

(195)      The 2013 Banking Communication defines the concept “capital shortfall” as a capital shortfall established in a capital exercise, stress-test, asset quality review or an equivalent exercise at Union, euro area or national level, where applicable confirmed by the competent supervisory authority. Liquidity aid to banks with a capital shortfall but which are still solvent according to the competent supervisor can still be authorised by the Commission, albeit only under an individual notification.

(196)      SA.45753 – Italian bank guarantee scheme, Commission decision of 26 June 2016

(197)      SA.38994 – Liquidity scheme in favour of Bulgarian Banks, Commission decision of 29 June 2014

(198)      SA.52481 – Nineteenth prolongation of the Polish bank guarantee scheme, Commission decision of 6 December 2018

(199)      SA.51042 – 17th Extension of the Portuguese Guarantee Scheme, Commission decision of 9 August 2018

(200)      SA.55767 – Prolongation of the Greek State Guarantee Scheme for banks, Commission decision of 16 January 2020 (last available prolongation decision)

(201)      N428/2009 - Restructuring plan of Lloyds Banking Group, Commission decision of 18 November 2009; N422/2009 and N621/2009 - Royal Bank of Scotland, impaired asset relief measure and restructuring plan, Commission decision of 14 December 2009, N244/2009 - Commerzbank capital injection, Commission decision of 7 May 2009, C43/2008 - Aid for the restructuring of West LB, Commission decision of 12 May 2009.

(202)      N9/2009 - Recapitalisation of Anglo Irish Bank, Commission decision of 14 January 2009, SA.26674 – Restructuring of ABN Amro Group Commission decision of 15 April 2011, N528/2008 - Measure in favour of ING, Commission decision of 13 November 2008.

(203)      N149/2009 - Recapitalisation of Bank of Ireland, Commission decision of 26 March 2009.

(204)      Eight banks were recapitalised and restructured or resolved in line with the State aid rules. A first group involved banks already controlled by the Spanish authorities: BFA/Bankia, Catalunya Caixa, Nova Caixa Galicia and Banco de Valencia. The restructuring plans for those banks were approved on 28 November 2012. For a second group, including Banco Mare Nostrum, Banco CEISS, Caja3 and Liberbank, restructuring decisions were adopted on 20 December 2012.

(205)      SA.33229 – Restructuring of NLB, Commission decision of 18 December 2013; SA.35709 – Restructuring of NKBM, Commission decision of 18 December 2013; SA.37690 – Rescue aid in favour of Abanka d.d., Commission decision of 18 December 2013

(206)      SA. 35334 – Recapitalisation and restructuring of the Cooperative Central Bank Ltd and of the Cooperative Credit Institutions, Commission decision of 24 February 2014. In 2015, due to a provisioning shortfall identified by the ECB, the bank needed an additional EUR 175 million capital from a newly created Recapitalisation Fund financed by levies on the banking sector (SA.43367 – 2015 additional restructuring aid to the Cooperative Central Bank, Commission decision of 18 December 2015) on the basis of commitments to cover potential future capital needs with means of private investors. When that failed, the bank had to exit the market.

(207)      SA.43364 – 2015 additional restructuring aid to Piraeus Bank, Commission decision of 29 November 2015; SA.43365 – Amendment of the restructuring plan approved in 2014 and granting of new aid to National Bank of Greece, Commission decision of 4 December 2015

(208)      SA.47677 – New aid and amended restructuring plan of Banca Monte dei Paschi di Siena, Commission decision of 4 July 2017, as amended by SA.103450.

(209)      A.103450 (2022/N) – Italy Banca Monte dei Paschi di Siena – Second amendment to the list of commitments related to the aid granted to Banca Monte dei Paschi di Siena in 2017, Commission decision of 2 August 2022.

(210)      N194/2009 – Liquidation aid to Bradford & Bingley, Commission decision of 25 January 2010.

(211)      SA.32504 Joint restructuring plan for Anglo Irish Bank and Irish Nationwide Building Society, Commission decision of 29 June 2011.

(212)      SA.31945 - Liquidation aid for Eik Banken, Commission decision of 6 June 2011.

(213)      SA.33751, SA.33760, SA.33763, SA.33764 (2011/C) and SA.30521 (MC2/2010) - Dexia and Belfius, Commission decision of 28 December 2012.

(214)

     SA.37029 - Liquidation of Crédit Immobilier de France, Commission decision of 27 November 2013.

(215)      SA.37642 – Orderly winding down of Probanka d.d., Commission decision of 18 December 2013; SA.37643 – Orderly winding down of Factor Banka d.d., Commission decision of 18 December 2018

(216)      SA.49275 – Sale of Novo Banco with additional aid in the in the context of the 2014 Resolution of Banco Espírito Santo, Commission decision of 11 October 2017

(217)      SA.41925 – Aid for the resolution of Carife; SA.39543 – Aid for the resolution of Banca Marche; SA.41134 – Aid for the resolution of resolution of Banca Etruria; SA.43547 – Aid for the resolution of Carichieti, all Commission decisions of 22 November 2015

(218)      SA.41925 – Sale of the bridge bank Nuova Carife to BPER, Commission decision of 29 June 2017; SA.39543, SA.41134, SA.43547 – Sale of the bridge banks Marche, Etruria and Carichieti to UBI Banca (third amendment to the resolution of the banks Marche, Etruria and Carichieti), all three Commission decisions of 30 April 2017

(219)      SA.45664 – Orderly liquidation of Banca Popolare di Vicenza and Veneto Banca - Liquidation aid, Commission decision of 25 June 2017

(220)      SA.35334 – Liquidation aid for the orderly market exit of Cyprus Cooperative Bank Ltd, Commission decision of 19 June 2018

(221)      SA.47178 – Recapitalização da Caixa Geral de Depósitos, Commission decision of 10 March 2017.

(222)      SA.53869 – Market-conform recapitalisation of CEC Bank, Commission decision of 29 October 2019.

(223)      The ceding bank must then cover with private means the losses equal to the difference between the assets’ net book value and market value.

(224)

     SA.29338 – Increase of the ceiling amount of a second-loss guarantee for HSH Nordbank AG, Commision decision of 2 May 2016 (due to the notification and temporary approval before the 2013 Banking Communication came into force, the case was assessed under the 2008 Banking Communication and other crisis communications).

(225)      SA.39451 – State aid implemented by Italy for Banca Tercas, Commission decision of 23 December 2015.

(226)

     Joined cases T98/16, T196/16 and T198/16, Italy, Banca Popolare di Bari SCpA, Fondo Interbancario di Tutela dei Depositi v Commission, ECLI:EU:T:2019:167. 

(227)      See CJEU press release n°30/21

(228)      SA.39451- State aid implemented by Italy for Banca Tercas, Commission decision of 21 September 2023.

(229)      Information from the Commission - Community guidelines on State aid for rescuing and restructuring firms in difficulty (OJ C 368, 23.12.1994, p. 12); Communication from the Commission — Community guidelines on State aid for rescuing and restructuring firms in difficulty (OJ C 244, 1.10.2004, p. 2), (referred to as “Rescue and Restructuring Guidelines”).

(230)      See paras. 11 and 65-69 of the Communication from the Commission — Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty, OJ C 249, 31.7.2014, p. 1–28.

(I)

      Term Asset-Backed Securities Loan Facility . Through ad hoc lending by the USD Fed and equity support by the U.S. Treasury, it enabled the issuance of asset-backed securities (ABS) backed by student loans, auto loans, credit card loans, etc.

(II)

     U.S. FED  announced  a program to purchase mortgage-backed securities (MBS) by Fannie Mae, Freddie Mac, and Ginnie Mae. The program was extended and expanded in scope in March 2009. By its end, in March 2010, the Fed had bought USD 1.25 trillion in MBS, USD 175 billion in federal agency debt, and USD 300 billion in U.S. Treasury securities.

(III)

     It included the “enhanced credit support”, i.e. the increase in the maturity of the long-term refinancing operations (LTROs), the “fixed rate full allotment” and the enlargement of the scope of the assets eligible for collateral in those operations. See “ The ECB’s response to the financial crisis ”, ECB, Monthly Bulletin, October 2010

(IV)

      Troubled Asset Relief Program . It resulted in State’s disbursements amounting to USD 443.5 billion.

(V)

      Directive 2009/111/EC of the European Parliament and of the Council of 16 September 2009 amending Directives 2006/48/EC, 2006/49/EC and 2007/64/EC as regards banks affiliated to central institutions, certain own funds items, large exposures, supervisory arrangements, and crisis management.

(VI)

      Covered bond purchase programme (CBPP), for a total amount of EUR 60 billion by June 2010.

(VII)

     In December 2010, the Basel Committee issued the Basel III rules text , presenting global regulatory standards on bank capital adequacy and liquidity. Additional details on the phases of the agreement could be found here .

(VIII)

     It  consisted of purchases of USD 600 billion in Treasury securities, from Nov 2010 to June 2011.

(IX)

     The European Financial Stability Facility was created as a temporary crisis resolution mechanism in June 2010. It has provided financial assistance to Ireland, Portugal and Greece.

(X)

      Securities Market Programme . Under this programme, the ECB acquired assets normally accepted as collateral in its official refinancing operations. The maximum amount of securities (EUR 208.7 billion in book value), held by the ECB as a result of this programme, was reached in 2012

(XI)

      Directive 2010/76/EU of the European Parliament and of the Council of 24 November 2010 amending Directives 2006/48/EC and 2006/49/EC as regards capital requirements for the trading book and for re-securitisations, and the supervisory review of remuneration.

(XII)

     In December 2011, the reinforced Stability and Growth Pact (SGP) entered into force with a new set of rules for fiscal and economic surveillance, introducing the Macroeconomic Imbalance Procedure (MIP). These measures are made of five regulations and one directive, commonly referred to as "Six-Pack".

(XIII)

     In July 2011, EBA published the results of the first EU wide stress test , assessing the resilience of a large sample of banks in the EU against an adverse scenario. In December 2011, EBA recommended the creation and supervisory oversight of temporary capital buffers .

(XIV)

      CBPP 2 , for a total nominal amount of EUR 16.4 billion, by its end in October 2012.

(XV)

     It called  for monthly purchases of USD 40 billion in MBS and USD 45 billion in U.S. Treasury securities. More details on its detailed implementation are available here .

(XVI)

     The European Stability Mechanism  is part of the EU strategy designed to safeguard financial stability in the euro area, providing financial assistance to euro area countries experiencing or threatened by financing difficulties. It provided assistance to Spain, Cyprus and Greece.

(XVII)

      Outright Monetary Transactions are Eurosystem’s outright transactions of sovereign bonds of Member States subject to a EFSF/ESM programme. The announcement of the ECB’s plan to work on such programme had significant reassuring effects and the programme was ultimately never implemented.

(XVIII)

     Namely, the Banking Recovery and Resolution Regulation and the Single Supervisory Mechanism Regulation .  

(XIX)

     See footnote 10 in Section 1.2 of the SWD.

(XX)

     See footnote 9 in Section 1.2 of the SWD.

(XXI)

     Namely, the Single Resolution Mechanism Regulation .  

(XXII)

      Asset Purchase Programmes (APP). This is the largest purchase programme by the ECB, still in place.

(XXIII)

     See footnotes 58 and 60 in Section 3.4 of the SWD. 

(XXIV)

     See footnotes 59 and 61 in Section 3.4 of the SWD. 

(XXV)

     The Paris Agreement is a legally binding international treaty on climate change. It was adopted by 196 Parties at the UN Climate Change Conference (COP21) in Paris, France, on 12 December 2015.

(XXVI)

     See footnote 19 in Section 1.3 of the evaluation report.

(XXVII)

     The NextgenerationEU consists of a support package of ca. EUR 800 billion to support the post-COVID19 recovery and the green and digital transition.

(XXVIII)

   The two packages are respectively worth US dollar 2 trillion and US dollar 2.3 trillion.

(XXIX)

     The Inflation Reduction Act authorised USD 891 billion in total spending, including $783 billion on energy and climate change .

(XXX)

   See footnote 20 in Section 1.3 of the SWD.

(XXXI)

     See footnote 11 in Section  1.2  of the SWD.