‘All Bad Things Must Come to an End’
| Author | Phedon Nicolaides |
| DOI | 10.1177/1023263X1602300202 |
| Published date | 01 April 2016 |
| Date | 01 April 2016 |
| Subject Matter | Article |
222 23 MJ 2 (2016)
ARTICLES
‘ALL BAD THINGS MUST COME TO AN END’
e Application of State Aid Rules
to the New EU Regime for Bank Resolution*1
P N**
ABSTRACT
is article examines the new EU rules on the resolution of banks and their conformity
with Article107 TFEU. Normally, state aid rules apply to national measures. However, EU
law that came into e ect on 1January 2016 extended the application of state aid rules to
the decisions and action s of the Single Resolution Board. is articl e argues that, although
compliance with Article107 TFEU by the Single Resolution Board will make its decisions
more complicated, it will also bring about much needed uniformity in the resolution of
banks across the EU.
Keywords: bank resolution; Single Resolution Board; Single Resolution Mechanism;
state aid
§1. IN TRODUCTI ON
ere is a burgeoning literature on the nancial crisis. e topics examined by most
of this literature fa ll into three categories: (i) the causes of the crisis and the new EU
institutions that have been set up i n response; (ii) the rights and obligations of Eurozone
members and the support that has been provided by some Member States to other
Member States; and (iii) the state aid that has b een granted to banks and other na ncial
institutions.
* is is an exp anded and revis ed version of the inaugu ral lecture I delivered on 3 December 2015 at
the University of Maa stricht. e quotation ‘all bad things must come to an end’ is from the TV series
Breaking Bad.
** Professor at the Univers ity of Maastric ht and the College of Eu rope, Bruges. I would l ike to thank
Gibran Watfe and an anony mous referee for their comme nts on an earlier dra .
‘All Bad ings Must Come to an E nd’
23 MJ 2 (2016) 223
e Si ngle Resolution Mechanism (SRM) became fully operational on 1 January
2016. e purpose of the SRM, as laid down by Regulation 806/2014,1 is to ensure the
orderly restructuring of banks which would otherwise fail. Orderly restructuring and,
if necessary, closure of banks, are intended to prevent the collapse of any bank from
a ecting t he whole nancial system. e SR M also aims to protect taxpayers by forcing
shareholders and creditors of banks to be bai led in rst before any public money is used
to shore up ailing bank s.
e SRM is the counterpart to the Single Supervisory Mechanism which confers
supervisor y tasks to the European Central B ank. Both apply to Eurozone countries a nd
any other Member State that wi shes to participate. e SRM Reg ulation is accompanied
all Member States and requ ires them to establish national resolution authorit ies.
e SRM and BRRD in e ect mean that as of 1Ja nuary 2016, state aid will only be
an option of last resort when a ban k gets into trouble and needs external suppor t. is is
because the Single Re solution Board, which was also esta blished by the SRM Regulat ion,
and the national resolution authorities will rst have to ask shareholders, creditors and
other private investors to contribute before turni ng to the Single Resolution Fund (SRF)
and the national resolution fu nds (NRF). Taxpayers’ money will be used only if the
private contributions and the support from the SRF and NRF prove to be insu cient.
But then if all this money is not enough, it may be that the bank cannot become viable
again and therefore wil l have to be closed down. is is a nother reason why state aid will
become rare in the ban king sector. Not only will shareholders and cred itors be bailed in
rst, but also ba nks will be allowed to fail, probably more o en than ever before. Bank
closure will be more f requent or a more realistic option because the SRM a nd BRRD will
aim to separate the sustainable from the unsu stainable operations of ailing banks so as
to contain any negative impact on the res t of the nancial system. Once s ystemic failure
is controlled, the unv iable bank can be allowed to close down.
It should also be noted that, by ranking who gets bailed in, t he SRM and BRRD,
together with the ru les on deposit guarantees, make bank runs ver y unlikely. is is
because covered depositors (those with deposits of up to € 100,000) are excluded from
bailing-ins and a re protected up to an amount of €100,000.
Both the SRM Reg ulation and the BRRD have provisions on state aid . When a ministr y
of nance inject s capital in a bank to rescue it, there is no doubt that it grants state aid.
1 Regulation 8 06/2014/EC of the Europea n Parliament and of the Council of 15 July 2014 establishing
uniform ru les and a uniform proce dure for the resolution of credit i nstitutions and cer tain investment
rms in the fra mework of a Single Resolution Me chanism and a Sing le Resolution Fund and amend ing
Regulation (EU ) No 1093/2010, [2014] OJ L 225/1.
2 Directive 2014/59/EU of the Europe an Parliament and of the Council of 15 May 2014 establishing a
framework for the re covery and resolution of credit ins titutions and investment rms and amending
Council Dire ctive 82/891/EEC, and Dire ctives 2001/24/EC , 2002/47/EC, 2005/56/EC, 2 007/36/EC,
2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulat ions (EU) No 1093/2010 and (EU) No 648/2012,
of the European Pa rliament and of the Counci l, [2014] OJ L 173/190.
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