Extraordinary public financial support for banks is not so extraordinary after all
| Author | Phedon Nicolaides |
| Published date | 01 June 2017 |
| Date | 01 June 2017 |
| DOI | http://doi.org/10.1177/1023263X17732297 |
| Subject Matter | Editorial |
Editorial
Extraordinary public
financial support for banks
is not so extraordinary
after all
Phedon Nicolaides*
One of the pillars of the EU’s nascent banking union is the Single Resolution Mechanism (SRM).
Its purpose is to sever the link between troubled banks and indebted states. If a bank is in need of
money in order to meet its capital adequacy ratio, it should receive it from private investors,
otherwise it should be ‘resolved’. In this context, ‘resolution’ means the orderly restructuring or
liquidation of such an institution.
When a bank is resolved, shareholders and other creditors must contribute first; only if there is a
need for more money, the Single Resolution Fund (SRF) can provide assistance. Support from the
state can be given only when all other options are exhausted. Therefore, state aid, or ‘extraordinary
public financial support’ in the terminology of the SRM, should be an exception and the use of
taxpayer money to bail out banks should be a thing of the past.
However, three recent cases have shown that there are exceptions to the exceptional nature of
state aid for banks.
That Member States could find and exploit loopholes must have come as a surprise. Elke Ko¨nig,
the Chairperson of the Single Resolution Board (SRB), in an interview with the Financial Times on
8 August 2017, reportedly said that ‘state aid guidelines adopted by the European Commission in
2013 were in effect out of date’. Less than a year and a half after the SRM came fully into effect,
she broached the revision of the Commission’s Banking Communication in order to close the
‘loopholes’ that allowed state aid for liquidating banks.
1
* College of Europe, University of Maastricht, Maastricht, Netherlands
Corresponding author:
Phedon Nicolaides, University of Maastricht, Maastricht, The Netherlands.
Email: phedon.nicolaides@maastrichtuniversity.nl
1. Financial Times, Tighter EU curbs urged on winding down banks, 8 August 2017. The article can be accessed at:
https://www.ft.com/content/545c1790-7b7f-11e7-ab01-a13271d1ee9c#myft: saved-articles: page
Maastricht Journal of European and
Comparative Law
2017, Vol. 24(3) 343–347
ªThe Author(s) 2017
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DOI: 10.1177/1023263X17732297
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