In 2008/2009, the Commission adopted a temporary state aid framework to enable Member States to deal with financial problems in systemic banks, as well as support access to finance for real economy firms. The crisis rules for banks, which were tightened in July and December 2010, were extended on 1 December 2011. The Temporary Framework for state aid measures to support access to finance in the current financial and economic crisis expired in December 2011.
There are many interesting aspects to the cases mentioned at this link. The most interesting in my view however is the extent of rescuing banks in the first place, as an absolute number, but also as a temporal issue. Most of the cases are from 2008 and 2009, but 2011 is also a common year and there are still many really recent (2013/2014) cases.
And the list of cases currently under investigation has many Greek cases, one Belgian case and one…German case. There are in any case very many German cases.
I think Case N512/2008 – Aid scheme for financial institutions in Germany (guarantees, recapitalisations & other) is very interesting.
State aid: Commission approves German support scheme for financial institutions
The European Commission has approved, under EC Treaty state aid rules, a German rescue package intended to stabilise financial markets by providing capital and guarantees to eligible financial institutions. Following close cooperation with the German authorities and the submission of a comprehensive set of commitments to ring-fence the application of the measures, the Commission found the scheme to be in line with its Guidance Communication on state aid to overcome the current financial crisis (see IP/08/1495). The package constitutes an adequate means to remedy a serious disturbance in the German economy while avoiding undue distortions of competition and is therefore compatible with Article 87.3.b. of the EC Treaty. In particular, the package provides for non discriminatory access, is limited in time and scope and foresees adequate safeguards to minimise distortions of competition.
Competition Commissioner Neelie Kroes said: “Thanks to extensive and fruitful cooperation between the German authorities and the Commission, the German rescue package is an efficient tool to boost market confidence, but at the same time is ring-fenced against abuses. I hope that other Member States will soon follow course.”
On 14 October 2008, the German authorities notified a package of measures intended to stabilise the financial markets and to address the malfunction of the interbank lending. After a series of exchanges and discussion with the Commission on the details of the implementation, they submitted on 27 October a list of commitments. These commitments address important issues raised by the Commission and aim at limiting distortions of competition.
The rescue package consists of:
- A recapitalisation scheme, making available new capital to banks and insurance companies in exchange for shares, to allow them to strengthen their balance sheets against possible losses;
- A guarantee scheme covering new issuances of short and medium term debt, in return for market-oriented remuneration, to support sound banks that are unable to access interbank funding and
- A temporary acquisition of assets under the condition that these assets are bought back after 36 months maximum without the state making a loss.
The adequacy of the recapitalisation is ensured by strict conditions such as a dividend ban and several behavioural commitments including limiting beneficiaries’ future activities and capping managers’ remunerations. The Commission also ensured that the state will receive proper remuneration for the preference shares it receives in exchange for a capital injection.
Finally, beneficiaries must maintain a high solvency ratio during the recapitalisation and submit a restructuring plan within six months of any recapitalisation.
The conditions of the guarantee scheme are in line with the state aid rules. The Commission considers the pricing of the guarantee to be adequate especially since specific behavioural conditions apply, limiting expansion and advertising of the state support.
The criteria for the temporary acquisition of assets are aligned on the rules of the guarantee scheme. In particular the state will take over the assets but not bear their risk, as the assets need to be bought back after 36 months maximum for essentially the initial sales price. Moreover, a minimum premium similar to that of the guarantee and the costs for the provision of liquidity must be paid by the beneficiary.
The aid scheme consists of three elements:
A. Recapitalisation of enterprises: Participation in enterprises in the financial sector. Acquisition of shares, silent participations or other items constituting own resources up to a maximum of EUR 80 billion.
B. Asset swap (“risk assumption”): Within the limits of the joint ceiling referred to at A of a total of EUR 80 billion, temporary assumption, whether by acquisition or otherwise, of the risk associated with the risk positions acquired by financial sector enterprises before 13 October 2008, including in particular receivables, transferable securities, derivative financial instruments, rights and obligations under loan commitments or warranties and participations, in each case including the related collateral.
C. Guaranteeing of liabilities: Provision, in return for an appropriate remuneration, of a guarantee up to an amount of EUR 400 billion for financial sector enterprises’ newly issued debt instruments with a term of up to 36 months.
Well- targeted measures
The Commission found the scheme and the commitments to constitute an appropriate means to restore confidence in the creditworthiness of German financial institutions and to stimulate interbank lending. It considered that the measures are well-designed and that interventions will be limited to what is necessary to achieve the recovery of the Germany financial sector.
Finally, Germany has made the commitment to renotify the scheme after six months and to report every six months to the Commission on the implementation of the scheme. This will enable the Commission to verify that the measures are not maintained when the financial crisis is over.
The non-confidential version of the decision will be made available under the case numberN 512/2008 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.
Now, I don’t know enough of banking issues and these kinds of legal issues, but does it really say that the German state will buy risky assets from distressed banks temporarily to help relieve stress or risk on the balance sheet (the asset swap)? So could this mean, that some German bank with large exposures to Greece/Spain/Portugal swapped those assets to the state, thereby getting rid of large risks to its balance sheet? Could it be that that this same bank than also could apply for recapitalization funds? I can’t answer that, but it seems to me that German banks have gotten a very good deal here, given that they were supposedly heavily involved in the ‘Eurozone periphery.’ And what to think about the fact that this scheme was prolonged many times up to last year’s June? German banks really must have been in very bad shape.
The European Commission has authorised, under EU state aid rules, the prolongation of a German aid scheme for banks until 30 June 2013. The scheme covers guarantee, risk assumption, and recapitalisation measures in favour of banks operating in Germany. The conditions of the original scheme, as last amended on 29 June 2012, remain largely the same. New elements have been introduced with regard to the financing of the scheme and the remuneration of guarantees for debt instruments with a maturity longer than three years (step-up clause). Moreover, the prolonged scheme is reserved for banks, while other financial institutions are no longer eligible for support. The Commission found the prolongation of the measures, initially approved on 27 October 2008 (see IP/08/1589), modified on 12 December 2008 (see IP/08/1966), prolonged on 22 June 2009, 17 December 2009, 23 June 2010 (see MEX/09/0622 , MEX/09/1217 and IP/10/789), reactivated on 5 March 2012 and prolonged on 29 June 2012 (see MEX/12/0305 and MEX/12/0629) to be in line with its guidance on state aid to banks during the crisis (see IP/08/1495 , IP/08/1901 , IP/09/322 , IP/10/1636 and IP/11/1488). In particular, the prolonged measures are well targeted, proportionate and limited in time and scope. The Commission has therefore concluded that they represent an appropriate means of remedying a serious disturbance in the German economy and as such are compatible with Article 107(3)(b) of the Treaty on the Functioning of the European Union.
I find it very interesting to notice that e.g. France has not applied for/needed any such guarantee/rescue/recapitalisation scheme since 2009.