United States: Court Of Justice Of The European Union Confirms Validity Of The European Commission's 2013 Banking Communication On State Aid

In its judgment of 19 June 2016, the Court of Justice of the European Union confirmed that the European Commission's 2013 Banking Communication is not contrary to EU law. The Court clarified that the burden-sharing requirements do not apply automatically and that in exceptional cases the Commission could approve State aid which does not meet the conditions of the Banking Communication. The judgment also endorses the cross border recognition of regulatory measures effecting burden-sharing.

The Banking Communication

The 2013 Banking Communication (the "Banking Communication")1 was intended as an evolution in the crisis rules for restructuring banks in difficulty. These rules adopted by the Commission provide guidance on the criteria for the compatibility of State aid with the internal market pursuant to the Treaty on the Functioning of the European Union (the "TFEU"). One of the principal aims of the Banking Communication was to start to shift losses onto creditors and shareholders so as to reduce costs to taxpayer and mitigate moral hazard in future. These rules are referred to as burden-sharing requirements.

The Facts of the Case

Only a few weeks after the adoption of the Banking Communication in August 2013, the Bank of Slovenia determined that five Slovenian banks had capital shortfalls of such a scale that the banks did not have sufficient assets to satisfy their creditors and to cover the value of deposits. In December 2013, upon request of the Slovenian authorities, the Commission authorised State aid for the banks. To meet the burden-sharing requirements of the new Banking Communication, the Bank of Slovenia made use of certain powers under the Slovenian banking law to write off the banks' equity capital as well as hybrid capital and subordinated debt. These measures were challenged before the Slovenian Constitutional Court by a number of private and public complainants. The Constitutional Court requested a preliminary ruling from the Court of Justice of the European Union ("CJEU") on the validity and interpretation of the Banking Communication.2

The Commission Keeps Flexibility in Exceptional Circumstances

In accordance with settled case law, the CJEU acknowledged that the Commission enjoys wide discretion when it approves State aid under the TFEU to remedy a serious disturbance in the economy of a Member State. The Commission published the Banking Communication both as an exercise of that discretion and to specify how it intended to use its discretion in future when assessing public support to banks.

As noted above, among the main changes introduced by the Banking Communication are the strengthened burden-sharing requirements: both shareholders and subordinated creditors must be involved in meeting the costs of restructuring a distressed bank in order to reduce its capital shortfall. As a consequence, after losses are absorbed in full by equity capital, subordinated creditors are called upon to contribute also in full either by the conversion of their claims into equity, or a write-down of the principal of those claims.

The effect of the Banking Communication is that the Commission has described in advance how it will exercise its discretion to approve State aid and cannot, as a general rule, depart from it. However, the Banking Communication does not bind Member States. They retain the right to notify the Commission of proposed State aid which does not meet the conditions of the Banking Communication. The Commission must then review the particular case and in exceptional circumstances it may approve such proposed State aid.

Indeed some wiggle room is already reflected in the Banking Communication which provides for exceptions to the burden-sharing requirements where implementing such measures "might endanger financial stability or lead to disproportionate results."

The Burden-Sharing Requirements Are Not Contrary to EU Law

The CJEU held that it was within the Commission's authority to generally require burden-sharing under the Banking Communication as a prerequisite for State aid approval. In support of this view, the CJEU considered the three main objectives of the Banking Communication: (1) restricting State aid in the banking sector to the minimum necessary; (2) limiting distortions of competition in the internal market; and (3) overcoming the problem of moral hazard.

The CJEU expressly dismissed various arguments which had been brought forward to call the burden-sharing requirements into question:

  • Protection of legitimate expectations: the fact that during the early stages of the financial crisis subordinated creditors were not required to burden-share did not create a legitimate expectation that such burden-sharing would not be required in subsequent State aid cases;
  • Right to property: due to the safeguards built into the Banking Communication (in particular the "no creditor worse off" principle), the burden-sharing requirements do not adversely affect the right to property of the investors concerned; and
  • Second Company Law Directive3: the requirement to make alterations to the capital of a public limited liability company subject to a decision of the general meeting does not preclude measures to effect burden- sharing being adopted without the approval of the general meeting.

The Regulatory Measures Effecting Burden-Sharing Benefit From Mutual Recognition

The case was brought prior to the Bank Recovery and Resolution Directive4 (the "BRRD") entering into force. The measures implemented by the Bank of Slovenia were based on the applicable Slovenian national law. The judgment clarifies that measures used to effect burden-sharing on the basis of national law can be deemed reorganisation measures under the Directive on the reorganisation and winding up of credit institutions (the "CIWUD").5 This guidance is helpful even today in situations where the BRRD toolbox, and therefore EU-wide recognition under the BRRD, is not available. Both the BRRD and the CIWUD provide for the principle that certain regulatory measures taken in one Member State must be recognised automatically throughout the EU. Following this judgment it appears that, outside the scope of the BRRD, burden-sharing measures could be based on national law and then benefit from EU-wide recognition under the CIWUD.

The Practical Impact of the Judgment is Limited

The judgment is in line with the current State aid practice and affirms the Commission's strong role in the management of the financial crisis. EU Competition Commissioner Margrethe Vestager has noted that the judgment will not change pending discussions with Member States about potential State aid to their local banks.


1 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 2013, C 216, p. 1).

2 Case C-526/14 Tadej Kotnik and Others v Drzavni zbor Republike Slovenije.

3 Directive 2012/30/EU.

4 Directive 2014/59/EU.

5 Directive 2001/24/EC.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Barnabas W.B. Reynolds
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.