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 Topics
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions