Brussels, 18/02/2016 (Agence Europe) - The European Commission communication on the banking sector which was presented in 2013 with the aim of amending the rules applying to banks in the context of the financial crisis (see EUROPE 10886) has no binding effect on member states and its provisions on burden-sharing are compatible with EU law.
That was the opinion delivered by Advocate General Nils Wahl to the Court of Justice of the EU on Thursday 18 February in a case (C-526/14) involving aid granted by the Slovenian central bank to five Slovenian banks. This aid (withdrawal of shares and write-off of hybrid capital) was granted in line with the Commission's new 2013 rules ensuring fair burden-sharing among existing investors so that the holders of the capital affected contribute to reducing the capital shortfall of the banks concerned.
Several parties challenged the constitutionality of these measures in the Slovenian courts. The Slovenian constitutional court asked the Court of Justice whether the requirement to ensure burden-sharing was compatible with EU law and whether the Commission communication was binding on member states which seek to take action when the banking sector is hit by a crisis.
For Advocate General Wahl, the communication cannot be binding in its effect. He says that the Commission is not empowered “to lay down general and abstract binding rules” governing, for example, the situations in which aid may be considered compatible because it is aimed at remedying a serious disturbance in the economy of a member state.
As for the second question, he took the view that aid to banks in distress “normally” requires burden-sharing measures to be compatible with the internal market. National measures may not, however, infringe the principle of the protection of legitimate expectations or the right to property, he states. The contribution of investors (including holders of hybrid capital and subordinated debt instruments) to the recapitalisation of the bank is generally speaking not against the state aid rules so long as the conversion or depreciation is proportionate, that is to say, it is appropriate to achieve the legitimate objectives pursued by the national legislation and does not go beyond what is necessary for the achievement of these objectives. (Original version in French by Jan Kordys)