On Friday 13 July, the General Court of the EU overturned the decisions of the ECB denying six French banks - Banque postale, Crédit Mutuel, Société Générale, Crédit Agricole and BNP Paribas - leave to exclude certain exposures related to French savings certificates from the leverage ratio calculation (cases T-733/16, T-745/16, T-751/16, T-757/16, T-758/16 and T-768/16).
To allow a better readability of the level of banks' equity, the European legislator introduced a leverage ratio. What is unique about this ratio is that it is not calculated on the basis of the level of risk of banks' investments (exposures) and that it theoretically takes all of their investments into account in the calculation.
A derogation introduced to the regulation (575/2013) on prudential requirements applicable to banks allows the competent authorities, including the ECB, to give banks leave to exclude exposures from the leverage ratio calculation if they meet the following conditions: - they concern a public sector entity; - they result from deposits which the bank is legally permitted to transfer to the public entity in order to finance investments of general interest.
Six French banks challenged before the General Court the ECB's refusal in 2016 to exclude from the leverage ratio calculation exposures made up of funds from several savings certificates (livret A, LDD and LEP) taken out with them and transferred to the Caisse des dépôts et consignations (CDC). This refusal was applied to the Banque Postale progressively.
The ECB justified its refusal by arguing that although the conditions set out in the regulation had been met, it has discretionary powers to decide whether or not to authorise the requested exclusion. It took the view that the transfer mechanism from the CDC to the banks concerned raised prudential concerns.
In today's judgements, the General Court has found in favour of the six French banks and cancels the ECB's decisions.
Without denying the existence of the ECB's discretionary powers, the General Court verified whether the ECB had committed an error of law or manifest error of assessment in the exercise of these powers.
In regard to this, the General Court found that the ECB justified its refusal by way of considerations inherent to the exposures concerned by the derogation set out in the regulation, thereby stripping this derogation of its purpose. Indeed, the ECB justified its refusal by arguing that the exposures on the CDC were shown on the assets side of the balance sheets of the banks in question, that these banks bear the operational risk related to the regulated savings certificates and that any default by the French State could block the repayment of the sums transferred to the CDC.
According to the General Court, the ECB did not assess the likelihood of such a payment default. Additionally, it found that the ECB's position in principle whereby the adjustment period (between the adjustments of the respective positions of the banks in question and the CDC) could favour the occurrence of risks associated with an excessive leverage is too general and was not subjected to a detailed examination of the characteristics of the regulated savings scheme. (Original version in French by Mathieu Bion)