Vol 10 (2013) - Issue 6

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State Aid Law v Single Resolution Mechanism: David v Goliath or vice versa?

Introduction
During the economic crisis, most governments intervened in markets to support their banking industry on the basis that most of the players were 'too big to fail' or at least the sector as a whole was too important to be weakened. Few governments allowed their intervention to be disciplined in any way by competition policy considerations. The urgency and potential for disaster were too great, and the need to act to save a sector on which other industries rely, meant that competition policy was relegated to being a bystander in the proceedings. This is true even for the European Union, which is unique in actually having the power to direct such interventions through the control of aid from states to private companies.

During the recent financial crisis, the European Commission initially implemented its usual state aid provisions to allow national aid measures in favour of banks on the basis of it being 'aid to remedy a serious disturbance in the economy of a Member State'. The EU largely rubber-stamped almost all of the interventions made by Member States to support their domestic banking industry.

This article will initially briefly address the importance of the assessment of state aid and the need of a resolution mechanism for financial institutions at European level. Then I will present some thoughts on the balance between state aid enforcement on the one hand and the resolution of a financial institution on the other, as this balance has been illustrated by the recent legislative initiatives. Finally, I will discuss how the relative importance and priority of state aid enforcement and the use of the resolution mechanism varies depending on the circumstances and more importantly on the risk of systemic crisis.

State aid and the need for a resolution mechanism
The Commission issued a number of Communications related to the assessment of state aid during the crisis. The state aid rules that were introduced during the crisis have been criticized for being too permissive.