Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Tuesday, November 15, 2016

State Aid and the Banking System in the Financial Crisis: From Bail-out to Bail-in

Stefano Lucchini, Oxford University, Jacques Moscianese, Essec Business School Paris, Irene de Angelis, Fabrizio Di Benedetto, Università degli Studi di Milano, have written State Aid and the Banking System in the Financial Crisis: From Bail-out to Bail-in.

ABSTRACT:  States has traditionally faced banking crisis through the so-called bail-out tool: public resources have been used for a long time in order to rescue banks, putting the burden on taxpayers. Since the beginning of the crisis, the European Commission (Commission) has adopted special State aid rules for the rescue of banks, providing guidance on the use of bail-out principles but without any precise exit strategy. In order to reduce public support to banks, the Banking Communications and the new Bank Recovery and Resolution Directive introduced the bail-in (or burden-sharing) tool, putting the burden of bank rescue on shareholders and subordinated creditors while minimising the burden on taxpayers. On July 2016, the European Court of Justice, in the Kotnik case, declared the compatibility with European Union Law of burden-sharing measures, which however must comply with the general principle of proportionality, especially with regard to subordinated creditors.

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