The report provides an overview of the European financial services sector. Discussions on a gradual phasing out of financial support to banks and how to best pave the way for a return to normal market conditions has been a cornerstone of competition policy in financial services, the reports argue.
The report provides an overview of the European financial services sector. Discussions on a gradual phasing out of financial support to banks and how to best pave the way for a return to normal market conditions has been a cornerstone of competition policy in financial services, the reports argue.
Financial markets continue to be crucial to the functioning of modern economies.
They are the lifeblood of the real economy as they provide and facilitate businesses' and consumers' access to finance. The more integrated and the more competitive they are, the more efficient the allocation of capital and long-run economic performance will be. With the financial and economic crisis continuing into 2009, the year has been another extremely difficult one for the financial sector and EU governments have continued to take a series of emergency measures.
Therefore, in the field of State aid, the Commission has played a leading role by providing legal certainty as regards Member States' measures. Building on its 2008 Communications on Banking and Recapitalisation, the Commission issued an Impaired Assets Communication on 25 February149 and a Restructuring Communication on 22 July150.
The Commission also ensured that national measures did not exported problems across borders. The Commission approved, subject to conditions, a number of restructuring measures in respect of banks that have received state support which should lead to the restoration of long-term viability in the sector and a return to normal market conditions. In 2008 and 2009, the Commission authorised over 30 rescue schemes in 19 countries and a large number of measures in favour of specific credit institutions. The overall authorised aid amounts to more than EUR 3.630 billion or approximately 29% of the EU-27 GDP151.
The Commission's actions contributed to maintaining financial stability whilst ensuring that a level playing field to the benefit of consumers and competition.
In 2009 merger activity in the financial sector declined as a result of the financial crisis. However, cases notified in 2009 and the implementation of remedies from earlier cases often raised difficult jurisdictional and procedural questions.
Financial services – State aid
Since the beginning of the financial crisis, the role of the Commission in the field of competition policy was twofold: (i) to support financial stability by rapidly giving legal certainty to measures taken by Member States and (ii) to maintain a level playing field and ensure that national aid measures would not simply export problems to other Member States.
In 2009, the restructuring of many European banks became the biggest challenge. Restoring the viability of the EU banking sector as a whole includes restoring viability of individual financial institutions. Restructuring is a prerequisite for the return to viability of credit institutions, lending to the real economy, re-establishing a level playing field across institutions, and for the smooth functioning of the European internal market.
The restructuring process of banks is based on the crisis-related State aid rules as laid down in the Restructuring Communication of 22 July 2009. The communication provides guidance on the conditions under which restructuring aid for banks in need of financial assistance beyond an emergency rescue can be authorised. The first principle is the return to long-term viability without State aid, based on a sound restructuring plan (including stress-testing of the bank's financial projections). The second principle is burden sharing between the bank/its stakeholders and the State.
Shareholders and other capital holders must adequately contribute to bearing the costs of financial, organisational and other necessary restructuring measures. Finally, the third principle requires measures to limit competition distortions. These usually comprise structural measures (divestitures) and behavioural measures (e.g. acquisition bans, limitations to aggressive commercial behaviour financed by State aid). The measures are decided on a case-by-case basis.
The Commission requests detailed regular reports on the implementation of the restructuring plans. Moreover, separate managers, monitoring trustees and divestiture trustees can be appointed to ascertain that the approved restructuring plans are being implemented properly.
In the course of 2009, the discussion began on how to return to market discipline in the financial sector. While it seemed too early to withdraw support measures to the economy and the financial sector, a debate about how to incentivise banks to progressively return to the markets began.
Discussions on a gradual phasing out of financial support to banks when the situation allows it took place with Member States and the European Central Bank in the context of the wider policy debate on how to best pave the way for a return to normal market conditions.
© European Commission
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