Managing banking crises in Europe after the great crisis

Preface VII
Boxes XV
List of abbreviations XVII
Glossary XXI
Introduction XXV

Chapter 1 Run-up to the crisis and early reactions 1
I. EU banks on the verge of the Crisis: some opening remarks 1
A. The gap between reality and regulation: EU banks and national rules. 3
1. The emergence of Pan-European banks 5
2. Technical and political resistance against common rules for banking crises 7
B. One common market, a plurality of banking sectors 12
II. Bail-outs and early reforms: first reactions in the immediate aftermath of the Crisis 13
A. The overarching objective of financial stability and the evolution of EU state aid rules 20
1. “Episodic approach”: first Commission Decisions 21
2. “Extraordinary situation, extraordinary rules”: state aid in the “Four Communications” for the Banking Sector (2008-2010) 23
B. Bailouts, reforms and retrenchment: first national responses to the Crisis 28
1. Strong Countries vis à vis the crisis: the cases of UK, Germany and France 29
a. United Kingdom 30
b. Germany 34
c. France 37
2. From Cross-border expansion to national retrenchment: the case of Fortis and Dexia 40
a. The Great Crisis in the “Benelux Countries” 40
i) The Netherlands 41
ii) Belgium 42
iii) Luxemburg 43
b. The Fortis Case 44
i) Phase 1 47
ii) Phase 2 47
c. The Dexia case 49
i) Phase 1 51
ii) Phase 2 52
d. Retrenchment as a wider phenomenon 54
III. The sovereign-bank loop: from the Financial to the Sovereign Debt Crisis 55
A. “Stopping the bush fires”: the EU cohesive response to the Sovereign Debt Crisis 56
1. The European Financial Stability Mechanism 59
2. The European Financial Stability Facility 60
3. The European Stability Mechanism 62
a. Establishment and legal basis 62
b. Financial Assistance 63
B. Banking crises in Weak Countries: the cases of Greece, Ireland, Portugal and Cyprus 66
1. Greece 67
2. Ireland 70
3. Cyprus 72
4. Portugal 76
IV. Generalizing the burden sharing principle: the 2013 state aid rules 79
Interim conclusions 83

Chapter 2 A new banking crises regime for Europe 85
I. Financial crises as an opportunity for growth: introductory remarks to a more efficient EU Recovery and Resolution Regime 85
A. New architectures to foster integration: EU institutional reforms in the aftermath of the Crisis 89
B. Single Market, single rules: the “single-rulebook” myth 95
II. “How to deal with crises?”: Plans, measures and tools in the new EU Recovery and Resolution Regime 97
A. Better preparation for more effective reaction: Recovery and Resolution Planning 99
1. Recovery Plans 101
2. Resolution Plans 106
3. Assessment 111
B. Timely reaction between two fires: early intervention measures 113
1. Triggers 115
2. Measures/1: General 118
3. Measures/2: Special Administration 122
4. Early intervention and national legislation in the Banking Union 123
5. Assessment 123
C. Departing from insolvency laws: Resolution proceedings for banking crises 126
1. Principles 127
2. Objectives 128
3. Triggers 129
a. Failing or likely to fail. 129
b. Reasonable private sector solutions 132
c. Public interest 132
4. Tools 135
a. Sale of business 135
b. Bridge institution 137
c. Asset separation 138
d. Bail in (see below) 138
III. “Who pays the bill?”: recovery, resolution and liquidation funding 138
A. Overcoming temporary difficulties: funding banking crises at early stages 143
1. Emergency liquidity assistance 144
2. Extraordinary public financial support before
FOLTF 148
B. Funding failing or likely to fail banks’ crises. 150
1. The funding of banking crises when conditions for resolution are met. 151
a. Private loss absorption mechanisms 154
i) Burden sharing 154
ii) Bail-in 154
b. Resolution Funds 168
c. Government Financial Stabilization Tools 173
d. Deposit Guarantee Schemes (see below). 174
e. Liquidity after resolution 174
2. Funding options under liquidation 175
a. Deposit Guarantee Schemes 176
b. Liquidation Aids 180
IV. A non-harmonized piece in the puzzle: normal insolvency proceedings 181
A. Negative effects in resolution 182
B. The unresolved relationship between resolution and liquidation 183
Interim conclusions 189

Chapter 3 Banking solvency crisis management in the BRRD Era 191
I. “It was to be expected”: brief introduction to first cases in the BRRD Era 191
II. The “text-book” Resolution of Banco Popular 192
A. Background information 193
1. From housing bubble to Troika: the Great Crisis in Spain 194
2. Structural limits of common insolvency rules 198
3. Lack of tradition as driver for innovation 200
B. The end of story for Banco Popular 202
1. Run-up to the crisis 203
2. The opening of Resolution 203
3. The “sale of business” to Santander 206
4. Assessment 206
5. Pending cases on the road to resolution case law 207
III. The Italian Crisis and its creative solutions 208
A. Background information 209
1. Weak banks, fragile economy and political instability 210
2. A well-oiled crisis legislation 212
a. Special Administration 213
b. Compulsory administrative liquidation 214
3. Stability first: the strong Italian tradition in crisis management 215
4. Non-performing loans and small savers: two headaches for the Government 218
a. Guarantees and bad bank against NPLs 218
i) GACS 219
ii) S.G.A. - the Italian Treasury bad bank 219
b. Solidarity measures 220
5. Voluntary initiatives of the banking sector: halfway between public and private intervention 222
a. Atlante funds 223
b. Voluntary intervention scheme 225
i) Building up 225
ii) Organization 227
B. Crisis episodes: financial stability “whatever it takes”, once again 228
1. The “Four Banks” watered-down resolution 229
a. Phase 1 – the Special administration 230
b. Phase 2 – Resolution 231
2. The “Three banks” supported sale 235
3. The precautionary bailout of Monte dei Paschi di Siena 238
4. The creative solution of Veneto Banca and Banca Popolare di Vicenza 242
a. The run-up to the crisis 243
b. Insolvency proceedings 245
c. The EU Commission decision 250
d. Assessment of relevant events 251
i) Which public interest? 251
ii) Path dependency and contingency 253
5. The Special Administration of Banca Carige 254
a. Run up to the crisis 254
b. The 2018 turning point 256
c. The Temporary Administration 258

Interim conclusions 263
Conclusion 265
Summary 273
Samenvatting 275
References – literature 277
European institutional documentation 329
International institutional documentation 343
Curriculum vitae 347