Press release - Bank of Slovenia’s reaction to the Advocate General’s opinion
We find that in his comprehensive explanation with regard to the interpretation of EU law in connection with the questions of the Constitutional Court the Advocate General essentially supports the position taken by the Bank of Slovenia in the proceedings to date, before national courts and the Court of Justice of the European Union alike.
It follows from the opinion that the European Commission is entitled to stipulate general requirements that must be met for such state aid to be admissible, even though the Banking Communication, which the European Commission issued as guidance on the criteria for the compatibility of state aid to banks, is not a binding EU regulation that Member States are obliged to transpose into their national legislation as would be the case of a directive. This includes the requirements with regard to the write-off of equity and subordinated capital before the approval of state aid.
The Bank of Slovenia has been briefed on the opinion issued by the Advocate General in the case of Kotnik and others (C-526/14) in connection with the questions of the Constitutional Court.
Burden-sharing by investors in the resolution of a bank may be required in state aid approval procedures as a mandatory condition, except in cases when to enforce this requirement would infringe fundamental rights or endanger financial stability. Infringements of fundamental rights could occur in particular were the measure to be required in a manner whereby investors' economic position would be worse as a result of the measures than it would have been had the measure not been applied (i.e. in the case of ordinary bankruptcy proceedings). In the application of write-off measures, having regard for the requirements of the Banking Communication, the nominal value of instruments is reduced by the state measure when, in light of the bank’s financial position, the value no longer corresponds to the real value. In this case the write-off measure merely entails a formal depreciation of the instruments in question, and does not constitute interference in the right to property.
With regard to the question of the proportionality of the interference in the investors’ rights, it is also necessary to proceed from the bank’s established financial position, and to endeavour to uphold the “market-approximation principle”, i.e. the situation that would have arisen had the measure not been applied. In connection with the establishment of the financial situation of the banks and the assessment of the public interest in the case in question (with regard to the threat to financial stability), the Advocate General highlights that the Bank of Slovenia adopted the measures in question after stress tests had been conducted on the banks in question under the supervision of the ECB.
Furthermore, in the opinion of the Advocate General concludes, that the national legislation allowing the write-off measures to be applied by the Bank of Slovenia in a special procedure (and not by the court), does not infringe the EU law (more precisely Directive 2012/30/EU).
Other than in the aforementioned exceptional cases, the European Commission must refuse to approve state aid insofar as the requirements for burden-sharing have not been properly satisfied such that state aid is limited to the minimum necessary.
The European Commission’s general requirements with regard to mandatory burden-sharing by shareholders and holders of subordinated instruments in the resolution of banks within the framework of state aid procedures are therefore in accordance with EU law, and do not per se constitute an infringement in the investors’ fundamental rights per se.
The assessment and criteria presented by the Advocate General with regard to infringement in the investors’ fundamental rights in connection with the interpretation of the disputed provisions of the Banking Communication will be discussed further by the Court of Justice, which will take a position on these questions in its final decision. Only the final decision by the Court of Justice can provide the basis and guidance for the Constitutional Court in its handling of the questions raised.
Public Relations Department
Bank of Slovenia