This diploma thesis focuses on the legal aspects and consequences of the financial meltdown that started in 2007. Although its main emphasis is on assets relief measures and bank restructuring, it also touches the issues of state guarantees and recapitalizations of banking institutes.
Table of Contents
1. STATE AID LAW IN TIMES OF A CRISIS
a. The financial crisis and the European Union
b. Banks under pressure
c. Common measures to support troubled banks
d. EU state aid regulation
e. Pre crisis standards – the R&R Guidelines
f. The communications and the crisis approach
2. GUARANTEE SCHEMES AND RECAPITALISATIONS
a. Guarantees
i. Design and effect
ii. Material scope of a guarantee
iii. Time limitations
iv. Private sector contribution and burden sharing
v. Behavioural constraints and safeguards
b. Recapitalisations
i. Design and effect
ii. Special competition concerns
iii. Pricing of Capital
iv. Fundamentally sound banks
v. Participation of private investors
vi. Rescue aid to troubled banks
vii. Incentives for State capital redemption
viii. Behavioural constraints
ix. Regular Review
c. Cases and exemplary implementations
i. ING – a compatible recapitalisation
ii. Sweden – a compatible guarantee scheme
d. Mid-term conclusion and prospects
3. BAD BANKS AND ASSET RELIEF PROGRAMS
a. The bad bank idea
b. Design-decisions when creating a bad bank
c. Key challenges
d. Competition concerns
4. THE FRAMEWORK SET IN THE IAC
a. Design
b. Transparency and disclosure
c. Burden-sharing
d. Aligning incentives for participation
e. Eligible assets
f. Valuation and pricing guidelines
g. Management of assets
h. Budgetary context
i. Restructuring and follow-up measures
5. APPLICATIONS AND APPROVALS UNDER THE IAC
6. THE GERMAN ASSET RELIEF SCHEME
a. The SPV-model
i. The design
ii. The Com’s assessment
iii. Analysis of the SPV-model
b. The Agency Model
c. A bad bank for WestLB
i. The design
ii. The Com’s assessment
iii. Analysis of the WestLB Case
d. Individual approvals of asset relief in Germany
i. LBBW
ii. Hypo Real Estate
7. THE IRISH ASSET RELIEF SCHEME – NAMA
a. The design
b. The Com’s assessment
c. Analysis of the NAMA scheme
8. RESTRUCTURING PLANS AND DECISIONS
a. The Restructuring Communication
b. The obligation to submit restructuring plans
c. The design of a restructuring plan
d. Principles of restructuring
i. Degree of restructuring
ii. Burden sharing
iii. Restructuring aid
iv. Length of the restructuring process
v. Procedure
e. Proposed restructuring measures
i. Divestment and restrictions on expansion
ii. Sale of the ailing bank
iii. Creation of a “good bank”
f. Restructuring in practice
i. Change of ownership
ii. Closure of branches
iii. Sale of subsidiaries and participations
iv. Structural and organisational changes
v. Cutting and downsizing measures
vi. Other measures
g. Preview
9. CONCLUSIONS
Research Objective
This thesis examines the legal framework and economic consequences of European state aid policies applied to banking institutions during the financial crisis, with a primary focus on asset relief programs, government guarantee schemes, and mandatory restructuring requirements.
- State aid regulation and the impact of the financial crisis on the European Union.
- Implementation of guarantee schemes and bank recapitalisations as recovery measures.
- Mechanisms and challenges of "bad bank" asset relief programs.
- Analysis of the European Commission's "Impaired Assets Communication" (IAC).
- Restructuring plans for aid-receiving banks and their long-term viability.
Excerpt from the Book
a. The financial crisis and the European Union
This diploma thesis focuses on the legal aspects and consequences of the financial meltdown that started in 2007. Although its main emphasis is on assets relief measures and bank restructuring, it will also touch the issue of state guarantees and recapitalisations of banking institutes. Since length and scope do not allow for an in depth explanation of all economic reasons for the present incidents, a basic understanding of economics, finance and accounting might be necessary for a perfect comprehension of the following pages.
Despite scattered evidence for an asset bubble on the financial market since the beginning of 2007, not until the fall of Lehman Brothers Holdings Inc. in mid September 2008 did the public, the governments and the European decision makers realise the severity of this financial turmoil. The events were triggered by a bursting asset bubble in the US subprime housing market and spread globally by unprecedented inter-country capital flows. A network of widely unregulated default insurance contracts caused precarious distrust and accounting rules worsened the situation. The financial crisis and its threatening implications for EU banks, and in succession for the credit-depending real economy, became obvious in fall 2008.
Summary of Chapters
1. STATE AID LAW IN TIMES OF A CRISIS: Explores the initial legal response of the European Union to the financial meltdown and the role of the European Commission.
2. GUARANTEE SCHEMES AND RECAPITALISATIONS: Discusses the design and implementation of government-backed support measures and their compliance with EU state aid rules.
3. BAD BANKS AND ASSET RELIEF PROGRAMS: Outlines the strategy behind moving toxic assets off bank balance sheets to stabilize the financial sector.
4. THE FRAMEWORK SET IN THE IAC: Reviews the Impaired Assets Communication, which coordinates the criteria for successful asset relief measures across Europe.
5. APPLICATIONS AND APPROVALS UNDER THE IAC: Provides an overview of specific asset relief interventions conducted in various Member States.
6. THE GERMAN ASSET RELIEF SCHEME: Details the SPV and Agency models implemented by Germany and their application in cases like WestLB and Hypo Real Estate.
7. THE IRISH ASSET RELIEF SCHEME – NAMA: Examines the National Asset Management Agency as an Irish response to a domestically fueled property bubble.
8. RESTRUCTURING PLANS AND DECISIONS: Analyzes the requirements and implementation of restructuring plans for aid-recipient banks.
9. CONCLUSIONS: Summarizes the shift in state aid policy and the role of the Commission in managing financial stability during the crisis.
Keywords
State aid, Financial crisis, European Commission, Guarantee schemes, Recapitalisation, Bad bank, Asset relief, NAMA, Restructuring plan, WestLB, Insolvency, Financial stability, Banking sector, Competition law, TFEU
Frequently Asked Questions
What is the core focus of this publication?
The work focuses on the legal challenges and European state aid policies regarding the stabilization of banks during the financial crisis that began in 2007.
What are the central thematic fields?
The primary themes include asset relief programs (bad banks), government guarantee schemes, capital injections (recapitalisations), and the restructuring requirements mandated by the European Commission.
What is the primary objective of this thesis?
The main objective is to provide a legal analysis of how the European Commission balanced the need for immediate financial stability with the preservation of a level playing field within the European single market.
Which scientific methodology is applied?
The thesis utilizes a legal-analytical approach, focusing on European Commission decisions, treaty law (TFEU), and academic commentary on antitrust law and state aid regulations.
What topics are discussed in the main section of the book?
The main sections treat the legal framework of state aid, the specific design of guarantee schemes, the implementation of bad bank structures in countries like Germany and Ireland, and the administrative process of restructuring bank plans.
Which keywords define this work?
Key terms include state aid, financial crisis, bad banks, NAMA, recapitalisation, and banking restructuring.
How does the author evaluate the role of the German "Agency Model"?
The author views the Agency Model as a more extensive and complex instrument compared to the SPV-model, specifically tailored to the unique organizational needs of the German Landesbanken.
Why was the Irish NAMA scheme considered particularly controversial?
The controversy stems from the immense scale of the intervention, the significant powers granted to the agency (such as compulsory purchase orders), and the initial reliance on optimistic business projections that were later revised downwards.
- Quote paper
- MMMag. Thomas Obersteiner (Author), 2010, The crisis approach - From guarantee schemes to asset relief measures and restructuring plans , Munich, GRIN Verlag, https://www.grin.com/document/164483
