Abstract
This article provides an overview of how European Community state aid policy has been administered thus far in cases of ailing financial institutions and discusses whether state aid to ailing financial institutions should be regulated under a special legal framework, instead of the general Community Guidelines on rescuing and restructuring firms in difficulty. In particular, it analyses the importance of commercial banks’ specific activities in facilitating economic growth and it provides an insight to a key feature of European (and indeed global) financial markets, financial interdependency. More than just engaging in specific activities that facilitate economic growth, financial institutions create financial interdependencies, which may cause conditions of systemic risk within the sector and the economy in general. This implies that, apart from operating in a competitive environment, financial institutions operate in a market characterized by high degree of integration and interdependence. Throughout the article, questions arising from legal analysis and considering the appropriateness of the application of the Guidelines in the case of ailing financial institutions are answered within an economic context, illustrating some unique characteristics of the financial sector.
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