State Aid and the Banking System in the Financial Crisis: From Bail-out to Bail-in

Abstract

• States has traditionally faced banking crisis through the so-called bail-out tool: public resources have been used for a long time in order to rescue banks, putting the burden on taxpayers. • Since the beginning of the crisis, the European Commission (Commission) has adopted special State aid rules for the rescue of banks, providing guidance on the use of bail-out principles but without any precise exit strategy. • In order to reduce public support to banks, the Banking Communications and the new Bank Recovery and Resolution Directive introduced the bail-in (or burden-sharing) tool, putting the burden of bank rescue on shareholders and subordinated creditors while minimising the burden on taxpayers. • On July 2016, the European Court of Justice, in the Kotnik case, declared the compatibility with European Union Law of burden-sharing measures, which however must comply with the general principle of proportionality, especially with regard to subordinated creditors.