Compensating Competitors or Restoring Competition? EC Regulation of State Aid for Banks during the Crisis

Lyons, Bruce and Zhu, Minyan (2013) Compensating Competitors or Restoring Competition? EC Regulation of State Aid for Banks during the Crisis. Journal of Industry, Competition and Trade, 13 (1). pp. 39-66. ISSN 1573-7012

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Abstract

We contrast the theory underpinning state aid for failing banks with that for failing firms in the real sector, and find that this should justify a different treatment for banks under Article 107. For example, there is little justification for measures to compensate rivals when the bank has been saved for reasons of systemic stability. We find that the formal guidance on bank restructuring aid takes insufficient notice of this. In four detailed case studies, we also find a number of inconsistencies with respect to size of subsidy, sustainability of divestitures or treatment of mergers. We conclude that while the Commission provided a useful constraint in the midst of a crisis of unprecedented scale and complexity, its approach could have been improved by focusing more closely on the fundamental justification of state aid in each case (i.e. the counterfactual).

Item Type:	Article
Faculty \ School:	Faculty of Social Sciences > School of Economics Faculty of Social Sciences > Norwich Business School
UEA Research Groups:	Faculty of Social Sciences > Research Groups > Industrial Economics Faculty of Social Sciences > Research Centres > Centre for Competition Policy
Depositing User:	Bruce Lyons
Date Deposited:	22 Feb 2013 08:38
Last Modified:	14 May 2023 23:49
URI:	https://ueaeprints.uea.ac.uk/id/eprint/41485
DOI:	10.1007/s10842-012-0145-6

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