State Aid in the Banking Market – Legal and Economic Perspectives

June 21, 2012

House of Finance
Campus Westend
Goethe University Frankfurt

The conference on “State Aid in the Banking Market – Legal and Economic Perspectives” was jointly organized by the IMFS (Prof. Helmut Siekmann) and the Policy Platform at the House of Finance (Dr. Margit Vanberg). The organizers were able to attract a prominent visitor to the IMFS, Joaquín Almunia, Vice-President of the European Commission and EU Commissioner for Competition, who gave the keynote address on this topic. Prof. Rainer Klump, Vice President of Goethe University and Florian Rentsch, Minister of Economics, Transportation and Development of the State of Hessen, gave the welcoming speech.

In his speech, Commissioner Almunia emphasized that not every financial institute facing difficulties could be kept in operation using government aid. Public funds should only be used if there is a chance that the bank will subsequently again be able to conduct business independently. According to Commissioner Almunia, European governments have observed this maxime. Since the beginning of the crisis 45, banks in the EU have been restructured or liquidated or are currently in the process of doing so.

Prof. Daniel Zimmer (University of Bonn and Monopoly Commission) started off the academic session of the conference by criticizing the actions of the European governments. While in the U.S. more than hundred of institutes had to declare bankruptcy since the beginning of the subprime crisis, in Europe governments on the dubious pretext of systemic relevance bailed out even several medium-sized banks, such as the German IKB or the Danish Fiona Bank. Referring to the concept of competition, he also questioned the terms of the regulatory agencies requiring individual banks to reduce their balance sheets.

Athanasios Orphanides (formerly with the Central Bank of Cyprus) focused on this issue from an economic perspective. He criticized that the European banking market was distorted because of the different solidity of the respective states. Compared to banks in Northern Europe, institutes in Southern Europe are at a disadvantage due to reservations among investors. Inefficient institutes in the North are thus able to refinance more easily than solid banks in the South. Orphanides therefore called for a standardized European internal market with a common deposit protection scheme.

Both speakers as well as Prof. Joel Monéger (University of Paris-Dauphine/Institute Droit Dauphine) and Prof. Martin Hellwig (Max Planck Institute for Collective Goods) answered questions from the moderator Thomas Huertas (Ernst & Young, London) and the audience.