In light of Article 101(1) of the BRRD, is the resolution authority authorised to use the financing arrangement to finance the gap between all the purchased assets and liabilities, by the means of a direct grant/subsidy, in the amount of the negative difference between the assets and liabilities under a condition that the contribution is compliant with the Union State aid framework?
While applying the instrument of the sale of business tool, especially in case of the sale of the whole institution under resolution, it may occur that as a result of insufficient assets or impaired assets there is a negative difference between the purchased assets and liabilities. In order for the transfer to be acceptable to the purchaser, it will be necessary to finance the gap between the assets and liabilities, so that the liabilities match with the assets.
Article 101(1), subparagraph 2 of Directive 2014/59/EU (BRRD) allows the use of the financing arrangement for the effective application of the resolution tools also in the context of the sale of business tool. Therefore, a resolution authority can use the financing arrangement to partially cover a negative difference between the purchased assets and the amount of liabilities in the context of the sale of business tool.
However, in the event that this results in part of the losses of an institution being passed on to the resolution financing arrangement, the contribution from the financing arrangement can be made only after shareholders and creditors have contributed to the loss absorption and recapitalisation according to Article 44 BRRD and in any event the contribution must not exceed 5 % of total liabilities including own funds of the institution under resolution. Furthermore, the contribution will be subject to the Union State aid framework, and particularly the relevant provisions on burden sharing.
This question goes beyond matters of consistent and effective application of the regulatory framework. A Directorate General of the Commission (Directorate General Financial Stability, Financial Services and Capital Markets Union) has prepared the answer, albeit that only the Court of Justice of the European Union can provide definitive interpretations of EU legislation. This is an unofficial opinion of that Directorate General, which the European Banking Authority publishes on its behalf. The answers are not binding on the European Commission as an institution. You should be aware that the European Commission could adopt a position different from the one expressed in such Q&As, for instance in infringement proceedings or after a detailed examination of a specific case or on the basis of any new legal or factual elements that may have been brought to its attention.
Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Directive 2014/59/EU (BRRD) and continues to be relevant.