The Europeanization of Banking Supervision Law in Practice: the L-Bank Decision of the European General Court
EGC, 16/05/2017 – T-122/15
The judgment of the European General Court (“EGC”) received considerable attention among scholars and politicians. Primarily it concerns “only” the qualification of credit institutions as “significant” and thus the direct supervisory powers of the European Central Bank (“ECB”) in the competence system of the single supervisory mechanism within the bank regularly framework. However, the judgment also uses the opportunity to essentially examine the relationship of the ECB and the national competent authorities (“NCA”) in more detail. The clear positioning of the EGC with regard to the applicant’s pleading and the clear statements about the hierarchy of the European supervisory law lead to raised eyebrows not only on the part of the applicant, but also the NCA and those subject to supervision. In addition, the EGC judgment brings to light certain specific characteristics of European law in terms of administrative procedure. On the whole, the playing field and the rules of the game of the European supervisory law that the institutions in the Member States will have to guide themselves by in the future are clearly gaining shape. The plaintiff appealed against the judgment. If the Court of Justice of the European Union (“CJEU”) confirm this judgement, it would be certainly classified as a landmark decision for the Europeanization of the banking supervisory law.
In the end, the assessment of the EGC’s judgment is split. Understandable is the assessment of the EGC that the term “inappropriate” in Art. 70(1) of the SSM Framework Regulation cannot be reinterpreted as “not necessary”. A significant institution must rather succeed to demonstrate that the supervision by the NCA could be better able to safeguard the objectives of the SSM than the supervision by the ECB. Only in this case would be there “particular circumstances” within the meaning of Art. 70(1) of the SSM Framework Regulation. The judgment says nothing about the scope of the obligation to present evidence. However, the requirements for this should be high.
Therefore, the requirements of evidence presentation must be worked out. A corresponding reference of the opinionated panel of judges would have been desirable.
The partly very formal line of argumentation of the EGC remains unsatisfactory, continuing to leave many questions open in practice. A control framework for the interpretation of Art. 70(1) of the SSM Framework Regulation cannot be derived from the decision of the EGC. Thus, it is left to the appeal before the CJEU and to future disputes to make the arguments that could lead to an inappropriateness of the supervision by the ECB. It would be very welcome if the court could also set the criteria for the obligations to present evidence for the “particular circumstances” in the scope of further – yet unsolicited – obiter dicta.
The EGC used the judgment – without great need and at least partially in form of an obiter dictum – to clarify the share of competencies of the NCA and the ECB. The EGC concludes that the competencies for the supervision of significant and less significant institutions in the scope of the SSM Framework Regulation lie exclusively with the ECB. The NCA are tasked only with the implementation of supervisory tasks even in the supervision of less significant institutions, acting, however, not in their own competency but in that derived from the ECB. The landmark significance of the judgment lies in this delimitation of the hierarchy of competencies of the NCA and ECB.
The debate about the Europeanization of supervisory law through the SSM Framework Regulation is thus still not over. The EGC's statements give fresh impetus to the doubts of the legality of the SSM Framework Regulation expressed in the literature in the context of Art. 127(6) TFEU. Nonetheless, more promising than a nullity action against the SSM Framework Regulation would be to dispute the legality of the concrete establishment of the term “particular circumstances” in Art. 70(1) of the SSM Framework Regulation. Whether the particular circumstances mentioned in Art. 6(4) of the SSM Framework Regulation alone comprise the inappropriateness of the supervision by the ECB in the context of the objectives of the SSM Framework Regulations or whether this term should not be interpreted more broadly in the interest of the supervisory institutions can be questioned with good arguments.
The judgment is ultimately interesting in consideration of other proceedings pending before the court. The “Don’t mess with the regulator” principle, known in the handling of German supervisory law, appears to be losing significance. Institutions are apparently more inclined to clarify the different legal opinions with the ECB in court. Why this is the case cannot be conclusively determined at present. One reason could be that the costs and administrative expenditures in consequence of direct supervision by the ECB make a legal dispute seem necessary, also in consideration of the management’s duty to reduce expenses. The increasingly tighter girdle of supervisory law should generally lead to an increase in the readiness to engage in legal dispute with the supervision in the future. In this sense, there are discussions in the literature of the question of the extent to which a diligent manager is competent to interpret the supervisory law in a manner that is particularly favorable for the institution and must or should defend this in court under the circumstances. In some cases, such processes could decide the continued existence of single institutions, for example, if an institution can no longer meet the equity capital requirements against the background of the narrowing wiggle room in capital planning. For these cases as well, the landmark decision in the L-Bank proceeding provides informative insight into the bank supervisory law mindset and argumentation technique of the EGC.