EU Regulation as a Bulwark Towards Nationwide Political Interference within the UniCredit-Commerzbank Tie-Up
Few issues could seem additional faraway from the fragile politico-constitutional dynamics of EU integration than cross-border financial institution consolidations. Nonetheless, a heated debate on the advantages and dangers of EU’s unfinished-effort to ascertain a Banking Union erupted on 11 September 2024, when the Milan-based UniCredit introduced that it had amassed an fairness stake of 9% within the Frankfurt-based rival Commerzbank. The German Chancellor shortly labelled UniCredit’s transfer an “unfriendly assault,” including that its authorities thought of the Italian financial institution’s doable acquisition of (or merger with) Commerzbank a risk to German monetary stability. Undeterred, on 24 September Unicredit additional elevated its stake in Commerzbank to 21% and, in accordance with the SSM Regulation, requested the European Central Financial institution (ECB) to be authorised to come clean with 29.9% of the German financial institution. As markets and policy-makers alike await the result of the ECB’s choice, we present that EU legislation ought to shield cross-border financial institution consolidations from nationwide political resistance. First, we argue that German authorities can hardly present a legally-compelling justification to persuade the ECB to reject UniCredit’s request on monetary stability grounds. Second, we contend that any hypothetical try by the German authorities to ban an extra enhance within the UniCredit’s stake in Commerzbank for comparable causes would violate the EU guidelines on the liberty of motion of capital.
The advantages and dangers of cross-border financial institution consolidations
In 2013, the Banking Union was launched as probably the most bold step in EU financial integration because the creation of the euro in 1999. Within the aftermath of the Eurozone disaster, the undertaking aimed to strengthen the monetary stability of the lopsided Financial and Financial Union by overhauling the EU’s institutional framework for banking supervision. Along with establishing the Single Decision Board however failing to create a European Deposit Insurance coverage Scheme, the EU Council adopted the SSM Regulation to confer supervisory duties over Eurozone banks on the ECB inside a “Single Supervisory Mechanism”.
Though incomplete, the Banking Union is right this moment broadly considered profitable. The direct supervision of great Eurozone banks by the ECB, particularly, strengthened their capital construction and lowered their non-performing loans, decoupling the so-called “sovereign-bank nexus” between their credit score worthiness and that of their dwelling Member State. Having strengthened monetary stability, the Banking Union can now profit the Eurozone’s economic system in one other respect: it could open the door to cross-border funding in monetary establishments in addition to mergers and acquisitions between banks from completely different Eurozone international locations.
Within the EU’s single market, cross-border financial institution consolidations may generate economies of scale, creating bigger Eurozone banks with enhanced lending capability and higher possibilities to compete globally. Whereas consolidation stays a market-driven course of, below the Capital Necessities Directive supervisory authorities can block the rise within the fairness stake constructed by a financial institution’s shareholder for prudential issues. Though the SSM Regulation has transferred this energy from nationwide authorities to the ECB greater than a decade in the past, this regulatory simplification has not but resulted in any main consolidation. On this sense, UniCredit’s try to construct a bigger stake in Commerzbank is the primary actual alternative to check whether or not the SSM Regulation and the EU legislation on the whole could be efficient at stopping nationwide politics from interfering with cross-border consolidations.
The monetary integration that comes with cross-border financial institution consolidation, nonetheless, leads to elevated interconnectivity between Member States’ economies. It’s exactly on this respect that the German Chancellor has argued that permitting UniCredit to accumulate Commerzbank may threaten the financial and monetary stability in Germany. If a monetary disaster have been to interrupt out in Italy, the argument goes, the wobbly budgetary stability of the Italian authorities may dent the soundness of UniCredit, dry liquidity out of Germany and presumably even require a bail-out of the Italian financial institution from the German federal funds. The primary query that we ask is: does such an argument bear any authorized benefit within the ECB’s pending choice to authorise UniCredit to come clean with 29.9% in Commerzbank?
Acquisitions of qualifying holdings and the ECB’s independence below the SSM Regulation
Below Article 4(1)(c) SSM Regulation, it’s for the ECB to “assess notifications of the acquisition and disposal of qualifying holdings in credit score establishments” within the Eurozone. A “qualifying holding” is, pursuant to level 36 of Article 4(1) of the Capital Necessities Regulation, “a direct or oblique holding in an enterprise which represents 10% or extra of the capital or of the voting rights”. Such a regulatory approval seeks to make sure the suitability and credibility of a financial institution’s main shareholders. In response to the factors listed in Article 23(1) of the Capital Necessities Directive, the truth is, the potential acquirer’s suitability is assessed on the idea of a set of standards that embody their “monetary soundness” and their “repute”, additionally in relation to anti-money laundering and terrorist financing dangers.
Pursuant to Article 15 SSM Regulation, the process resulting in the approval of UniCredit’s request is administratively “composite”, because it entails determinations by each the ECB and the nationwide supervisory authority of the Member State the place Commerzbank relies: the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). As a primary step, BaFin “shall assess the proposed acquisition, and shall ahead the notification and a proposal for a call to oppose or to not oppose the acquisition” to the ECB. As a second step, the ECB “shall determine whether or not to oppose the acquisition”. Crucially, in case C-219/17 (Berlusconi and Fininvest v Banca d’Italia and IVASS, paras 48, 54 and 55) the CJEU clarified that the proposals drafted by nationwide supervisory authorities throughout the SSM composite procedures are “preparatory acts” that don’t certain the ECB to a particular plan of action. When assessing UniCredit’s request, in accordance with Article 19(1) SSM each the ECB and BaFin should “act independently” of politics, “within the curiosity of the Union as an entire” and with out taking directions from different EU establishments or Member States’ governments.
We are able to draw two conclusions from such guidelines. First, it appears clear that the monetary stability argument formulated by the German authorities merely can’t be taken into consideration by BaFin or the ECB, because it exceeds the prudential grounds listed in Article 23 of the Capital Necessities Directive. Any stress by the German authorities to think about elements apart from UniCredit’s suitability as a shareholder must be rebuffed by each BaFin and the ECB, which should act “independently” and “within the curiosity of the Union as an entire”. As the ultimate phrase within the process lies with the ECB, then, it seems unlikely that the latter deems UniCredit unsuitable, because the Italian financial institution is already thought of appropriate to completely personal its subsidiarity Hypovereinsbank in Germany. Blocking UniCredit’s request may thus violate the precept of supervisory consistency that the ECB adheres to in accordance with its personal steering on qualifying holdings procedures.
Second, in assessing the monetary soundness of UniCredit, the ECB will already consider the affect of any hostile monetary stability developments on the Italian financial institution. In any case, the ECB, in cooperation with the European Banking Authority, carries out stringent annual stress exams of Eurozone banks. Due to this fact, the argument raised by the German authorities shouldn’t be in a position to affect the ECB’s choice to approve UniCredit’s request below the SSM Regulation.
Monetary stability issues and restrictions on the EU’s freedom of motion of capital
If UniCredit is authorised by the ECB to construct up its stake in Commerzbank, the German authorities may nicely select to not promote the substantial stake that it nonetheless holds in Commerzbank because the monetary disaster. On this respect, nonetheless, it bears reminding that in 2009, when the Fee authorised state-aid by the German authorities within the type of an acquisition of an fairness stake in Commerzbank, that authorities dedicated to promote its stake within the financial institution ultimately (SA.28436, paras 58 and 59). However may the German authorities use the exceptions to the liberty of motion of capital below the EU Treaties to legally prohibit different traders in Germany from promoting their Commerzbank shares to UniCredit?
In response to Article 63(1) TFEU, “all restrictions on the motion of capital between Member States […] shall be prohibited”. In case 7/78 (Thompson, p. 2261), the CJEU clarified that capital additionally means cash that “give[s] rise to investments which produce returns”. Moreover, the CJEU held in case C-483/99 (Fee v France, para 37) that “direct funding within the type of participation in an enterprise by way of a shareholding or the acquisition of securities on the capital market represent capital actions throughout the which means of Article 73b [now Article 63] of the Treaty.”
Nonetheless, Article 65(b) TFEU permits for derogations from the liberty of motion of capital for the aim of “prudential supervision of monetary establishments” and for causes “that are justified on grounds of public coverage or public safety”. Whereas the preservation of monetary stability is a reliable public coverage goal (T-107/17, Steinhoff v ECB, para 105 and 106), the one two episodes of capital restrictions within the EU – these imposed in 2013 by Cyprus and in 2015 by Greece – have by no means been assessed by EU courts. Nonetheless, derogations from the free motion of capital for attaining reliable aims of public coverage or public safety are justified solely when they’re appropriate to achieve these aims and don’t transcend what is critical for that objective (C‑478/19, UBS Actual Property, para 60). Crucially, the CJEU clarified in C-282/04 (Fee v Netherlands, para 32) that “the free motion of capital might […] be restricted by nationwide measures justified on the grounds set out in Article [65 TFEU] or by overriding causes within the basic curiosity […] to the extent that there aren’t any [EU] harmonising measures offering for measures needed to make sure the safety of these pursuits”.
We are able to draw the next conclusions from such guidelines. First, a prohibition on the sale or buy of shares in Commerzbank is unlikely to be appropriate for the aim of defending monetary stability in Germany, as a result of Commerzbank is just one of many banks within the nation. As well as, monetary stability is contingent on a number of elements, not simply financial circumstances in Italy, and the sale of shares by itself is just not a supply of instability. Such a prohibition would, subsequently, be disproportional.
Second, and extra importantly, because the coming into pressure of the SSM Regulation, the ECB enjoys an unique competence to oversee Eurozone banks (C-450/17 P, Landeskreditbank v ECB, paras 38 and 49). In response to Article 1 SSM Regulation, that competence should guarantee “the soundness of the monetary system throughout the Union and every Member State”. In addition to the SSM, different vital EU safety-nets such because the Single Decision Fund and the Direct Financial institution Recapitalisation Instrument of the European Stability Mechanism guarantee monetary stability in case a big Eurozone financial institution with cross-border actions is on the danger of failure. It appears unlikely, thus, that proscribing the liberty of motion of capital by prohibiting the additional sale of Commerzbank’s shares could be deemed needed by the CJEU to keep up (German) monetary stability. A number of EU measures and mechanisms are already in place, the truth is, to make sure the identical goal.
A watershed second for the way forward for the Banking Union
If the German authorities have been profitable in stopping the UniCredit-Commerzbank tie-up by any means, it may undermine the very credibility of the Banking Union. First, it might display that the EU Council’s newest committment to finish the Banking Union stays mere virtue-signalling. Second, and maybe worse, it might sign to traders that Member States might shield their banks below the guise of monetary stability. Nonetheless, EU legislation prohibits nationwide efforts to intrude with ECB authorisations below the SSM Regulation or to unjustifiably prohibit the acquisition of financial institution shares by different EU traders. Accordingly, the potential UniCredit-Commerzbank tie-up must be ruled by market dynamics and reviewed by the ECB solely below the prudential requirements laid down in EU banking regulation. In conclusion, imposing EU legislation within the face of nationwide obstinance could be the one strategy to unlock the advantages of the Banking Union and rework Eurozone banks into stronger, cross-border, and actually European gamers.
