The norms of bail-in applied by the EU Commission in rescue of Slovenian banks in 2013 they do not violate European rules. This was established by a ruling of the EU Court, specifying that "the division of burdens between shareholders and subordinated bondholders" respects "EU law" in the field of "state aid in favor of an undercapitalised bank". The sentence comes after the appeal of the Slovenian Constitutional Court linked to the 2013 bailout which involved the elimination of the share capital of shareholders and subordinated securities.
Furthermore, the Court considers that with regard to measures for the conversion or write-down of subordinated securities, "a Member State is not obliged to require banks in difficulty, before granting State aid, to convert subordinated securities into capital or depreciate them, or to use all such securities to absorb losses”. However, in this case, "it cannot be considered that the State aid has been limited to the minimum necessary, the Member State, like the banks receiving public aid, assumes the risk of being challenged by a Commission decision declaring the 'incompatibility of such aid with the internal market'.
The cause originates in the appeals by Slovenian savers who saw their subordinated bonds sacrificed in 2013 when the Slovenian state intervened to bail out the banks with 3 billion euros. Following the global financial crisis that began in 2007, the Central Bank of Slovenia ascertained in September 2013 that five Slovenian banks were undercapitalised. Such banks not having sufficient capital to satisfy their creditors and cover the value of the deposits. On December 17, 2013, the Central Bank of Slovenia decided to intervene directly in the recapitalisation, rescue and liquidation of the institutions.
The operation was authorized by the European Commission. The measures included liquidation of shareholder capital and subordinated securities. In the event of insolvency or liquidation of the issuer, the holders of subordinated bonds are repaid after the holders of ordinary bonds, but before the shareholders. As is known, these financial instruments offer a higher return, as a counterpart to the financial risk thus assumed by their holders.
The Slovenian Constitutional Court had asked the EU Court of Justice to pronounce itself on the validity and interpretation of the provisions of the Commission communication on the banking sector which establishes the rules of burden sharing between private creditors. In today's ruling, the Court observes, as regards the binding effect of the notice on the Member States, that the Commission, in the exercise of its discretionary power, "may adopt guidelines in order to establish the criteria according to which it intends to assess the compatibility, with the internal market, of aid measures envisaged by the Member States".
