Case T‑389/21
Landesbank Baden-Württemberg
v
Single Resolution Board
Judgment of the General Court (Eighth Chamber, Extended Composition) of 20 December 2023
(Economic and monetary union – Banking union – Single resolution mechanism for credit institutions and certain investment firms (SRM) – Single Resolution Fund (SRF) – Decision of the SRB on the calculation of the 2021 ex ante contributions – Obligation to state reasons – Effective judicial protection – Equal treatment – Principle of proportionality – SRB’s margin of discretion – Plea of illegality – Commission’s margin of discretion – Limitation of the temporal effects of the judgment)
1. EU law – Principles – Rights of the defence – Right to effective judicial protection – Scope – Decision of the Single Resolution Board (SRB) establishing the ex ante contributions to the Single Resolution Fund (SRF) – Audi alteram partem rule – Exceptions – General principle of protection of business secrets – Striking a balance – Whether permissible
(Charter of Fundamental Rights of the European Union, Art. 47; European Parliament and Council Regulation No 806/2014; European Parliament and Council Directive 2014/59; Commission Regulation 2015/63, Arts 4 to 7 and 9 and Annex I)
(see paragraphs 37-42, 45-49)
2. EU law – Principles – Legal certainty – EU rules – Requirements of clarity and precision – Limits
(see paragraphs 64-67)
3. EU law – Principles – Legal certainty – EU rules – Requirements of clarity and foreseeability – Delegated Regulation 2015/63 supplementing Directive 2014/59 with regard to ex ante contributions to resolution financing arrangements – Discretion granted to the Single Resolution Board (SRB) regarding the methodology for calculating ex ante contributions – Conditions – Sufficiently clear indication of the scope of the discretion and the manner of its exercise
(Commission Regulation 2015/63, Arts 6(5) to (7), and 7(4))
(see paragraphs 87-90, 92)
4. EU institutions – Exercise of powers – Power conferred on the Commission to adopt delegated acts – Scope – Complex assessments and evaluations – Broad discretion – Directive 2014/59 establishing a framework for the recovery and resolution of credit institutions and investment firms – Establishment of the criteria for adjusting ex ante contributions – Judicial review – Limits
(Art. 290 TFEU; European Parliament and Council Regulation No 806/2014, recital 41; European Parliament and Council Directive 2014/59)
(see paragraphs 105, 107, 112, 162)
5. Acts of the institutions – Statement of reasons – Obligation – Scope – Decision of the Single Resolution Board (SRB) establishing the ex ante contributions to the Single Resolution Fund (SRF) – Not necessary to include, in that decision, all figures necessary for verifying the accuracy of the calculation of the contribution – Weighing the obligation to state reasons against the general principle of protection of the business secrets of institutions concerned – Legality of the provisions of Regulation 2015/63 concerning the methodology for the calculation of the ex ante contributions to the SRF – Principle of non-disclosure of business secrets – Obligation for the SRB to publish or disclose to the institutions concerned, in collective and anonymised form, the information relating to the institutions that was used to calculate the ex ante contribution
(Art. 296, second para., TFEU; European Parliament and Council Regulation No 806/2014; European Parliament and Council Directive 2014/59; Commission Regulation 2015/63, Arts 4 to 7 and 9 and Annex I)
(see paragraphs 261-272, 292, 294)
6. Acts of the institutions – Statement of reasons – Obligation – Scope – Explanations regarding the reasons for the measure provided by the author during the proceedings before the EU judicature – Conditions – There must be no contradictions and the explanations must be consistent with those reasons
(Art. 296, second para., TFEU)
(see paragraphs 329, 330)
7. Acts of the institutions – Statement of reasons – Obligation – Scope – Decision of the Single Resolution Board (SRB) establishing the ex ante contributions to the Single Resolution Fund (SRF) – Obligation for the SRB to disclose to the institutions concerned the methodology for calculating those contributions and the methodology for setting the amount of the annual target level
(Art. 296, second para., TFEU; European Parliament and Council Regulation No 806/2014; Council Regulation No 2015/81, Art. 4; European Parliament and Council Directive 2014/59; Commission Regulation 2015/63, Arts 4 to 7 and 9 and Annex I)
(see paragraphs 332, 333)
8. Acts of the institutions – Statement of reasons – Obligation – Scope – Decision of the Single Resolution Board (SRB) establishing the ex ante contributions to the Single Resolution Fund (SRF) – Statement of reasons based solely on other legal acts, such as interim decisions, explaining and supplementing certain aspects of the determination of those contributions – Those other acts not published or disclosed to institutions – Unlawfulness
(Art. 296, second para., TFEU)
(see paragraphs 442, 447)
Résumé
The Landesbank Baden-Württemberg (‘the applicant’) is a public credit institution established in Germany. It is a member of the institutional protection scheme (‘the IPS’) of the Sparkassen-Finanzgruppe (Savings Banks Finance Group, Germany).
On 14 April 2021, the Single Resolution Board (SRB) adopted a decision in which it set (1) the 2021 ex ante contributions to the Single Resolution Fund (‘the SRF’) of banking institutions, one of which was the applicant (‘the contested decision’). (2)
Hearing an action for annulment against the contested decision, the General Court rules on several novel questions regarding the calculation of ex ante contributions to the SRF and on various pleas of illegality raised against Delegated Regulation 2015/63, (3) all of which it rejects.
The judgment in its entirety is innovative. The Court ultimately annuls the contested decision on the ground that the SRB infringed its obligation to state reasons.
Findings of the Court
As a first step, the Court rejects all the pleas of illegality raised by the applicant.
In particular, in the first place, it rejects the plea of illegality alleging infringement of the principle of legal certainty of the risk pillar ‘additional risk indicators to be determined by the [SRB]’.
It must be recalled that, under Articles 6 and 7 of Delegated Regulation 2015/63, it is for the SRB to adjust the basic annual contribution of institutions, taking into account the four risk pillars, each pillar consisting of risk indicators that, in turn, may consist of risk sub-indicators.
That Article 6 grants a margin of discretion to the SRB, with regard to the way in which it must ‘take into account’, for the purposes of those risk indicators, ‘the probability that the institution concerned would enter resolution and … the consequent probability of making use of the resolution financing arrangement where the institution would be resolved’.
Thus, as regards the first risk indicator that falls under the risk pillar ‘additional risk indicators to be determined by the [SRB]’ and that relates to trading activities, off-balance sheet exposures, derivatives, complexity and resolvability, the SRB must take several sub-indicators into account when determining it, some of which may result in increasing the risk profile of the institution concerned and others may decrease it. Those risk sub-indicators do not include details concerning the implementation of the comparison that they involve.
In respect of the IPS risk indicator, the SRB has a margin of discretion regarding the fulfilment of the conditions related, first, to the sufficiency of the available funds of the IPS concerned in relation to the funds necessary to finance the institution in question, and, second, the degree of legal or contractual certainty concerning the funds. The SRB also has a margin of discretion with regard to the weighting of the various risk indicators in risk pillar IV, (4) for the purpose of determining the weighting of the various sub-indicators of risk constituting those risk indicators, which must be taken into account.(5)
The Court thus examines whether Article 6(5) and (7) and Article 7(4) of Delegated Regulation 2015/63 may be regarded as provisions that indicate sufficiently clearly the scope of the discretion conferred on the SRB and for the manner of its exercise, in the light of the legitimate aim in question, with the result that they provide adequate protection against arbitrary interference and that individuals may resolve with sufficient certainty any doubts as to the scope or meaning of those provisions.
In the present case, first, the Court notes that the applicable legislation provides for the result to be achieved, according to which the available financial means of the SRF must reach the final target level by the end of an initial period of eight years from 1 January 2016 (‘the initial period’), and a method for achieving that result, which reduces the impact of the discretion exercised by the SRB when determining the ex ante contributions. On the one hand, the amount of the ex ante contribution of each institution depends on the amount of the annual target level that is determined by the SRB on the basis of its estimate of the amount corresponding, on 31 December 2023, to at least 1% of covered deposits in all the Member States participating in the Single Resolution Mechanism (SRM). (6) On the other, the ex ante contribution of each institution is determined, inter alia, on the basis of the basic annual contribution, which is calculated on the basis of the amounts of the net liabilities of the institutions concerned. The SRB does not exercise any discretion in determining those amounts. Furthermore, the institution concerned is aware of the amount of its net liabilities and may have access to the overall amount of the net liabilities of other institutions.
Second, the risk indicators the lack of clarity of which is argued by the applicant and in respect of which the SRB exercises some discretion affect the institution’s risk profile only at a level below 20%. Furthermore, the impact of those indicators on the final amount of the ex ante contribution is further reduced by the fact that the SRB does not exercise any discretion in determining the amount of the basic annual contribution and that the adjustment of that contribution in respect of an institution’s risk profile is clearly delineated within a pre-defined range from 0.8 to 1.5. (7)
The Court concludes therefrom that the scope of the discretion conferred on the SRB (8) and the manner of its exercise cannot be regarded as insufficiently delineated or as indicated with insufficient clarity, having regard to the legitimate aim in question, and cannot therefore be regarded as not providing adequate protection against arbitrary interference. That is all the more so since the applicant is a prudent trader which is able, if need be by making use of the services of a legal and economic advisor, to foresee in a sufficiently precise manner the method of calculation and order of magnitude of its ex ante contribution.
In the second place, the Court rejects the plea of illegality alleging that differentiation between institutions belonging to the same IPS on the basis of the risk indicator ‘trading activities and off-balance-sheet exposures, derivatives, complexity and resolvability’ is inconsistent with the uniform and consistent treatment of all the members of such an IPS, which is required by Directive 2014/59 (9) and Regulation No 575/2013.(10) After finding that, where several institutions are part of the same IPS, institutions which are given a better weighting in relation to the risk indicator ‘trading activities and off-balance-sheet exposures, derivatives, complexity and resolvability’ over other members of that IPS may be given a more favourable weighting in connection with the IPS risk indicator compared with those other members, the Court observes that, as regards Directive 2014/59, it is not provided for that, when it adopted Delegated Regulation 2015/63, the Commission had to assign the same weighting to all institutions which are part of the same IPS. Furthermore, the Commission enjoys broad discretion in respect of the adjustment method for the basic annual contributions. First of all, the Commission and the SRB explained, without the applicant putting forward any evidence to dispute their assertions, that the members of an IPS do not have an unconditional right to receive unconditional support from such an IPS, next, the failure of an institution with a large and complex balance sheet could entirely exhaust the funds of such an IPS and, last, the risk indicator ‘trading activities and off-balance-sheet exposures, derivatives, complexity and resolvability’ makes it possible to assess whether an institution has a large and complex balance sheet. With regard to Regulation No 575/2013, Article 113(7) thereof defines the conditions for granting permission in respect of an IPS and not the calculation of ex ante contributions and does not prohibit differentiating between institutions which are members of the same IPS for the purpose of calculating ex ante contributions. Furthermore, that provision does not go as far as to require that an IPS have sufficient resources to avoid the resolution of all its members, including all large institutions.
In the third place, the Court rejects the plea of illegality alleging infringement of the principle of equal treatment. It recalls that the specific nature of ex ante contributions consists in ensuring, according to an insurance-based logic, that the financial sector provides adequate financial resources for the SRM to be able to fulfil its functions, while encouraging the adoption, by the institutions concerned, of less risky methods of operation. Accordingly, not all institutions belonging to an IPS necessarily find themselves in a comparable situation simply because they belong to it. First of all, the members of an IPS do not have an unconditional right to receive support from the IPS that would cover all their commitments. Next, the failure of an institution with a large and complex balance sheet could entirely exhaust the funds of an IPS, unlike the failure of institutions with smaller and simpler balance sheets. Last, the risk indicator ‘trading activities and off-balance-sheet exposures, derivatives, complexity and resolvability’ is an objective criterion for assessing which institutions are in a comparable situation in terms of such risk.
In the fourth place, the Court rejects the plea of illegality alleging infringement of several higher-ranking rules of law. In that regard, it notes that, in so far as it is necessary to take into account the objectives of the SRM and, in particular, the objective of encouraging institutions to adopt less risky methods of operation, the ‘binning’ method, consisting of assigning institutions to the same ‘bin’ even though they have considerably different values for the same risk indicator, does not infringe the principle of proportionality since those institutions have different characteristics with regard to the degree of risk measured by that indicator. Although those institutions are treated equally, that treatment is duly justified in so far as, first, it relates to the permitted objective, which is lawfully pursued, consisting in the laying down of general rules which can be easily applied and are easily verified by the competent authorities and, second, having regard to the broad discretion enjoyed by the Commission, the binning method in question makes it possible to achieve the objective pursued, does not exceed the limits of what is necessary to achieve it and cannot be regarded as entailing a disproportionate disadvantage.
In the fifth place, the Court rejects the plea of illegality alleging infringement of a ‘requirement of risk-appropriate assessment of contributions’ in so far as Article 20(1) of Delegated Regulation 2015/63 is vitiated by a manifest error of assessment, on the ground that that provision prevents the SRB from adjusting, in an appropriate manner, the basic annual contributions in respect of the actual risk profile of the institutions. Under that article, entitled ‘Transitional provisions’, a risk indicator is not to apply until the information required by a specific risk indicator as referred to in Annex II to that delegated regulation is included in the supervisory reporting requirement referred to in Article 14 thereof. Delegated Regulation 2015/63 was adopted on the basis of Article 103(7) of Directive 2014/59, which requires the Commission to take into account all of the factors listed in points (a) to (h) of that provision in order to specify the notion of ‘adjusting contributions in proportion to the risk profile of institutions’.
Nevertheless, in the light of the broad discretion enjoyed by the Commission as regards the implementation of that provision, it may be necessary to provide for transitional periods for that purpose. Article 20(1) of Delegated Regulation 2015/63 introduces such a period, since it empowers the SRB, on a transitional basis, not to apply some of those factors, which are reflected in the risk indicators provided for in that delegated regulation.
Furthermore, the justification for the transitional period provided for by that provision is closely linked to the gradual nature of the process of establishing prudential requirements and the corresponding reporting requirements. In that context, Article 20(1) of Delegated Regulation 2015/63 seeks to avoid disproportionate or discriminatory burdens being imposed, as the case may be, on institutions when calculating ex ante contributions precisely because of that gradual implementation of prudential requirements and the corresponding reporting requirements.
Last, although that exception may lead to a situation in which certain risk indicators remain unapplied throughout the initial period, first, such a consequence stems from the gradual implementation of prudential requirements and, second, those risk indicators are also intended to apply beyond the initial period.
As a second step, the Court examines the pleas relating to the legality of the contested decision and upholds the plea alleging defects in the reasoning of that decision as regards the determination of the annual target level.
As regards the latter plea, which is a matter of public policy, as a preliminary point, the Court recalls, first of all, that, in accordance with the applicable legislation, by the end of the initial period, the available financial means of the SRF must reach the final target level, which corresponds to at least 1% of the amount of covered deposits of all the institutions authorised in the territories of all of the Member States participating in the SRM. Next, during the initial period, ex ante contributions must be spread out in time as evenly as possible until the final target level is reached. Furthermore, each year, the contributions due by all of the institutions authorised in the territories of all of the Member States participating in the SRM are not to exceed 12.5% of the final target level. In addition, as regards the methodology for calculating the ex ante contributions, the SRB is to determine the amount of those contributions on the basis of the annual target level by taking into account the final target level, and on the basis of the average amount of covered deposits in the previous year, calculated quarterly, of all the institutions authorised in the territories of the Member States participating in the SRM. Last, the SRB is to calculate the ex ante contribution for each institution on the basis of the annual target level, which must be established with reference to the final target level, and in accordance with the methodology set out in Delegated Regulation 2015/63.
In the present case, as is apparent from the contested decision, the SRB set the amount of the annual target level, for the 2021 contribution period, at EUR 11 287 677 212.56. In that decision, it explained, in essence, that the annual target level was to be determined on the basis of an analysis of the evolution of covered deposits in the previous years, any relevant developments in the economic situation and an analysis of the indicators relating to the phase of the business cycle and the effects that pro-cyclical contributions may have on the financial position of the institutions. The SRB considered it appropriate to set a coefficient based on that analysis and on the financial means available in the SRF and applied that coefficient to one eighth of the average amount of covered deposits in 2020, in order to obtain the annual target level. It subsequently set out the approach taken in order to determine the coefficient. In the light of those considerations, the SRB set the coefficient value at 1.35%. It then calculated the amount of the annual target level by multiplying the average amount of covered deposits in 2020 by that coefficient, and by dividing the result of that calculation by eight.
In that regard, although the SRB is required to provide the institutions, by means of the contested decision, with explanations concerning the methodology for determining the annual target level, such explanations must be consistent with the explanations provided by the SRB during the judicial proceedings and relating to the methodology actually applied. However, that is not the case in this instance.
At the hearing, the SRB stated that it had determined the annual target level for the 2021 contribution period using a methodology based on four stages, the last two of which consisted of deducting from the final target level the financial means available within the SRF, in order to calculate the amount that remained to be received until the end of the initial period, and by dividing that amount by three.
The Court observes that no reference is made to the last two stages of that calculation in the mathematical formula which is presented in the contested decision as the basis for determining the amount of the annual target level.
It is true that the applicant was aware of a Fact Sheet, published by the SRB after the adoption of the contested decision but before the present action was brought, which indicated the estimated amount of the final target level. However, even if the applicant was also aware of the amount of the financial means available in the SRF, those circumstances alone were not such as to enable it to understand that the last two stages had actually been applied by the SRB, and it should be noted, moreover, that the mathematical formula provided for in the contested decision did not even mention them.
Similar inconsistencies also affect the manner in which the coefficient of 1.35% was set, which nonetheless plays a crucial role in that mathematical formula. As the SRB acknowledged at the hearing, that coefficient was set in such a manner as to justify the result of the calculation of the amount of the annual target level, that is to say, after the SRB calculated that amount in accordance with the four stages of the methodology actually applied. That approach is not in any way apparent from the contested decision.
Moreover, the range within which, according to the Fact Sheet, the amount of the estimated final target level was set is inconsistent with the range of the growth rate of covered deposits, which is between 4% and 7% as set out in the contested decision. In those circumstances, the applicant was not in a position to ascertain the manner in which the SRB had used the range relating to the rate of growth of those deposits in order to arrive at the calculation of the estimated final target level.
The Court considers that, as regards the determination of the annual target level, the methodology actually applied by the SRB, as explained at the hearing, does not correspond to the one described in the contested decision, with the result that the actual reasons, in the light of which that target level was set, could not be identified on the basis of the contested decision either by the institutions or by the Court. The contested decision is therefore vitiated by defective reasoning as regards the determination of the annual target level.
After rejecting the other substantive pleas, examined in the interests of the proper administration of justice, the Court concludes that the failure to state reasons which vitiates the contested decision is, in itself, such as to justify the annulment of that decision in so far as it concerns the applicant.
Nonetheless, in the circumstances of the present case, it has decided to maintain the effects of that decision, in so far as it concerns the applicant, until the entry into force, within a reasonable period which cannot exceed six months from the date of delivery of the present judgment, of a new decision of the SRB determining the applicant’s ex ante contribution to the SRF for the 2021 contribution period.