SOURCE: Monthly Case-law Digest – April 2021
Economic and monetary policy – Prudential supervision of credit institutions – Article 4(1)(d) and Article 4(3) of Regulation (EU) No 1024/2013 – Calculation of the leverage ratio – ECB’s partial refusal to authorise the exclusion of exposures meeting certain conditions – Article 429(14) of Regulation (EU) No 575/2013 – Failure to examine all the relevant aspects of the individual case – Res judicata – Article 266 TFEU
The applicant, Crédit lyonnais, is a joint-stock company governed by French law and is approved as a credit institution. It is a subsidiary of Crédit agricole SA. As such, it comes under the direct prudential supervision of the European Central Bank (ECB).
On 5 May 2015, Crédit agricole, on its own behalf and on behalf of the entities in the Crédit agricole group, including the applicant, sought authorisation from the ECB to exclude from the calculation of the leverage ratio the exposures (investments) made up of the sums associated with a number of savings passbooks (Livret A (Savings Passbook A), the Livret de développement durable et solidaire (Sustainable and Socially Responsible Passbook) (‘the LDD’) and the Livret d’épargne populaire (Popular Savings Passbook) (‘the LEP’)) taken out with Crédit agricole, which had been transferred to the Caisse des dépôts et consignations (CDC), a French public institution. By a decision of 24 August 2016, the ECB refused to exclude from the calculation of the leverage ratio the exposures to the CDC made up of the proportion of the sums deposited on the basis of the three savings passbooks referred to above.
By its judgment of 13 July 2018 in Crédit agricole v ECB, the General Court annulled the ECB’s decision. It confirmed that the ECB had a discretion that allowed it to exclude or not to exclude such exposures as laid down by the regulation on prudential requirements for credit institutions. Nevertheless, the General Court found that the ECB had erred in law by having regard to Crédit agricole’s contractual obligation to reimburse customers’ deposits, without taking into account the fact that the funds transferred to the CDC are returned. It also considered that the ECB had made a manifest error of assessment concerning the existence of a period before the CDC returns the funds to Crédit agricole, which could be forced to have recourse to a fire sale of assets.
On 26 July 2018, on its own behalf and on behalf of various entities in the Crédit agricole group, including the applicant, Crédit agricole again sought authorisation to exclude from the calculation of the leverage ratio the sums that it was obliged to transfer to the CDC. On 3 May 2019, the ECB granted authorisation to exclude those exposures to Crédit agricole and the entities in its group concerned, with the exception of the applicant, to whom only a 66% derogation was granted. The ECB adopted the contested decision applying a methodology that took into account, first, the creditworthiness of the French central government, second, the risk of a fire sale of assets and, third, an assessment of the concentration of exposures in question.
By its judgment, the General Court annulled the ECB’s decision in respect of its refusal to authorise Crédit lyonnais to exclude from the calculation of its leverage ratio 34% of its exposure to the CDC. For the first time in litigation on prudential supervision, it explicitly set out the circumstances in which methodologies that limit discretion are lawful.
Assessment by the General Court
After verifying whether the ECB had adopted measures to comply with the judgment in Crédit agricole v ECB which annulled its original decision, the General Court examined the methodology that the ECB imposed on itself by merely setting out a rule indicating the conduct it would follow. It stated that such a methodology cannot be treated as the adoption of a normative act extending beyond the powers delegated to the ECB and does not relieve the ECB of the need to carry out a specific examination of each individual situation, which may cause it not to apply that methodology.
In response to the third plea in law, the General Court examined the grounds on which the ECB refused to fully grant Crédit lyonnais’s application. It recalled that the ECB had a duty to examine carefully and impartially all the relevant aspects of the individual case and to carry out a thorough analysis of the characteristics of regulated savings.
First, the General Court noted that the ECB did not dispute the ‘safe investment’ status of regulated savings, which the applicant had demonstrated to the requisite legal standard by submitting evidence. It also emphasised that the applicant correctly stated, in essence, that regulated savings are unlikely to contribute to creating excessive leverage since the sums transferred to the CDC cannot be invested in high-risk or illiquid assets. Furthermore, the sums transferred to the CDC benefit from a dual guarantee by the French Republic.
Secondly, the General Court found that, in the light of those considerations, the fact that regulated savings are liquid does not, in itself, demonstrate that there is a risk of a fire sale of assets. Although the ECB justified its decision on the basis of the experience of the recent banking crises, it failed to bear in mind that, in the present case, regulated savings serve as a safe investment during crisis situations.
Thirdly, the General Court found that the ECB relied on a single example of massive withdrawals in the recent banking crises, while the deposits mentioned in the example were not sufficiently close in terms of their characteristics to regulated-savings deposits. The General Court concluded that the ECB had failed to take into account all the characteristics of regulated savings and, thereby, failed properly to apply the judgment in Crédit agricole v ECB.
*The judgment is available on this portal only in French