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European Commission's Banking Communication: Question of Validity in the Slovenian Banking Bail-in Puzzle  ∙ Tadej Kotnik and Others v Državni zbor Republike Slovenije  ∙ C-526/14 ∙ Annotation by Ana Vlahek and Matija Damjan

Annotation of the Judgment of the Court (Grand Chamber) of 19 July 2016 C-526/14 Tadej Kotnik and Others v Državni zbor Republike Slovenije

Ana Vlahek, Matija Damjan


In July 2016, the CJEU issued a preliminary ruling on the interpretation of the effects of the European Commission's Banking Communication, and on the interpretation and the validity of its framework of burden-sharing being a prerequisite for granting State aid to banks. The questions were referred to Luxembourg in December 2014 by the Slovenian Constitutional Court reviewing the constitutionality of various provisions of the Slovenian Banking Act of 2006 as was amended in November 2013 following the issuance of the Banking Communication in August 2013 and the Bank of Slovenia's finding in September 2013 that five Slovenian banks were showing capital shortfalls. The result of the enactment of the Communication and the Banking Act amendment, but also of negotiations between the Republic of Slovenia and the European Commission assessing the planned State aid to the banks, was that the Bank of Slovenia ordered in December 2013 a total write-off of equity capital, as well as hybrid capital and subordinated debt, and that the Commission consequently gave green light to State aid aimed at preventing the collapse of the Slovenian banking system. The preliminary ruling will assist the Constitutional Court in understanding the effects of the Communication and the substance of some of its relevant provisions on burden-sharing, as well as in being certain that the burden-sharing framework of the Communication is in line with the rules and principles of EU that were assessed in the ruling. It is now up to the Constitutional Court to assess the constitutionality of the Banking Act.
Keywords: Bail-In; Banking Communication; Financial Crisis; Burden-Sharing; Hybrid Capital; Subordinated Debt; Legitimate Expectations; Right to Property.

Dr Ana Vlahek is Associate Professor of Law at University of Ljubljana, Slovenia. Dr Matija Damjan is Senior researcher at Institute for Comparative Law at the Faculty of Law in Ljubljana, Slovenia.


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