The impact of the Banco Popular judgments on the institutional framework of the SRM and the SRB, by M Markakis

Notwithstanding its young age, the Banking Union has already given rise to a very large number of cases.[i] One need not peruse further than the latest posts featured on leading law blogs to read comments on the admissibility of Article 263 TFEU challenges against, as well as the legality of, the Single Resolution Board’s (SRB) decision not to adopt a resolution scheme (one of the now many ABLV Bank judgments, Case T-280/18)[ii] or on judicial protection in the context of composite administrative procedures (the latest addition to the Berlusconi and Fininvest saga, namely Case T-913/16).[iii] The five Banco Popular cases that form the subject matter of this blog series arose in the context of a resolution procedure conducted by the Single Resolution Mechanism (SRM) – ‘a complex administrative procedure involving a number of authorities’, as recognised by the Court of Justice in Joined Cases C-551/19 P and C-552/19 P ABVL Bank AS and Others v ECB (para 66). In delivering those judgments, the General Court sought to shed light on various ‘unsettled issues’ (to borrow the language used by Phedon Nicolaides in his blog post) which pertain to judicial review in the SRM.[iv] Complementing the analysis undertaken in the earlier contributions to this series, this blog post will focus on the impact of the judgments on the institutional role of the EU resolution authorities and the institutional framework of the SRM.

The facts of the cases were set out in the introductory post to this blog series by Jolien Timmermans and need not be repeated here. Suffice it to say for present purposes that the applicants were shareholders or bondholders of Banco Popular or, in other cases, held additional Tier 1 capital instruments or Tier 2 capital instruments issued by Banco Popular before the impugned resolution scheme was adopted. The valuation of their assets was affected by the adoption of the resolution scheme for Banco Popular, including the write-down and conversion of capital instruments that took place before the application of the sale of business tool. The applicants put forward various pleas in law, which were again summarised in the introductory blog post and were, for the most part, similar across all five cases.

In my opinion, there are four principal ways in which these five judgments strengthen the institutional position of the EU resolution authorities, as well as the institutional framework of the SRM and the SRB. First, the General Court held that the various provisions of the SRM Regulation whose legality was challenged by the applicants were lawful. Second, the resolution action concerning Banco Popular was lawful. Third, the General Court set out the scope of its review in this area, reasoning from the premise that the acts adopted in the context of a resolution procedure are based on highly complex economic and technical assessments. Fourth, it provided clarity for future resolution actions as regards the specific issues that were raised (and solved) in these five cases. These four points will now be examined in turn.

The first reason the judgments strengthen the legal and institutional framework of the SRM and the SRB is as simple as it is fundamental. The General Court ruled that the SRM Regulation itself was valid. It will be recalled that the applicants had challenged the validity of various provisions of the SRM Regulation through the Article 277 TFEU plea of illegality. Notably, the General Court held that the SRM Regulation violated neither the right to be heard nor the right to an effective remedy. Nor did the SRM Regulation violate the principles established in Meroni (see also the blog post by Merijn Chamon).

The second reason is also important, seeing to it that resolution actions undertaken at the EU level by the SRB in tandem with the Commission and/or the Council, as the case may be, are a rare species. The General Court held in the Banco Popular judgments that this specific resolution action was lawful. In doing so, it rejected the various pleas in law that were raised by the applicants and upheld the legality of the contested acts. It being the very first resolution action by the SRB, the judgments gain particular importance in that regard.

Third, as regards future resolution actions, it is particularly important that the General Court set out its scope of review in this area (see, e.g., Case T-510/17, paras 104-111). It will be recalled that relying on Kadi, the applicants had argued that the Court must carry out a full review and, in particular, determine whether the facts alleged are made out in light of the relevant information or evidence and assess the probative value of that information or evidence in the circumstances of the particular case and in light of any observations submitted by the person concerned. That requirement was reinforced, in their opinion, when the applicants had not been heard during the resolution procedure (para 104).

The Court noted that the case law had defined the scope of the review carried out both in situations in which the contested act was based on an assessment of highly complex scientific and technical facts and where there were complex economic assessments (para 106). ‘First, with regard to situations in which the EU authorities have a broad discretion, in particular as to the assessment of highly complex scientific and technical facts in order to determine the nature and scope of the measures which they adopt, review by the EU Courts is limited to verifying whether there has been a manifest error of assessment or a misuse of powers, or whether those authorities have manifestly exceeded the limits of their discretion. In such a context, the EU judicature cannot substitute its assessment of scientific and technical facts for that of the EU authorities on which alone the FEU Treaty has placed that task…’ (para 107). ‘Second, as regards the review by the EU Courts of the complex economic assessments made by the EU authorities, that review is necessarily limited and confined to verifying whether the rules on procedure and on the statement of reasons have been complied with [on which see the critical analysis by Filipe Brito Bastos], whether the facts have been accurately stated and whether there has been any manifest error of assessment or a misuse of powers. When conducting such a review, the EU Courts must also not substitute their own economic assessment for that of the competent EU authority…’ (para 108).

The General Court held that, since the decisions which the SRB was required to adopt in the context of a resolution procedure were based on highly complex economic and technical assessments, the principles resulting from the case law summarised above applied to the review which it was called upon to carry out (para 109). ‘However, although the SRB has discretion with regard to economic and technical matters, that does not mean that the EU Courts must refrain from reviewing the SRB’s interpretation of information of an economic nature which forms the basis of its decision. As the Court of Justice has held, even in the case of complex assessments, the EU judicature must not only establish whether the evidence relied on is factually accurate, reliable and consistent but also ascertain whether that evidence contains all the information which must be taken into account in order to assess a complex situation and whether it is capable of supporting the conclusions drawn from it…’ (para 110). ‘In that regard, in order to establish that the SRB committed a manifest error in assessing facts so as to justify the annulment of the resolution scheme, the evidence adduced by the applicants must be sufficient to render the factual assessments adopted in that scheme implausible…’ (para 111). It is fairly obvious from these rather extensive extracts from the judgment that it will be a tall order for litigants to succeed in this type of case. This is also evidenced by other, subsequent rulings such as Case T-280/18 ABLV Bank which was mentioned above. To draw again on the words of Phedon Nicolaides: ‘Proving implausibility is rather improbable.

Fourth, the General Court provided clarity for future resolution actions as regards the specific issues that were raised in the five cases. These were, essentially, all the ‘classic’ pleas in law a practitioner with expertise in EU administrative law would have put forward. For example, the General Court examined whether the shareholders and creditors of the entity covered by the resolution action could rely on the right to be heard as part of the resolution procedure and whether the exercise of that right could be subject to limitations (see, e.g. Case T-570/17, paras 321-388). The short answer is that, as far as the SRB exercised the power to write down or convert capital instruments, the procedure followed to adopt the resolution scheme may lead to the adoption of a measure liable to have an adverse effect on the applicants’ interests in their capacity as holders of capital instruments. However, even though the shareholders and creditors of the entity concerned can rely on the right to be heard as part of the resolution procedure, the exercise of that right may be subject to limitations, in accordance with Article 52(1) of the Charter. In this case, the General Court ruled that hearing the applicants before the adoption of the contested acts would have undermined the objectives of protecting the stability of the financial markets and the continuity of the entity’s critical functions, as well as the requirements of speed and effectiveness of the resolution procedures (see further the blog post by Jane Reichel).

Another particularly important conclusion drawn by the General Court concerns the ‘no creditor worse off’ principle (Case T-510/17, paras 508-529), which provides that no creditor shall incur greater losses than would have been incurred if the entity subject to a resolution procedure had been wound up under normal insolvency proceedings (Article 15(1)(g) of Regulation 806/2014). More specifically, the applicants had argued that they were deprived of their property without compensation and that therefore the contested acts infringed the essence of their right to property (para 508 – on the right to property, see generally the blog post by Sabrina Praduroux). However, reasoning by analogy from Kotnik, the General Court held that the application of the ‘no creditor worse off’ principle guarantees the applicants fair compensation in accordance with the requirements of Article 17(1) of the Charter (para 522).[v] Furthermore, citing its judgment in Chrysostomides,[vi] the General Court held that the value of the applicants’ investment should not be calculated in the light of the situation preceding the adoption of the resolution scheme but that the value of their investment was in fact the value in the event of the resolution scheme not having been adopted, namely a situation in which Banco Popular would have been wound up (para 523).

One final thought may be warranted – the fifth point if you wish. The overall impression that one gets from the five Banco Popular judgments is that the General Court is being rather protective of the SRB and anxious to safeguard the effectiveness of its operations. This is particularly evident from, say, the parts of the judgment in Case T-510/17 where the Court responds to the applicants’ complaints that the SRB did not give them access to the full versions of the resolution scheme and ‘valuation 2’ (paras 441 et seq.).[vii] The same is true regarding how the General Court responded to the applicants’ claim that they were unable to exercise their right to an effective remedy since they did not have access to the documents on which the SRB and the Commission relied in the contested acts, after the adoption of those acts (paras 468 et seq.). It may be hazardous to generalise from these five cases and/or the other available jurisprudence of the Court of Justice of the European Union (CJEU) in this area. It is certainly not impossible to succeed in all cases concerning the SRM (see, for example, the line of cases on the calculation of ex-ante contributions to the Single Resolution Fund). It remains to be seen whether in future cases the CJEU will be equally protective of the EU resolution authorities, and of the requirements that it regards as necessary for their effective operation.

Posted by Dr Menelaos Markakis (Assistant Professor, Erasmus School of Law, Erasmus University Rotterdam & Co-coordinator, Erasmus Center for Economic and Financial Governance).

For the purposes of this blog post, the current author read the English version of judgments T-510/17 and T-570/17, the Greek version of T-523/17, and the French version of T-481/17 and T-628/17. Since this blog is written in English, the present author opts to principally refer to the English-speaking judgments.

[i] See ‘The Banking Union and Union Courts: Overview of Cases as of 8 August 2022’.

[ii] Barbora Budinská, ‘ABLV Bank AS v SRB: Judicial Review of Non-Resolution Decisions and Failing or Likely-to-Fail Assessments’ (EU Law Live, 13 September 2022).

[iii] Andrea Magliari, ‘Composite Procedures and Judicial Protection: In Fininvest and Silvio Berlusconi v. European Central Bank (T-913/16) the General Court Delivers a “Pilate’s Judgment”’ (REALaw Blog, 27 September 2022).

[iv] See generally Chiara Zilioli and Karl-Philipp Wojcik (eds), Judicial Review in the European Banking Union (Elgar Publishing 2021). See also Menelaos Markakis, ‘Composite Procedures and Judicial Review in the Single Resolution Mechanism: Iccrea Banca(2020) 13(4) Review of European Administrative Law 109 for further references.

[v] Unfortunately, this was not unexpected: see Anastasia Karatzia and Menelaos Markakis, ‘What Role for the Commission and the ECB in the European Stability Mechanism?’ (2017) 6(2) Cambridge International Law Journal 232, 248.

[vi] For an extensive analysis, see Anastasia Karatzia and Menelaos Markakis, ‘Financial Assistance Conditionality and Effective Judicial Protection: Chrysostomides’ (2022) 59(2) Common Market Law Review 501.

[vii] The purpose of ‘valuation 2’, which was annexed to the resolution scheme and formed an integral part thereof, was to estimate the value of Banco Popular’s assets and liabilities, to provide an evaluation of the treatment that shareholders and creditors would have received if Banco Popular had entered into normal insolvency proceedings, and to inform the decision to be taken on the shares and instruments of ownership to be transferred and the SRB’s understanding of what constitutes commercial terms for the purposes of the sale of business tool.

Suggested citation: M Markakis, “The impact of the Banco Popular judgments on the institutional framework of the SRM and the SRB”, available at