5.3.1 Access and Remedies

The preliminary reference procedure, the foremost method of access to EU courts (or more precisely, the Court of Justice) in the area of monetary policy and financial assistance, does not dominate prudential supervision, where instead direct actions take centre stage.Footnote ²⁹ This is, of course, resulting from the set-up of prudential supervision as described in the previous section: the ECB is centrally responsible for the supervision of significant entities and maintains the exclusive power to characterise an entity as such. These decisions necessarily then address the credit institution itself and the decision of the ECB is a challengeable act under Article 263(1) TFEU. Challenging these decisions, therefore, usually takes place before the General Court, possibly followed by an appeal before the Court of Justice.

Normally, ECB’s decisions in the area of prudential supervision concern a specific entity. For example, the ECB may decide on the characterisation of an entity as significant or less significant (as in Landeskreditbank);Footnote ³⁰ it may grant or revoke an authorisation to a credit institution (as in Trasta Komercbanka);Footnote ³¹ or it may approve or block the acquisition of a qualifying holding in a credit institution (as in Berlusconi).Footnote ³² Seeking annulment of such decisions under Article 263(4) TFEUFootnote ³³ is fairly straightforward: the entity in question is most certainly directly and individually concerned and will have no difficulty in triggering judicial review against such decisions of the ECB before the EU courts.Footnote ³⁴

The situation of less significant institutions is somewhat more complicated: while supervised by the national competent authority, as we have seen in the preceding section, some supervisory powers remain with the ECB. Either of these institutions, in addition, may be deciding on the basis of EU or national law (depending on the specific situation under the SSM Regulation). It is also often possible that such decisions are based on instructions or preparatory acts of the institution not making the final decision. A final twist comes also from the possibility that the decision of either of the institutions involves different degrees of discretion in enacting preparatory acts or instructions for the other institution. Depending on the combination of each of these factors, less significant institutions may find themselves before the national or EU courts.

Access to EU courts becomes progressively more difficult the more the powers of the ECB and national competent authorities intertwine.Footnote ³⁵ Such are, for example, situations in which Member States implement directives or use the options offered by regulations.Footnote ³⁶ Using options may involve supervisory or instruction powers for the ECB, which may issue such instructions to competent national authorities. It is also possible that under national law the national competent authorities retain some discretion in making decisions that influence rights or obligations of credit institutions.Footnote ³⁷ In this scenario, the threshold of Article 263(4) TFEU would not be met: the entity in question would need to turn to the national court instead. Whether the Court of Justice would assume jurisdiction to decide on the preliminary reference to review an ECB instruction or preparatory act has not yet been explicitly addressed.Footnote ³⁸ However, it is possible to assume the answer would be yes. Let us then have a look at Berlusconi and Balgarska Narodna Banka.Footnote ³⁹

In Berlusconi, the central issue was the status of national preparatory acts that served as the basis for the ECB to block the acquisition of a qualifying holding under Article 15 of the SSM Regulation. The power of the ECB under this provision is exclusive regardless of the significance of a credit institution. Yet, the decision to oppose or not an acquisition of a qualifying holding is not possible without the use of national law following Article 4(3) of the SSM Regulation. More specifically, the requirements attached to such acquisitions are set out in national law and any such acquisition should be notified to the national competent authority.Footnote ⁴⁰ The national competent authority then forwards the notification to the ECB and prepares a proposal for a decision to oppose the acquisition or not. It also assists the ECB in this process in any other way necessary.

Based on the proposal of the Italian competent authority (the Bank of Italy), the ECB decided to oppose the acquisition of a qualifying holding in a credit institution by Silvio Berlusconi. He was, prior to this acquisition attempt, found guilty of tax fraud and thus did not meet the reputation requirement required under the Italian law for acquiring qualifying holdings. In turn, this cast serious doubts with regard to the sound and prudential management of the credit institution in the future and formed the basis for the proposal of the Bank of Italy and the resulting decision of the ECB. Berlusconi challenged the national and ECB’s decisions before all conceivable avenues. First, the decision of the Bank of Italy was challenged for breach of non-retroactivity, given that the requirement of good reputation entered into force after the criminal conviction and, according to Berlusconi, it should not have been taken into account. This action was successful in the second instance before the Italian Council of State.Footnote ⁴¹ Second, Berlusconi also challenged the ECB’s decision before the General Court.Footnote ⁴² Third, Berlusconi initiated an action for annulment of the Bank of Italy’s decision before a regional administrative court. Finally, again before the Council of State, Berlusconi initiated an azione di ottemperanza,Footnote ⁴³ demanding the Bank of Italy to comply with the abovementioned judgment concerning the breach of non-retroactivity.

Complexity reached its peak in this fourth procedure. At its centre were two issues: first, the relationship between decisions and procedures before the Bank of Italy and the ECB, and second, the role the Council of State’s earlier judgment concerning the breach of non-retroactivity by the Bank of Italy. The matter reached the Court of Justice by way of a preliminary reference. First, the Council of State asked whether Article 263 TFEU may be used to challenge procedures, preparatory acts, and non-binding proposals of the national competent authorities in the area of prudential supervision. Next, if such jurisdiction is established, what role, if any, does the previous final judgment of a national court play?

The Advocate General, relying on the Court’s previous decisions in BorelliFootnote ⁴⁴ and Sweden v Commission,Footnote ⁴⁵ found that the relevant criterion for determining jurisdiction to review national preparatory acts corresponds to the location of the final decision-making power. In other words, what is relevant is whether the national preparatory act is binding on the EU authority making the final decision. Given that the approval of acquisition of qualifying holdings belongs finally and exclusively to the ECB, the Advocate General concluded that the jurisdiction for review of such decisions accordingly ‘must lie with the General Court and the Court of Justice’.Footnote ⁴⁶ This, according to the Advocate General, includes the power to review both the decision of the ECB and the national preparatory act.Footnote ⁴⁷ The proper place for this review is thus the annulment action against the ECB’s decision (pending on appeal before the Court of Justice).Footnote ⁴⁸ This finding then directly answers the second question of the Council of State: a national remedy cannot have any bearing on the exclusive jurisdiction of EU courts to review national preparatory acts and the ECB decision concerning the acquisition of qualifying holdings in credit institutions.Footnote ⁴⁹

The Court followed the Advocate General en grandes lignes when it comes to the Borelli/Sweden v Commission division of jurisdiction in composite procedures. Yet, establishing exclusive jurisdiction of EU courts was grounded in the exclusive power of the ECB to make a decision on the acquisition of qualifying holdings, thereby ensuring effective judicial protection of the persons concerned.Footnote ⁵⁰ As a consequence, Article 263 TFEU, read in light of the principle of sincere cooperation in Article 4(3) TEU, prevents the national courts from conducting judicial review of the final decision of the ECB, but also of national preparatory acts.Footnote ⁵¹ This renders the cooperation mechanism between the EU and national authorities effective, preventing the risk of divergent assessments by the EU and national courts.Footnote ⁵² The necessary consequence of this finding is then also the inability of the national court to entertain the azione di ottemporanza.Footnote ⁵³

The clear division of jurisdiction between EU and national courts in this area and the explicit prohibition for the national courts to review national preparatory acts where the final word pertains to an EU institution is a major novelty in the case law of the Court.Footnote ⁵⁴ The Court placed great emphasis on the specific cooperation mechanism that underlies the SSM as a manifestation of sincere cooperation from Article 4(3) TEU. From the perspective of evaluating access to legal accountability in the SSM, clarifying the division of jurisdiction (or to be precise, expanding it)Footnote ⁵⁵ in complex institutional and legal situations contributes to legal certainty and legitimate expectations of individuals. Certainly, that comes at the expense of the jurisdiction of the national courts reviewing the acts of national institutions applying national law.Footnote ⁵⁶ However, following up on the finding in Landeskreditbank that the power of the ECB in prudential supervision is exclusive in nature,Footnote ⁵⁷ the decision of the Court is in no way surprising. A more sober reading of this decision would be to confine its effects only to those situations under the SSM where the ECB has full discretion to make the final decision (such as was the one in Berlusconi, and when it comes to the authorisation of credit institutions).

One question concerning the legal accountability of the ECB in a Berlusconi situation remains unanswered: what happens if the national preparatory act under review by EU courts is illegal as a matter of national law? This problem has, after the Borelli judgment, been termed as ‘derivative illegality’ in the literature: can the illegal national preparatory act contaminate the legality of an EU act? In a Borelli situation, where the EU decision-maker does not have discretion and is bound by the national preparatory act, the persons concerned are to seek redress before national courts.Footnote ⁵⁸ This is so because first, EU courts do not have the competence to review national law, and second, because national acts cannot influence the legality of EU acts, as this would infringe the autonomy of EU law.Footnote ⁵⁹

However, if the ECB based its final decision on such an act, while having discretion, the EU courts would be able to review the exercise of this discretion as a matter of EU law. But of what use then is the power of EU courts to review the preparatory acts themselves? And against what standards would they be reviewed? It would appear that effective judicial protection (to have the national preparatory act reviewed against the standards of national law) is here sacrificed for the benefit of sincere cooperation in the ‘specific cooperation mechanism’ in prudential supervision. Still, the obligation of the ECB to apply national law under the SSM Regulation, coupled with the general obligation of cooperation and assistance with the national competent authorities, allows the EU courts to review the duty of care applied by the ECB in exercising its discretion. So ultimately, it may be said that the ECB’s decision would be controlled for mistakes in the national preparatory acts.Footnote ⁶⁰ Accountability of national authorities in that process, however, seems to remain without redress. We have seen in Chapter 2 that preparatory acts are in principle not subject to a direct action before the EU courts (unlike in a preliminary reference procedure).Footnote ⁶¹ In theory, however, it is possible to imagine that national courts may subsequently entertain actions seeking responsibility of the national authority under national law, and it is by extension also possible to expect preliminary references in this area.

Thus we have learned about the organisation of judicial review for situations when the ECB makes a final decision based on a non-binding national preparatory act in accordance with national law. What about the reverse situation: a national competent authority makes a final decision based on non-binding guidance or instruction of the ECB? The Court has not, to my knowledge, addressed this point specifically in respect of the ECB. However, it has done so in the broader context of prudential supervision, concerning the guidelines issued by the European Banking Authority (EBA), which were then taken up by the competent national authority and influenced the rights and obligations of credit institutions. In Balgarska Narodna Banka, the Court took an approach that at first glance comes across as counter-intuitive:Footnote ⁶² non-binding acts of EU institutions cannot be subject to direct action under Article 263 TFEU, but the question of their validity may be submitted to the Court by way of a preliminary reference from a national court.Footnote ⁶³ What is more, standing in such situations is covered by national procedural autonomy and does not depend on the standing threshold from Article 263 TFEU.Footnote ⁶⁴

This outcome makes perfect sense, specifically considering the challenges left from Berlusconi and the exclusive jurisdiction of the EU courts to review the national preparatory acts that were not binding upon the ECB. First, if we take up the traditional division of tasks between EU and national courts complemented by Berlusconi, we may conclude that the final decision based on a non-binding act of another institution should be reviewed by the court of the institution making the final decision. Simply put, EU courts will review the final decisions of the ECB; national courts will review the final decisions of national competent authorities.

This division of tasks then translates into the relationship between Article 263 TFEU and Article 267 TFEU. As regards the former, the Court of Justice explained in Fédération bancaire française that non-binding acts cannot be subject to direct actions under Article 263 TFEU as they do not produce binding legal effects.Footnote ⁶⁵ Indeed, in the language of Berlusconi, there is no decision of an EU institution that is binding as a matter of EU law. Subsequently, then, if a national competent authority follows the non-binding act, the content of such an act produces effects between private parties not merely by the authority of national law, but also as a matter of EU law. Hence, a preliminary reference on the interpretation or validity of such a non-binding act should be allowed to help the national court resolve the dispute before it. If we compare this situation to a Member State taking up an option provided by a directive, once it uses such an option, it will operate in the national legal system also as a matter of EU law.

Effective judicial protection here demands that a change in the legal position of an individual, which finds its source in EU law, be reviewed by a court.Footnote ⁶⁶ This could not be the national court, as it would go against the Foto-Frost doctrine, which prohibits national courts to review the validity of EU law, as well as against Article 19(1) TEU, according to which it is the exclusive jurisdiction of the Court of Justice to interpret EU law. Still, the national court, to review comprehensively the national act based on the non-binding EU act, must know whether the latter is valid as a matter of EU law. In respecting the autonomy of EU law, then, it can achieve this result only through the preliminary reference procedure.

A final note concerning non-binding acts by EU institutions is due. Such acts are, as a general rule (repeated in Balgarska Narodna Banka and Fédération bancaire française), not subject to direct actions under Article 263 TFEU.Footnote ⁶⁷ However, we now know from Poggiolini that preparatory acts of EU institutions are not entirely outside the scope of the Court’s jurisdiction in direct actions. When preparatory acts do create an immediate change in the legal position of the person concerned (what the Court termed ‘independent legal effects’), those acts are susceptible to judicial review under Article 263 TFEU.Footnote ⁶⁸ The Court’s justification lies in effective judicial protection, which would be jeopardised if a direct action against a final decision would not be able to remedy the immediate (independent legal) effects of a preparatory act. For the purposes of prudential supervision, this means that we can expect the Court to entertain an assessment of independent legal effects of a preparatory act.

We have up to now dealt with situations in which the parties to the case did not struggle with meeting the standing threshold, either at the national level that triggered the preliminary reference procedure, or by way of a direct action. Yet, the threshold for direct and individual concern has been a hurdle for applicants beyond those individually named by the decision in question. Are shareholders also subjects that can meet the threshold of direct and individual concern when national law makes them the only actors effectively able to initiate judicial review? This question was raised before the Court of Justice in respect of an ECB decision withdrawing the authorisation to Trasta Komercbanka under Article 4(1)(a) and Article 14(5) of the SSM Regulation.Footnote ⁶⁹ The context behind this action can also be neatly connected to the above discussion on the division of tasks between national and EU courts and in particular whether access to judicial review in prudential supervision is a matter of EU or national law. As we will see, Trasta Komercbanka depicts very well the clashes that can occur when national law is applied to the consequences of a final ECB decision in prudential supervision. Here, national law created a de facto limit to the legal accountability of the ECB in respect of its authorisation withdrawal.

Specifically, Latvian law determined that upon the withdrawal of an authorisation, the bank in question goes into automatic liquidation. For this purpose, a liquidator is appointed by the competent national authority that recommended the withdrawal to the ECB. In that case, the legal representative of the bank submitted an action before the General Court to challenge the ECB’s decision concerning the withdrawal of the authorisation. However, because the liquidator withdrew the power of attorney to the legal representative, the General Court found this action inadmissible for lack of legal representation.Footnote ⁷⁰ Instead, given that shareholders also challenged the ECB decision, claiming that their economic interests have been significantly affected by the authorisation withdrawal, the General Court found they were directly and individually concerned and allowed their appeal.Footnote ⁷¹

On appeal, both Advocate General Kokott and the Court of Justice endorsed the opposite finding. The Advocate General Opinion is particularly instructive when it comes to the consequences that national law may have on the right to an effective judicial remedy against EU acts. Specifically, the Opinion analyses the effect that the appointment of the liquidator under Latvian law had on the ability of Trasta Komercbanka to challenge the withdrawal decision of the ECB before the EU courts. The withdrawal decision was based on the recommendation of the Latvian competent authority, as was the appointment of the liquidator. The Latvian authority also had the power to discharge the liquidator of his or her function in case of loss of confidence. While formally it was at the disposal of the liquidator to initiate legal proceedings before the General Court, in fact, the liquidator would be in a conflict of interest and judicial protection would as a consequence not be effective.Footnote ⁷² This would mean, according to the Advocate General, that effective legal protection against an EU act would depend on national law, which cannot be upheld.Footnote ⁷³

The Court of Justice took up this point further: the withdrawal decision of the ECB resulted, under Latvian law, in mandatory liquidation. The Court considered it clear that the interests of the competent authority and the liquidator coincide,Footnote ⁷⁴ making the conflict of interest, as the Advocate General put it, ‘obvious’.Footnote ⁷⁵ Both the Advocate General and the Court therefore agreed that the General Court should have disregarded the liquidator’s decision to withdraw the power of attorney to the legal representative of the bank. Instead, for the purposes of effective legal protection, continuity of the previous legal representation should have been recognised by the General Court.Footnote ⁷⁶ The mistake of the General Court was then to accept the rules of national law on representation to the detriment of effective judicial protection. This approach of the Court of Justice is both novel and extremely traditional. It is novel because it asks of EU courts to disapply rules of representation in national law and depart from the general approach according to which the concept of a ‘lawyer’ for the purposes of representation is a matter of national law.Footnote ⁷⁷ It is extremely traditional because the Court of Justice uses the route of effective judicial protection as a wild card whenever no other option seems available. In other words, without exploring further the specific enmeshment of EU and national law under the SSM and its obviously new consequences, the Court of Justice chose the well-travelled road of effective judicial protection.

Against this background, the Advocate General and the Court also agreed that the General Court erred in establishing direct and individual concern of the shareholders who challenged the decision of the ECB.Footnote ⁷⁸ Both agreed that while there certainly exists an effect on the economic position of shareholders as a consequence of the withdrawal of the authorisation and the mandatory liquidation,Footnote ⁷⁹ neither of these meet the standard of direct concern under EU law. In essence, then, had the General Court correctly treated the question of legal representation and disregarded the dismissal by the liquidator, effective judicial protection would have been safeguarded without distorting the concepts of direct and individual concern under Article 263(4) TFEU.

Is this a satisfactory solution? Discerning the actual representation and legal continuity in a case such as Trasta Komercbanka involves a certain degree of flexibility by the EU courts, including looking further into national law and its consequences for the purposes of effective judicial protection.Footnote ⁸⁰ EU courts should in my view be able to surpass the rigidity of formal legal representation, which is ultimately a matter of national law.Footnote ⁸¹ This is so because national procedural autonomy yields before the right to an effective remedyFootnote ⁸² and it is for EU courts to move beyond a formal reading of national rules and ensure that this right is effectively safeguarded. This is particularly pressing in the context of Berlusconi: national courts are prevented from any judicial review in areas where the ECB has exclusive powers under the SSM Regulation, such as the authorisation withdrawal, as was the case in Trasta Komercbanka. We know that this also includes national preparatory acts. National acts dealing with the aftermath of such decisions should accordingly also not stand in the way of legal accountability of the ECB. It is certainly possible that the finding of EU courts concerning the legality of the ECB decision has an influence on subsequent legal developments at the national level.

The area of prudential supervision is, ultimately, not one where we were able to witness any creativity on behalf of EU courts when it comes to remedies themselves.Footnote ⁸³ However, given the extensive changes that took place in terms of the division of jurisdiction between EU and national courts as well as the interpretation of access to judicial review, EU courts have indeed shown a degree of flexibilityFootnote ⁸⁴ to ensure legal accountability of decisions in prudential supervision. Procedurally, thus, a wide enough understanding of access can ensure that remedies are used to enforce legal accountability in prudential supervision. Next, I will turn to the substantive side of ensuring legal accountability.

5.3.2 Solidarity and Equality

The principal aim of the SSM more generally is to ensure the safety and soundness of credit institutions and the stability of the financial system of the Union and individual Member States. The system as a whole, and also its component parts, therefore, tell us something about the common interest as the guiding principle in the SSM. The criterion of significance of an entity is, as we have seen, at the centre of division of supervisory tasks between the ECB and national competent authorities. Article 6(4) of the SSM Regulation lays down what significance means more specifically. Without getting into listing the individual criteria, what brings them together is the possibility that should such entities not be run in a prudential manner, consequences would be felt on a systemic level, or at least beyond a single Member State. In addition, the ECB supervises, for example, the three largest entities in each Member State, as well as those for which ESM or EFSF funding has been granted or requested. Ultimately, the ECB also has discretion in defining any entity as significant, should it consider that its cross-border assets and activities so warrant.

The nature of ECB’s powers was clarified by the Court of Justice when Landeskreditbank disputed the decision of the ECB by which it refused to classify it as less significant (and by consequence place it under the supervision of the German competent authority). The General Court dismissed the action, and the Court of Justice dismissed the appeal against that judgment. Both courts found that the ECB gained by the SSM Regulation the exclusive competence to determine what are ‘particular circumstances’Footnote ⁸⁵ for characterising an entity as (less) significant. Are there any limits to ECB action here, such as the principle of proportionality? The Court found that the principle is embedded in the legislative framework and the ECB is not required to demonstrate how it is being met on a case-by-case basis.Footnote ⁸⁶ In addition, the Court established that the SSM Regulation conferred an exclusive competence to the ECB to supervise all credit institutions, whereas given its decentralised implementation, the national authorities carry out and are responsible for less significant institutions.Footnote ⁸⁷

Landeskreditbank also argued that the General Court distorted the decision of the ECB, as it incorrectly represented it and added its own reasoning. This is of relevance for the type of judicial review that courts should perform in the EMU as proposed in Chapter 2: the duty to state reasons should be extensive and sufficient to allow for a meaningful review. Yet, the Court of Justice referred to its well-known discretion case law: the ECB has broad discretion in matters of supervision.Footnote ⁸⁸ In addition, the Administrative Board of Review (ABoR) also carried out an internal administrative review of the ECB’s decision, and the reasoning in that decision, according to the Court, also forms part of the statement of reasons.Footnote ⁸⁹ This could, in principle, be justified by the fact that credit institutions have the option to seek an internal review of ECB decisions by ABoR,Footnote ⁹⁰ and once they have done so, cannot be unaware of the reasoning provided in that procedure. It should not go unmentioned, however, that the decision of ABoR is not subject to judicial review, but only the decision of the ECB.Footnote ⁹¹ It is thus not only desirable, but necessary, for full judicial protection, that the reasoning of ABoR also be subject to judicial review indirectly: when the original ECB decision is under review.

The division of tasks endorsed by the Court of Justice in Landeskreditbank opened a number of new questions. What is the role of systemic risk in terms of safeguarding the common interest? What interests are represented and considered by the ECB in making the decision concerning the significance of an entity? In controlling the ECB in its activities, how do EU courts interpret the ECB’s assessment of significance in relation to the principles of equality and/or solidarity? Finally, does the SSM Regulation impose any conditions on the national law regulating the functioning of credit institutions? In other words, the ECB is to grant or withdraw an authorisation based on the entity meeting or failing to meet the requirements set out in national law – but is that very national law in some way restrained by the SSM Regulation in turn?

Supervisory powers of the ECB and national competent authorities are designed to overcome individual interests of Member States, for the greater good of safeguarding the stability of the system as a whole. The decision in Landeskreditbank illustrates this vividly: regardless of the historical or financial relevance of individual large credit institutions for the Member State concerned, their supervision is transferred exclusively to the ECB. This then tells us something about safeguarding the common interest: controlling the systemic risk that significant credit institutions may bring about is prioritised over a formal demand for equality of Member States in safeguarding their financial interests.

Member States and the EU have, for better or worse, been put in a position to bail-in a number of large credit institutions to assuage the consequences of the crisis.Footnote ⁹² While the events in Kotnik took place just as the SSM was entering into force, the findings of the Court in the area of state aid and bail-ins are helpful in understanding the approach to the common interest in respect of bearing the burdens of the financial crisis. Specifically, bailing-in banks to preserve the stability of the system as a whole is a perfect example of increased solidarity demands. The Court in Kotnik addressed the issue of whether additional conditions of burden-sharing by shareholders and subordinated creditors may be attached to a bail-in measure intended to maintain the viability of banks.Footnote ⁹³ Bail-ins of banks were in that case state aid that was notified to and approved by the Commission. In its Banking Communication,Footnote ⁹⁴ that guided the design of national bail-in measures,Footnote ⁹⁵ the Commission stated: ‘State support can create moral hazard and undermine market discipline. To reduce moral hazard, aid should only be granted on terms which involve adequate burden-sharing by existing investors.’Footnote ⁹⁶ Advocate General Wahl explained the tensions that brought about the need for burden-sharing:

Bailing-in banks thus carries significant benefits and risks. To balance these out, the Advocate General found nothing problematic in attaching the demands of burden-sharing to state support.Footnote ⁹⁸ The Court agreed:

The stability of the entire financial system of the Union may easily be translated to the common interest: banks that are too big to fail risk, causing further disturbances to the entire system and thus may be subject to exceptional selective measures. The Court confirmed, agreeing with the Advocate General, that burden-sharing in this scenario represents an overriding public interest.Footnote ¹⁰⁰ Property rights of the shareholders and subordinate creditors can on this basis be restricted by the requirement of burden-sharing.Footnote ¹⁰¹ We therefore move to the area of prudential supervision already knowing that the stability of the system as a whole may involve exceptional and asymmetrical measures.

Although neither the Advocate General nor the Court mentioned the principle of solidarity specifically, the findings in Kotnik align with the theoretical understanding of solidarity presented in Chapter 1. Preventing systemic risk from materialising, or turned around, the preservation of the financial stability of the entire system, is the guiding justification of differentiated measures. In addition, it also guides the division of tasks between the ECB and the national competent authorities: Member States have, for this common interest, given up their own supervisory powers of significant credit institutions.

5.4.1 Access and Remedies

The regulatory choice of mixing national and EU law obligations in prudential management complicated the respective tasks of national and EU courts, as did the separation of different preparatory and final decision-making powers between the ECB and national supervisory authorities. The ‘usual’ division of tasks according to which each court applies its own law is becoming increasingly difficult to sustain. In addition to this, the nature of supervisory powers granted to the ECB and national authorities remains contested, or at the very least, disagreements about it persist between national and EU courts. Before delving into more detail on access and remedies under the SSM Regulation, I will first turn to the judicial review of its implementation at the national level, challenged in Germany before the Bundesverfassungsgericht.

Mirroring the subject matter of the Landeskreditbank decision of the Court of Justice, the Bundesverfassungsgericht decided in 2019 that the SSM Regulation is compliant with the German Basic Law. Unlike the Court of Justice, the German court did not wholeheartedly subscribe to the idea that the ECB gained exclusive competence in banking supervision. The judgment is interesting in two ways: the first relates to access; the second to submitting a preliminary reference to the Court of Justice. In terms of access, the threshold for initiating a constitutional complaint in Germany against an act implementing EU legislation is wide. Individuals have the right to challenge such acts if they have sufficiently asserted and substantiated a possible violation of their right to democratic self-determination and demonstrated that they are individually, presently, and directly affected.Footnote ¹⁰² Forming part of the national procedural autonomy, wide standing rules are always welcome to counterbalance the narrow rules on access before the Court of Justice.

The second aspect relates to the Bundesverfassungsgericht deciding not to submit a preliminary reference to the Court of Justice on the interpretation of Article 127(6) TFEU. According to the Bundesverfassungsgericht, the interpretation of Article 127(6) TFEU is not necessary because ‘it cannot be assumed that the CJEU might interpret Art. 127(6) TFEU, which governs the allocation of competences in this case, more narrowly than the Federal Constitutional Court’.Footnote ¹⁰³ The German court appears to misunderstand entirely the purpose of the preliminary reference procedure: it treats it as a procedural device of use only to justify a possible ultra vires finding. In the eyes of the Bundesverfassungsgericht, it seems irrelevant that its own interpretation, albeit permissive, might not be the same as that of the Court of Justice.Footnote ¹⁰⁴ In fact, we will see in the next section that this is exactly what happened: the nature of ECB’s competence in banking supervision was interpreted differently by the two courts. A sincere use of the preliminary reference procedure would mean genuinely seeking the interpretation of an EU norm, instead of instrumentalising the procedure for the narrow purpose of a possible ultra vires finding.

This development also goes against the approach taken in respect of other courts in Germany: under the case law of the Bundesverfassungsgericht, the submission of a preliminary reference to the Court of Justice forms part of the right to a lawful judge under Article 101(1) of the Basic Law.Footnote ¹⁰⁵ It does so when the national court commits a fundamental disregard of the obligation to make a reference; when there is a deliberate deviation without a willingness to make a submission; and if there are other possibilities of interpretation of a certain provision without it being acte eclairé under the case law of the Court of Justice.Footnote ¹⁰⁶ The German court was open about the fact that it was its own interpretation that sufficed for the purposes of the constitutional complaint, regardless of possible differences that might have arisen had the reference been submitted. Such a reasoning makes it possible that at least some of the situations entailing a breach of the right to a lawful judge is engaged. Broad access to a national court should include all the benefits that entails, the preliminary reference procedure being one of them. Maintaining this review process in-house deprives not only the Court of Justice of providing an interpretation with Union-wide relevance, but also preventively shields the Bundesverfassungsgericht from any possible external input that might interfere with a purely national interpretation of the norm in question. As we will see in the next section, a Germany-oriented approach is widely present also when it comes to the substantive interpretation of Article 127(6) TFEU and the SSM Regulation.

Apart from this ex ante review, judicial review at the national level will more prominently develop in the actual application of supervisory functions by the national authorities and the ECB. National law should provide access to judicial review and appropriate remedies when the national supervisory authority makes a final decision in which the ECB is not subsequently involved. This is, for example, the first stage of the process of granting an authorisation to a credit institution.Footnote ¹⁰⁷ National supervisory authorities are included in the process at different stages: at the outset they have the power to reject the application for an authorisation if it does not meet the substantive requirements in national law.Footnote ¹⁰⁸ Here, the rejection is only forwarded to the ECB, who has no power to act further. Under the second sentence of Article 19(1) TEU, sufficient remedies should be provided to ensure effective legal protection, as this is a field regulated by EU law.Footnote ¹⁰⁹ The concrete modalities of access and remedies in this context are of course subject to choices that remain within national procedural autonomy.Footnote ¹¹⁰

Another role for national courts is the authorisation of on-site inspections, when such authorisation is required by national law.Footnote ¹¹¹ In such cases national courts control the authenticity of the ECB’s decision, the arbitrariness or excessiveness of coercive measures, and may demand from the ECB detailed explanations relating to the on-site inspection. National courts are prevented, however, from reviewing the necessity for the inspection and from demanding to see the ECB’s case file. Finally, the lawfulness of the ECB’s decision may only be reviewed by the Court of Justice. This provision causes some confusion as to who does what: if national courts are prevented from examining the necessity of the inspection, it is unclear what exactly they would examine when it comes to the excessiveness of that same measure. This becomes clear when it comes to remedies, because if a national court can block a measure due to its excessiveness, the ECB’s defence of the measure will intuitively be focused on the necessity of the measure.

Arguably, national courts would be able to submit a preliminary reference to the Court of Justice to interpret this provision of the SSM Regulation,Footnote ¹¹² but it seems to me that the Court would not be able to provide all the answers. The SSM Regulation refers specifically to the national law requiring a judicial authorisation, and it would be logical to assume that if a national law requires it, it also regulates what is to be assessed in this process. A legal accountability perspective of this matter would require a solution where national courts broadly use their power to demand of the ECB extensive explanations to ensure that on-site inspections respect fundamental rights of all those subject to or affected by such a measure.

5.4.2 Solidarity and Equality

As in the previous section, here I will also first focus on the decision of the Bundesverfassungsgericht reviewing the SSM Regulation, after which I will turn to how judicial review at the national level can contribute to legal accountability in respect of achieving the common interest. In the ESM, we have seen that achieving the common interest, and by extension the political equality of all EU citizens, faced the tension between the interest of different socioeconomic groups across the EU and nationally oriented aims that creditors and debtor states, respectively, were trying to protect. In monetary policy, the focus was on how the ECB balances different interests that hinge upon the common interest when making decisions with high redistributive effects. In the SSM, the emphasis is on how national courts balance national interests behind banking supervision with what the EU-wide common interest demands.

First, then, to the review of the SSM Regulation against the German Basic Law. There are two takeaways relevant for our thinking about legal accountability and achieving the common interest. First, the Bundesverfassungsgericht repeatedly emphasised that the ECB must be subject to different mechanisms of accountability, which is the only way to ensure it complies with its mandate in supervision. Second, as a consequence of that nature of the ECB’s mandate in supervision, the German court provided an interpretation of the SSM Regulation at odds with that of the Court of Justice in Landeskreditbank, by taking a highly Germany-oriented approach. From the common interest perspective, the first point can be read as positive, and the second negative.

A holistic approach to accountability was at the centre of finding that the supervisory mandate given to the ECB does not exceed the transfer of competences to the EU level under Article 127(6) TFEU. The ECB holds considerable discretion and independence in its supervisory activities,Footnote ¹¹³ and the analysis of the Bundesverfassungsgericht focused on the multitude of legal and political accountability mechanisms designed to keep the ECB in check.Footnote ¹¹⁴ This included references to both EU and national judicial review, as well as parliamentary oversight. A similar holistic analysis of accountability in the SSM has shown that numerous accountability mechanisms in store are individually superficial, thus resulting in an overall weak accountability of the ECB.Footnote ¹¹⁵ This is not to suggest that the Bundesverfassungsgericht should have annulled the German implementation of the SSM Regulation but rather that a genuine analysis of accountability needs to go further than a formal box-ticking exercise. The positive impression nevertheless remains in terms of promoting a message that the ECB should be held under strict scrutiny in conducting its supervisory activities.

The problematic part of the decision, in my view, is the Bundesverfassungsgericht’s purely national interpretation of the SSM. It insisted on a reading according to which the ECB’s powers are strictly limited to ‘specific tasks’, while all other tasks remain for national supervisors.Footnote ¹¹⁶ Although the finding of significance of a credit institution is for the ECB to decide, the German court made it seem as if this is an objectively discernible fact.Footnote ¹¹⁷ Yet, Article 6(4), third sentence, gives the ECB considerable discretion in determining the concept of significance.Footnote ¹¹⁸ The same was confirmed by the Court of Justice in Landeskreditbank.Footnote ¹¹⁹ The Bundesverfassungsgericht also underlined that the activities of the Federal Financial Supervisory Authority and the Bundesbank are subject to judicial review at the national level, stating that such review is ‘generally comprehensive and addresses factual and legal aspects’.Footnote ¹²⁰ This approach, however, disregards the diminished role for national courts under the SSM Regulation, in particular when the final decision lies with the ECB. By focusing only on what the German Basic Law would allow,Footnote ¹²¹ and ignoring the interpretation of the Court of Justice,Footnote ¹²² it made it more difficult for national courts to focus on the common interest.

Options for judicial review in the actual operation of the SSM also display a tendency for a more pronounced safeguarding of national over the common interest.Footnote ¹²³ This, however, is the result of banking regulation, which remains outside the SSM. The basics are contained in the Basel III Framework, a set of internationally agreed rules developed by the Basel Committee on Banking Supervision in response to the financial crisis.Footnote ¹²⁴ To harmonise compliance with these standards in the EU, the European Banking Authority issues standards, guidelines, recommendations, and the like under the Single Rulebook. The Basel III Framework rules are also reflected in the Capital Requirements DirectiveFootnote ¹²⁵ and the Capital Requirements Regulation.Footnote ¹²⁶ As instruments striving for exhaustive regulation, they leave predetermined options and discretions for national legislation. Arguably due to a shift towards maximum harmonisation in these instruments, options and discretions at the national level are increasing fragmentationFootnote ¹²⁷ and are a method for national authorities to protect their policy choices.Footnote ¹²⁸ Banking regulation thus forms an important part of the SSM context, given that prudential management of credit institutions assumes a continuing compliance with capital requirements and its other elements. These are mostly found in national law, and although they are implementing EU law, considerable leeway remains for national supervisors and courts alike.

Within the SSM Regulation, these national particularities may come to the fore, for example, when it comes to granting authorisations to credit institutions. As already mentioned, under Article 4(3) of the SSM Regulation, even when decision-making power lies with the ECB, it may happen that it applies the relevant national law. Still, national courts are not the ones who review those decisions: review of ECB decisions is the task of EU courts. Given that EU jurisprudence tackling this conundrum is barely nascent, one can only speculate about the methods of interpretation and sources that will be considered when deciding how the ECB interpreted and applied national law.

It is also important to consider how the ECB will in fact apply this national law. Arguably, when applying national law that implements options and discretions, the ECB is by extension necessarily promoting the national interests behind them, rather than pursuing the common interest of the entire system.Footnote ¹²⁹ This opposes the traditional wisdom according to which the task of EU institutions and legislation is to safeguard the common interest.Footnote ¹³⁰ A mitigating factor comes from research on systemic risk: here it was established that by preserving the diversity of national banking systems, chances of systemic risks are decreased, thereby resulting in benefits for the sustainability of the system as a whole.Footnote ¹³¹ By taking into account national peculiarities in the banking system, the ECB can indeed thus also safeguard the common interest.Footnote ¹³²

In the judicial review at the EU level, to ensure that national banking regulation of highly diverse systemsFootnote ¹³³ is not taken out of context but is properly applied, it would in my view be necessary to include in the procedure at least the national supervisory authority. Of course, the shortcoming is that the national authority would likely share the interest of the ECB and thus merely echo the latter’s position on how to interpret the relevant national law. Still, it seems problematic that EU courts should be left to their own devices when interpreting national law,Footnote ¹³⁴ for which they do not have jurisdiction (under Article 19 TEU), nor the requisite knowledge. In opposition to this view, Advocate General Mengozzi was more optimistic and argued, in the context of public contracts where national law may also be of relevance, that it sometimes cannot be avoided that national law forms part of the relevant legal framework before the EU courts, which should be approached ‘with all due caution’.Footnote ¹³⁵

This problem arose in Corneli v ECB,Footnote ¹³⁶ decided by the General Court and currently under appeal before the Court of Justice.Footnote ¹³⁷ Here, Ms Corneli, a minority shareholder of Banca Carige, challenged the decision of the ECB to put the bank under temporary administration.Footnote ¹³⁸ Banca Carige is considered a significant institution and is thus subject to direct supervision by the ECB. The ECB here had to apply the national law that implemented the Resolution Directive,Footnote ¹³⁹ which provides that before putting a bank under temporary administration, the competent authority can remove senior management or the management body of the bank. The Italian law, however, only provided for the temporary administration decision. In a situation of a bank deteriorating at great speed, the ECB conducted what might be termed a conform interpretation of the national law and opted for the temporary administration measure. The General Court disagreed that the conform interpretation of national law was possible in that situation because it would amount to a contra legem interpretation.Footnote ¹⁴⁰ It thus annulled the ECB’s decision.Footnote ¹⁴¹ The Court of Justice is thus faced with an appeal on how properly to interpret national law in relation to a directive. In another recent case, the Court of Justice did indeed refer to the national case law when interpreting a provision of national law.Footnote ¹⁴²

Could there be a role in such and similar cases for national courts? Given that actions against the ECB will be direct, there is no possibility for national courts to participate in the procedure (and which national court would this be in the first place?). Yet, it would be incumbent on EU courts to ensure that all relevant case law from the national level is considered when making a decision. In the context of public procurement, the General Court stated that while EU courts have no power to interpret national law, the institutions are, ‘in accordance with the principles of sound administration and solidarity’, to ensure that national law is complied with.Footnote ¹⁴³ Whether the EU courts will take up this duty of care remains to be seen in the litigation to come.