The Role of Competition Policy and Competition Enforcers in the EU Response to the Financial Crisis: Applying the State Aid Rules of the TFEU to Bank Bailouts in Order to Limit Distortions of Competition in the Financial Sector

Governments throughout the world responded to the financial crisis of 2008-2009 by granting massive bailouts to their largest and most interconnected banks. In most jurisdictions, financial stability took precedence over all other policy concerns, which meant that competition policy was relegated to the position of a distant spectator in the proceedings. This was not the case in the EU, however, where competition policy and competition enforcers played a lead role in shaping the European response to the crisis. This paper evaluates the EU’s exercise of its State aid authority to prevent bailouts from distorting competition in the financial sector. In doing so, this paper explores (a) the importance of competition policy during a financial crisis, and (b) the ability of competition enforcers to coordinate with banking authorities in order to form an effective response. As lawmakers assess the outcomes of the crisis, and consider what might be done differently to prevent or respond to a future crisis, they should draw upon the most effective aspects of the EU model, and incorporate competition policy and competition officials in future crisis proceedings.