CELEX: 62016TJ0758
Economic and monetary policy
Prudential supervision of credit institutions
Article 4(1)(d) and (3) of Regulation (EU) No 1024/2013
Calculation of the leverage ratio
ECB’s refusal to authorise the applicant to exclude exposures meeting certain conditions from the calculation of the leverage ratio
Article 429(14) of Regulation (EU) No 575/2013
ECB’s discretion
Errors of law
Manifest errors of assessment

Background to the dispute
The applicant, Crédit agricole SA, is a joint-stock company governed by French law and is approved as a credit institution. As a significant entity within the meaning of Article 6(4) of Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the ECB concerning policies relating to the prudential supervision of credit institutions (
OJ 2013 L 287, p. 63
), it comes under the direct prudential supervision of the European Central Bank (ECB).
On 5 May 2015, the applicant sought authorisation from the ECB, in application of Article 429(14) of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (
OJ 2013 L 176, p. 1
, corrigenda
OJ 2013 L 208, p. 68
, and
OJ 2013 L 321, p. 6
), to exclude from the calculation of the leverage ratio the exposures made up of the sums associated with regulated products taken out with the applicant, but which it was required to transfer to the Caisse des dépôts et consignations (CDC), a French public institution.
The products concerned are Livret A (Savings Passbook A), governed by Articles L.221‑1 to L.221‑9 of the French code monétaire et financier (Monetary and Financial Code; ‘the CMF’), the Livret d’épargne populaire (Popular Savings Passbook; ‘the LEP’), governed by Articles L.221‑13 to L.221‑17-2 of the CMF, and the Livret de développement durable et solidaire (Sustainable and Socially Responsible Passbook) (‘the LDD’), governed by Article L.221‑27 of the CMF. Pursuant to Article L.221‑5 of the CMF, a share of the total deposits collected on the basis of Livret A and the LDD is to be centralised in a savings fund managed by the CDC. The same applies to the LEP, pursuant to Article R.221‑58 of the CMF.
On 8 June 2016, the ECB communicated to the applicant a draft decision refusing to grant the requested derogation.
On 8 July 2016, at the applicant’s request, a teleconference was held with representatives of the ECB.
On 24 August 2016, the ECB adopted Decision ECB/SSM/2016-969500TJ5KRTCJQWXH05/165, adopted in application of Article 4(1)(d) and Article 10 of Regulation No 1024/2013 and Article 429(14) of Regulation No 575/2013 (‘the contested decision’).
The ECB refused in the contested decision to exclude from the calculation of the applicant’s leverage ratio the exposures to the CDC made up of the proportion of the sums deposited on the basis of Livret A, the LDD and the LEP which the applicant was required to transfer to it.
The ECB, in the first place, recognised that the conditions set out in Article 429(14)(a) to (c) of Regulation No 575/2013 were satisfied, on the grounds, first of all, that the CDC must be regarded as a public-sector entity; next, that the exposures to the CDC were treated for prudential purposes in accordance with Article 116(4) of that regulation; and, last, that the applicant was required to transfer a share of the savings deposited on the basis of Livret A, the LDD and the LEP to the CDC in order to finance investments of general interest. The ECB, in essence, also emphasised that those conditions were not satisfied as regards the proportion of the regulated savings for which there is no obligation to transfer to the CDC, irrespective of the purposes for which it is used.
The ECB, in the second place, considered that it followed from the wording of Article 429(14) of Regulation No 575/2013 that it had a discretion that allowed it to exclude or not to exclude from the calculation of the leverage ratio exposures that met the conditions specified in that provision. In essence, it considered that, even where those conditions are satisfied, there may be prudential reasons that justify rejecting a request for a derogation under that provision. In that regard, it referred to the purpose of the introduction of the leverage ratio, which is to provide a simple, transparent vision of the level of exposure of a credit institution which is not weighted according to the risk presented by the various components of its exposures, in order to avoid an excessive increase in those exposures by comparison with its own funds.
The ECB, in the third place, considered that the sums transferred by the applicant to the CDC continued to be relevant exposures for the calculation of its leverage ratio. It relied on three grounds. The first ground, which it described as a ‘first indication’, is based on the accounting treatment of the savings collected. The ECB inferred from the fact that the regulated savings appeared on the liabilities side of the applicant’s balance sheet and the sums transferred to the CDC appear on the assets side of its balance sheet that the applicant remained liable for the exposure consisting in the savings collected, including the sums transferred to the CDC. The ECB added that the applicant was required to manage the operational risks associated with the regulated savings. The second ground consists in the applicant’s contractual obligation to reimburse customers’ deposits, irrespective of whether the funds transferred to the CDC are returned to the applicant. The third ground is based on the existence of a period between the adjustments of the applicant’s positions and the CDC’s positions for rebalancing purposes. The ECB considered that during that period the applicant might find it necessary to have recourse to a fire sale of assets while awaiting transfers of funds from the CDC. In conclusion, the ECB inferred from those grounds that the mechanism for the transfer of funds from the CDC to the applicant was imperfect, giving rise to prudential concerns that justified the rejection of its request.
Procedure and forms of order sought
By application lodged at the Court Registry on 31 October 2016, the applicant brought the present action.
By document lodged at the Court Registry on 1 March 2017, the Republic of Finland sought leave to intervene in support of the form of order sought by the ECB. By order of 2 May 2017, the President of the Second Chamber of the General Court granted the Republic of Finland leave to intervene in support of the form of order sought by the ECB and granted the applicant’s request for confidential treatment vis-à-vis the intervener.
On 15 June 2017, the Republic of Finland submitted its statement in intervention. The applicant lodged its observations on that statement within the prescribed period. The ECB did not lodge observations.
On a proposal from the Second Chamber, the Court decided, in application of Article 28 of the Rules of Procedure of the General Court, to refer the case to a formation of the Court with an extended composition.
On a proposal from the Judge-Rapporteur, the Court (Second Chamber, Extended Composition) decided to open the oral part of the procedure.
The parties presented oral argument and answered the questions put by the Court at the hearing on 24 April 2018.
The applicant claims that the Court should:
–
annul the contested decision;
–
order the ECB to pay the costs.
The ECB and the Republic of Finland contend that the Court should:
–
dismiss the action;
–
order the applicant to pay the costs.
Law
In the words of Article 4(1)(d), of Regulation No 1024/2013, the ECB was given the task of ‘ensur[ing] compliance with the acts referred to in the first subparagraph of Article 4(3), which impose prudential requirements on credit institutions in the areas of own funds requirements, securitisation, large exposure limits, liquidity, leverage, and reporting and public disclosure of information on those matters’. Furthermore, since the applicant is a significant entity for the purposes of Article 6(4) of Regulation No 1024/2013, that task falls to be implemented directly by the ECB and not by the national authorities in the context of the single supervisory mechanism (SSM) (judgment of 16 May 2017, Landeskreditbank Baden-Württemberg v ECB,
T‑122/15
,
EU:T:2017:337
, paragraph
).
According to Article 4(3) of Regulation No 1024/2013, ‘for the purpose of carrying out the tasks conferred on it by this Regulation, and with the objective of ensuring high standards of supervision, the ECB shall apply all relevant Union law’. Relevant Union law includes Regulation No 575/2013.
According to Article 429(14) of Regulation No 575/2013, ‘competent authorities may permit an institution to exclude from the exposure measure exposures that meet all of the following conditions: (a) they are exposures to a public-sector entity; (b) they are treated in accordance with Article 116(4); (c) they arise from deposits that the institution is legally obliged to transfer to the public-sector entity referred to in point (a) for the purposes of funding general interest investments’.
As stated in paragraphs 8 to 10 above, in the contested decision the ECB refused to grant the applicant’s request that, in application of Article 429(14) of Regulation No 575/2013, the exposures to the CDC consisting in the proportion of the deposits received as regulated savings which it is required to transfer to the CDC should be excluded from the calculation of its leverage ratio. While acknowledging that the conditions laid down in that provision were met, the ECB emphasised that the exposures to the CDC continued to be relevant exposures for the calculation of the applicant’s leverage ratio in that the regulated savings were based on an imperfect transfer mechanism that left the applicant to bear the risk associated with the leverage ratio. In order to arrive at that conclusion, the ECB relied on the three grounds explained in paragraph 10 above.
In support of its action, the applicant puts forward three pleas in law alleging, first, an error of law in the interpretation of Regulation No 575/2013; second, manifest errors in the assessment of the prudential risk linked with the regulated savings and the assessment of the leverage risk attaching thereto; and, third, breach of the principle of proportionality.
The Court considers it appropriate to examine the applicant’s first two pleas together.
By its first plea, the applicant maintains that the interpretation of Regulation No 575/2013 favoured by the ECB is vitiated by errors of law. In that context, it claims, in particular, that that interpretation deprives Article 429(14) of Regulation No 575/2013 of all practical effect.
By its second plea, the applicant takes issue with the ECB for having made manifest errors of assessment when assessing the prudential risk linked with regulated savings and having failed to examine all the relevant circumstances of the case. More specifically, in the context of the second part of its plea, it maintains that the ground of the contested decision based on the existence of a period between the deposits being withdrawn and their being covered by the CDC does not concern the leverage risk but only the liquidity risk. In the applicant’s submission, the only risk to which the credit institution would be exposed would be the risk involved in making liquidity corresponding to the amount of the deposits withdrawn available to its customers during the period of a few days until they are actually covered by the CDC. The applicant adds that taking into account all the exposures to the CDC in the calculation of the leverage ratio, when the period in question relates only to net variations of the regulated savings liability, is manifestly incorrect. The applicant also observes that the European Banking Authority (EBA) concluded, in its report of 15 December 2015, that regulated savings represented a negligible liquidity risk.
The ECB, supported by the Republic of Finland, claims that these two pleas are unfounded. It refers to the limits of the review that the Court may carry out of a discretion and adds that Article 429(14) of Regulation No 575/2013, as an exception, must be given a strict interpretation. It infers, in essence, that it is the general aims of that regulation concerning the leverage ratio and not the objectives specific to Article 429(14) of that regulation that are relevant to the interpretation of that provision. It emphasises, in that regard, that the aim of the leverage ratio is that it should be determined independently of any risk weighting.
In answer to the first plea, the ECB contends, in particular, that in so far as it remained within the bounds of its discretion, it did not deprive Article 429(14) of Regulation No 575/2013 of its practical effect. Furthermore, the ECB observes that Article 429(14) of Regulation No 575/2013 is drafted in an abstract manner and is not intended to apply only to French regulated savings. It adds that, by introducing that provision, the legislature did not seek to achieve a precise result, namely the automatic exclusion of certain exposures from the calculation of the leverage ratio. In addition, recital 95 of Regulation No 575/2013 shows that the legislature intended to pay particular attention to banks with a specific business model and not to exclude certain products.
In answer to the second plea, the ECB contends, in particular, that the period between the withdrawal of deposits from the applicant and their being covered by the CDC gives risk to an additional leverage risk. It emphasises that, being unable to call on the CDC during that period, the applicant, faced with massive withdrawals from the regulated savings, might be led to reduce its leverage by means of forced sales, the sources of significant losses for the applicant, which corresponds to the scenario of an excessive leverage effect, as defined in Article 4(1)(94) of Regulation No 575/2013. In essence, it submits that, although that excessive leverage risk begins with a shortage of liquidity, it is different in that it is based on the relative significance of debt-funded exposures by comparison with a financial institution’s own funds. The contested decision therefore does not confuse liquidity risk and excessive leverage risk. The ECB adds that the leverage ratio is intended to avoid a credit institution’s sources of funding being excessively debt-oriented and constitutes the ‘ultimate prudential safety net’.
In so far as the ECB has a discretion and, consequently, a wide power of assessment in choosing to grant or not to grant the benefit of Article 429(14) of Regulation No 575/2013, which the applicant does not dispute, the judicial review which the Court must carry out of the merits of the grounds of the contested decision must not lead it to substitute its own assessment for that of the ECB, but focuses on whether the contested decision is based on materially incorrect facts, or is vitiated by an error of law, manifest error of assessment or misuse of powers (see, to that effect and by analogy, judgment of 6 February 2014, CEEES and Asociación de Gestores de Estaciones de Servicio v Commission,
T‑342/11
,
EU:T:2014:60
, paragraph
and the case-law cited).
However, it follows from consistent case-law that when the institutions have such a power of assessment respect for the guarantees conferred by the European Union legal order in administrative proceedings assumes even more fundamental significance. Among those guarantees conferred by the European Union legal order in administrative proceedings is, in particular, the principle of sound administration, which entails the duty of the competent institution to examine carefully and impartially all the relevant aspects of the individual case (judgments of 21 November 1991, Technische Universität München,
C‑269/90
,
EU:C:1991:438
, paragraph
, and of 29 March 2012, Commission v Estonia,
C‑505/09 P
,
EU:C:2012:179
, paragraph
).
Since the ECB, in the contested decision, relied on three grounds, it is appropriate to examine the legality of each of them.
The legality of the grounds set out in point 2.3.3(i) and (ii) of the contested decision
In point 2.3.3(i) of the contested decision, the ECB justified its decision to refuse the requested derogation on the ground that the accounting treatment of the regulated savings is a first indication that the exposures to the CDC continue to be supported by the applicant. It emphasised in that regard that the regulated savings are on the liabilities side of the applicant’s balance sheet and that the CDC’s exposures are on the assets side of that balance sheet. The ECB also observed that the applicant was liable for managing the operational risks associated with collecting the regulated savings.
In its written pleadings, the ECB observes that the accounting treatment of the regulated saving was put forward in the contested decision only as a ‘first indication’ that the exposures to the CDC continue to be supported by the applicant and maintains that it did not rely on that circumstance in order to refuse the requested derogation. It is apparent from the structure of the contested decision, however, that the developments set out in point 2.3.3(i) of that decision constitute one of the grounds on which the ECB relied in order to conclude that the sums transferred to the CDC by the applicant continued to be relevant exposures for the calculation of its leverage ratio. It is therefore appropriate to examine the legality of that ground.
In point 2.3.3(ii) of the contested decision, the ECB emphasised that the applicant was subject to the contractual obligation to repay customers’ deposits, independently of whether the funds transferred to the CDC were repaid to the applicant, and that such an obligation also applied in the event of a payment default by the CDC and the French State. It added that both the volume of exposures to the CDC and the fact that those exposures cannot be taken into account in respect of other prudential requirements justified their inclusion in the calculation of the leverage ratio.
Thus, by that ground, the ECB considered that the exposures to the CDC were relevant for the purposes of the calculation of the applicant’s leverage ratio, since the applicant is under an obligation to repay to savers the sums which it was required to transfer to the CDC, including where the CDC would not be in a position to repay those sums to the applicant.
It must be stated that the only illustration provided in the contested decision of a situation in which the CDC would not be in a position to repay those sums is that of payment default by the French State. When questioned at the hearing, the ECB confirmed that that was the only situation which it had envisaged.
In the context of its first plea, the applicant takes issue with the ECB for having erred in law in depriving Article 429(14) of Regulation No 575/2013 of its practical effect.
In that regard, it should be observed that, although the ECB is free within the framework of the exercise of the discretion recognised to it under Article 429(14) of Regulation No 575/2013 to grant or not to grant the derogation envisaged in that provision, the exercise of that freedom must not disregard the objectives pursued by that derogation and must not deprive it of its practical effect (see, to that effect and by analogy, judgment of 15 December 2016, Nemec,
C‑256/15
,
EU:C:2016:954
, paragraphs
and
and the case-law cited).
For the purposes of examining the legality of the grounds set out in paragraphs 33 and 35 above and answering the applicant’s first plea, it is necessary first to identify the objectives pursued by Article 429(14) of Regulation No 575/2013. In so far as that provision concerns the possibility of certain exposures being excluded from the calculation of the credit institutions’ leverage ratio, both the objectives pursued by the introduction of a leverage ratio and those to which Article 429(14) of Regulation No 575/2013 specifically responds are relevant.
As regards, in the first place, the objectives pursued by the introduction of a leverage ratio, with an obligation being imposed on the credit institutions to publish their leverage ratios and, possibly, ultimately, to comply with certain leverage ratio levels, it follows from recital 90 of Regulation No 575/2013 that the legislature’s intention was to discourage the credit institutions from building up excessive leverages. It follows from that recital and also from the definitions in Article 4(1)(93) and (94) of that regulation that excessive leverage refers to a situation in which a credit institution finances too great a proportion of its investments by debt rather than from its own funds. The risk is then that the credit institution does not have sufficient own funds to meet requests for repayment of its debts and must sell some of its assets as a matter of emergency. The negative consequences of that emergency reduction of the leverage level during the financial crisis were explained as follows in recital 90 of Regulation No 575/2013: ‘this amplified downward pressures on asset prices, causing further losses for institutions which in turn led to further declines in their own funds[;] the ultimate results of this negative spiral were a reduction in the availability of credit to the real economy and a deeper and longer crisis’.
In that context, the leverage ratio aims to provide an assessment of the level of a credit institution’s own funds by comparison with its exposures, without consideration of the level of risk involved in each of those exposures. That is apparent from recital 91 of Regulation No 575/2013, which states that ‘risk-based own funds … are not sufficient to prevent institutions from taking on excessive and unsustainable leverage risk’, and from the work of the Basel Committee to which recitals 92 and 93 of Regulation No 575/2013 refer. In the Basel Committee’s publication on the Basel III Agreements, which is produced in an annex to the defence, the leverage ratio is envisaged as a ‘simple, transparent, non-risk based … ratio to act as a credible supplementary measure to the risk-based capital requirements’. The non-risk-weighted nature of the leverage ratio is again found in the description of the calculation method, as set out in Article 429(2) of Regulation No 575/2013, where it is stated that the leverage ratio is to be calculated ‘as an institution’s capital measure divided by that institution’s total exposure measure and [is to be] expressed as a percentage’. There is no mention of any weighting according to the risk level of the exposures.
However, it must be pointed out that that objective is not absolute, since Regulation No 575/2013 envisages the possibility that the particularly low level of certain exposures will be reflected in the calculation of the leverage ratio of the credit institutions concerned.
That is shown, first, in recital 95 of Regulation No 575/2013, which states that ‘when reviewing the impact of the leverage ratio on different business models, particular attention should be paid to business models which are considered to entail low risk, such as mortgage lending and specialised lending with regional governments, local authorities or public-sector entities’. That intention is transcribed in Article 511 of that regulation, entitled ‘Leverage’, from which it follows, in essence, that the report which the European Banking Authority (EBA) is required to submit to the Commission to enable it to decide, if necessary, to propose that the legislature make certain appropriate leverage ratio levels mandatory must, inter alia, ‘[identify] business models that reflect the overall risk profiles of the institutions and … [introduce] differentiated levels of the leverage ratio for those business models’.
That is shown, second, by the insertion by Delegated Regulation 2015/62, adopted in application of Article 456(1)(j) of Regulation No 575/2013, into the latter regulation of Article 429(14), which provides that certain exposures may be excluded from the calculation of the leverage ratio.
As regards, in the second place, the aims which the insertion of Article 429(14) of Regulation No 575/2013 into that regulation sought to achieve, it should be observed that, according to recital 12 of Delegated Regulation 2015/62, the changes introduced by that regulation ‘should lead to better comparability of the leverage ratio disclosed by institutions and should help to avoid misleading market participants as to the real leverage of institutions’.
It is apparent from the wording of Article 429(14) of Regulation No 575/2013, which is set out in paragraph 19 above, that that provision can be applied only if three conditions are met. First of all, the exposures that may be excluded from the calculation of the leverage ratio must be exposures to a public-sector entity. Next, they must be treated in accordance with Article 116(4) of Regulation No 575/2013. Last, they must arise from deposits that the institution is legally obliged to transfer to the public-sector entity in question for the purposes of funding general interest investments.
It must be stated that, by that derogation, the Commission, with the prior authorisation of the legislature, envisaged the possibility that a credit institution’s exposures to public-sector entities which, because of a State guarantee, present the same low risk level as exposures to that State and which do not correspond to an investment choice by the credit institution — in that the credit institution is under an obligation to transfer the sums concerned — are not relevant for the calculation of the leverage ratio and may therefore be excluded.
In fact, Article 116(4) of Regulation No 575/2013 provides that ‘in exceptional circumstances, exposures to public-sector entities may be treated as exposures to the central government, regional government or local authority in whose jurisdiction they are established where in the opinion of the competent authorities of this jurisdiction there is no difference in risk between such exposures because of the existence of an appropriate guarantee by the central government, regional government or local authority’. That provision must be read in conjunction with Article 114(4) of that regulation, which states that ‘exposures to Member States’ central governments, and central banks denominated and funded in the domestic currency of that central government and central bank shall be assigned a risk weight of 0%’. Accordingly, the only exposures affected by Article 429(14) of Regulation No 575/2013 are those which, in application of the standard approach to the calculation of minimum own funds requirements, would be assigned a risk weight of 0%.
Consequently, the implementation of Article 429(14) of Regulation No 575/2013 entails the reconciliation of two objectives: first, compliance with the logic of the leverage ratio, which requires that the calculation of that ratio include the overall exposure measure of a credit institution, without weighting by reference to the risk, and, second, consideration of the objective of the Commission, authorised in advance by the legislature, that, if necessary, certain exposures with a particularly low risk profile which are not the result of an investment choice made by the credit institutions are not relevant for the calculation of the leverage ratio and may therefore be excluded.
In that regard, it should be observed that the recognition in favour of the competent authorities of a discretion when they implement Article 429(14) of Regulation No 575/2013 allows them to decide between those two objectives in the light of the particular characteristics of each individual case.
It necessarily follows that the ECB cannot rely on grounds that would make the possibility offered by Article 429(14) of Regulation No 575/2013 virtually inapplicable in practice, without depriving that provision of practical effect and disregarding the objectives that led to its introduction (see, to that effect and by analogy, judgment of 11 December 2008, Stichting Centraal Begeleidingsorgaan voor de Intercollegiale Toetsing,
C‑407/07
,
EU:C:2008:713
, paragraph
and the case-law cited).
As regards the ground set out in point 2.3.3(i) of the contested decision, it must be stated that by that ground the ECB excluded the applicant’s exposures to the CDC from the benefit of Article 429(14) of Regulation No 575/2013 on the basis of considerations which are inherent in the exposures concerned by that provision.
That is the case, in the first place, of the consideration based on the fact that the applicant’s exposures to the CDC appear on the assets side of its balance sheet.
An exposure is defined in Article 5(1) of Regulation No 575/2013 as ‘an asset or off-balance sheet item’. Accordingly, that definition necessarily includes the items on the assets side of a credit institution’s balance sheet. Furthermore, since Article 429(14)(c) of Regulation No 575/2013 is concerned with exposures arising from deposits that the institution is legally obliged to transfer to a public-sector entity for the purposes of funding general interest investments, exposures which, by their nature, must appear on a credit institution’s balance sheet rather than constituting off-balance sheet items are involved.
Accordingly, in so far as the exposures in respect of which Article 429(14) of Regulation No 575/2013 envisages the possibility that they will not be taken into account in the calculation of the leverage ratio of a credit institution must by their nature appear on the assets side of that institution’s balance sheet, the consideration based on the fact that the exposures to the CDC shown on the assets side of the applicant’s balance sheet cannot validly justify the refusal to grant the requested derogation.
The same applies, in the second place, and for similar reasons, to the consideration based on the fact that those exposures constitute a proportion of the sums deposited with the applicant as regulated savings, which remain on the liabilities side of its balance sheet. It is sufficient in that regard to observe that, in the light of the words used by Article 429(14)(c) of Regulation No 575/2013, that fact, far from opposing the application of that provision, is a condition of its implementation.
The same conclusion applies, in the third place, to the ECB’s assertion that the applicant bears the operational risk associated with the regulated savings. Operational risk is defined in Article 4(1)(52) of Regulation No 575/2013 as ‘the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, and includes legal risk’. Since Article 429(14) of Regulation No 575/2013 is concerned with exposures which constitute a proportion of deposits with the credit institution concerned, it is inherent in the logic of that provision that the applicant bears the operational risk attaching to the savings in question.
As regards the ground set out in point 2.3.3(ii) of the contested decision, it should be recalled that, according to Article 429(14)(a) and (b) of Regulation No 575/2013, ‘competent authorities may permit an institution to exclude from the exposure measure exposures that meet all of the following conditions: (a) they are exposures to a public-sector entity; (b) they are treated in accordance with Article 116(4)’.
As is apparent from paragraphs 47 to 49 above, the reference in Article 429(14) of Regulation No 575/2013 to Article 116(4) of that regulation, read in conjunction with Article 114(4) of that regulation, shows the legislature’s intention that exposures to public-sector entities which, because of a State guarantee, present the same level of risk as exposures to that State may possibly not be taken into account in the calculation of the leverage ratio.
Since Article 429(14) of Regulation No 575/2013 concerns only exposures to public service entities having a State guarantee, a refusal given on the theoretical ground that a State may be in a payment default situation, without consideration of the likelihood of such a possibility in the case of the State concerned, would amount to rendering the possibility envisaged by Article 429(14) of Regulation No 575/2013 virtually inapplicable in practice.
However, it must be stated that, for the purposes of concluding that the applicant might have to repay to savers the sums transferred to the CDC, without those sums being repaid by the CDC, it is apparent from the contested decision that the ECB simply drew attention to the mere possibility of a payment default by the French State without examining the likelihood of such a default.
Nor, consequently, in so far as the ECB did not examine the likelihood of a payment default by the French State, can the reference in point 2.3.3(ii) of the contested decision to the volume of the applicant’s exposures to the CDC justify in itself those exposures being taken into account in the calculation of the leverage ratio. That volume might be relevant only if, as a result of a payment default by the French State, the applicant could not obtain from the CDC the sums transferred as regulated savings and would have to have recourse to forced sales of assets.
In the light of the foregoing, is should be stated that the grounds set out in point 2.3.3(i) and (ii) of the contested decision ultimately deprive the derogation in Article 429(14) of Regulation No 575/2013 of its practical effect since they preclude the application of that derogation on the basis of factors which are inherent in the exposures envisaged by that article.
That conclusion is not undermined by the ECB’s arguments, and in particular by the reference to the fact that the exposures to the CDC would not be fundamentally different from the exposures giving rise to leverage, since those assets are funded by a debt to savers which the applicant is required to repay to them on demand. In that regard, it is sufficient to emphasise that, unlike other exposures, the legislature envisaged that exposures meeting the conditions laid down in Article 429(14) of Regulation No 575/2013 would not be included in the calculation of the leverage ratio, a possibility which the ECB cannot preclude from the outset.
The same applies to the assertion that the State guarantee associated with the exposures to the CDC does not render them irrelevant as regards the calculation of the applicant’s leverage ratio, since that ratio is intended to provide an assessment that is not based on the risk level represented by each of the applicant’s exposures and since, moreover, the States may be exposed to solvency risks. Since the legislature intended that exposures to public-sector entities that meet the conditions laid down in Article 429(14) of Regulation No 575/2013 may possibly not be taken into account in the calculation of the leverage ratio, it was for the ECB, when exercising its discretion, to reconcile the objectives that led to the introduction of the leverage ratio and the objectives of Article 429(14) of Regulation No 575/2013. For the reasons stated in paragraphs 60 to 62 above, that was not done, as the ECB did not rely on an assessment of the likelihood of a risk of payment default by the French State, but adopted reasoning which de facto precluded any possibility that a requested based on Article 429(14) of Regulation No 575/2013 would be granted.
It follows from the foregoing that the grounds set out in point 2.3.3(i) and (ii) of the contested decision are vitiated by an error of law.
The legality of the ground set out in point 2.3.3(iii) of the contested decision
In point 2.3.3(iii) of the contested decision, the ECB referred to the period between the adjustments of the applicant’s and the CDC’s respective positions. The ECB inferred, in essence, that the applicant might be led to have recourse to fire sales of assets while awaiting transfer of funds from the CDC.
By its second plea, the applicant maintains that this ground is manifestly incorrect. Furthermore, in the context of this plea, it takes issue with the ECB for having failed to take the specific features of the regulated savings into account.
It should be pointed out that, according to the definition in Article 4(1)(94) of Regulation No 575/2013, risk of excessive leverage means ‘the risk resulting from an institution’s vulnerability due to leverage or contingent leverage that may require unintended corrective measures to its business plan, including distressed selling of assets which might result in losses or in valuation adjustments to its remaining assets’.
It follows that the risks envisaged in respect of excessive leverage materialise in a situation of insufficient liquidity. It is in order to obtain liquidity that a credit institution may find it necessary to take unintended measures to its business plan, including distressed selling of assets having the consequences explained in Article 4(1)(94) of Regulation No 575/2013, as stated in recital 90 of that regulation.
Since the negative consequences of excessive leverage are revealed in the case of insufficient liquidity, the applicant’s assertion that the period for the adjustment of its positions with those of the CDC is concerned with liquidity does not deprive that period of relevance to the assessment of the risk associated with its leverage ratio.
However, it should be observed that the ECB itself acknowledges that that adjustment period is not at the origin of a liquidity risk for the purposes of the assessment of the liquidity coverage requirements set out in Article 412 of Regulation No 575/2013 and in Commission Delegated Regulation (EU) 2015/61 of 10 October 2014 to supplement Regulation No 575/2013 with regard to liquidity coverage requirement for Credit Institutions (
OJ 2015 L 11, p. 1
). It refers in that regard in its pleadings to the authorisation which it granted French credit institutions which had so requested to apply Article 26 of Delegated Regulation 2015/61, thus allowing them to offset the outflows and inflows associated with regulated savings when calculating the liquidity ratio.
It should be emphasised that Delegated Regulation 2015/61 was adopted in order to supplement Regulation No 575/2013, which states in Article 412(1) that ‘institutions shall hold liquid assets, the sum of the values of which covers the liquidity outflows less the liquidity inflows under stressed conditions so as to ensure that institutions maintain levels of liquidity buffers which are adequate to face any possible imbalance between liquidity inflows and outflows under gravely stressed conditions over a period of 30 days [and that,] during times of stress, institutions may use their liquid assets to cover their net liquidity outflows’.
According to Article 26 of Delegated Regulation 2015/61, entitled ‘Outflows with interdependent inflows’, ‘subject to prior approval of the competent authority, credit institutions may calculate the liquidity outflow net of an interdependent inflow which meets all the following conditions: (a) the interdependent inflow is directly linked to the outflow and is not considered in the calculation of liquidity inflows in Chapter 3; (b) the interdependent inflow is required pursuant to a legal, regulatory or contractual commitment; (c) the interdependent inflow meets one of the following conditions: (i) it arises compulsorily before the outflow; (ii) it is received within 10 days and is guaranteed by the central government of a Member State’.
It must be stated that that provision allows the competent authorities — and thus the ECB in the context of the task of prudential supervision conferred on it by Article 4(1)(d) of Regulation 1024/2013 — to offset interdependent outflows and inflows if, owing to the existence of a guarantee by the central government of a Member State and the short duration of the period between the outflows and inflows, it considers that that period does not give rise to a liquidity risk.
The logical inference is that the grant of the benefit of Article 26 of Delegated Regulation 2015/61 by the ECB to inflows and outflows linked with exposures to the CDC is tantamount to recognition by the ECB that the period that may separate those inflows and outflows does not give rise to a liquidity risk.
That conclusion that no liquidity risk is caused by such an adjustment period is reinforced, moreover, upon reading the EBA Report of 15 December 2015 on Net Stable Funding Requirements under Article 510 of Regulation No 575/2013, to which the applicant refers in its application. In that report, the EBA considers that, where banks are required to transfer a predetermined part of regulated savings accounts’ outstanding to a dedicated State-controlled fund that provides loans for public interest operations, where inflows and outflows on the corresponding savings accounts are transferred at least monthly, and where the public fund is legally bound to reimburse the bank in the event of a decrease of the amount of regulated savings due to observed withdrawals, a funding risk does not arise.
In so far as, for the reasons set out in paragraph 71 above, the risks linked with an excessive leverage situation materialise in the event of insufficient liquidity, the ECB’s position of principle that the adjustment period in question might favour the occurrence of risks linked with excessive leverage although it does not constitute a liquidity risk, owing to its general nature, must be considered to be manifestly incorrect.
In fact, the adjustment period in question could be relevant for the leverage risk, even though it is not relevant for the liquidity risk, only where withdrawals of deposits linked with regulated savings were sufficiently large for those savings to exceed the ‘gravely stressed conditions’ envisaged in the context of the calculation of the liquidity ratio under Article 412(1) of Regulation No 575/2013.
However, such a possibility could not be taken into account for the purposes of rejecting the applicant’s request without a thorough examination of the characteristics of the regulated savings being carried out by the ECB. That examination ought, in particular, to have led the ECB to consider whether, in the light of their characteristics — and in particular the State guarantee associated with regulated savings — it might be envisaged that withdrawals of regulated savings would be sufficiently large and sudden for the applicant to find it necessary to have recourse to the measures envisaged in Article 4(1)(94) of Regulation No 575/2013 without being able to await the transfers of funds from the CDC on the basis of the adjustment of the positions.
In fact, for the reasons set out in paragraphs 50 and 51 above, it is by reference to the particular characteristics of each individual case that the ECB, when implementing Article 429(14) of Regulation No 575/2013, was required to arbitrate between the objectives of the leverage ratio and the possibility that certain exposures that meet the conditions laid down in that provision might be excluded from the calculation of the leverage ratio. That obligation to examine the particular characteristics of regulated savings also arose in application of the case-law referred to in paragraph 31 above.
However, it must be stated that in the contested decision the ECB did not carry out a detailed examination of the characteristics of regulated savings, but merely drew attention in the abstract to the risks entailed in the adjustment period of the positions between the applicant’s positions and the CDC’s positions.
Accordingly, by proceeding in that way, the ECB failed to fulfil its obligation under the case-law cited in paragraph 31 above to examine, carefully and impartially, all the relevant aspects of the individual case.
That conclusion is not undermined by the ECB’s argument that the leverage ratio is a non-risk-based prudential requirement and that the markets may suddenly lose confidence in investments normally deemed to be very safe. Such an assertion, based solely on the objectives pursued by the introduction of the leverage ratio by Regulation No 575/2013, disregards the objectives pursued by the insertion of Article 429(14) into that regulation.
It follows from the foregoing that all of the grounds put forward by the ECB to substantiate its conclusion that there was an imperfect transfer mechanism that left the applicant to bear the risk linked with the leverage ratio and, accordingly, its rejection of the applicant’s request that the exposures to the CDC consisting in the sums which it is required to transfer to it be excluded from the calculation of its leverage ratio are vitiated by illegality.
The applicant’s first and second pleas must therefore be upheld and the contested decision annulled, without there being any need to examine the third plea.
Costs
Under Article 134(1) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. As the ECB has been unsuccessful, it must be ordered to pay the costs, in accordance with the form of order sought by the applicant.
Under Article 138(1) of the Rules of Procedure, the Member States which have intervened in the proceedings are to bear their own costs. It follows that the Republic of Finland will bear its own costs.

On those grounds,
THE GENERAL COURT (Second Chamber, Extended Composition)
hereby:

1.
Annuls Decision ECB/SSM/2016-969500TJ5KRTCJQWXH05/165 of the European Central Bank (ECB) of 24 August 2016;

2.
Orders the ECB to pay the costs;

3.
Orders the Republic of Finland to bear its own costs.

Prek
Buttigieg
Schalin
Berke
Costeira
Delivered in open court in Luxembourg on le 13 July 2018.
[Signatures]
(
*1
)	Language of the case: French.