ECB retains supervision over Credit Mutuel: EU Court

(LUXEMBOURG) – The major French cooperative bank Credit Mutuel remains under prudential supervision of the European Central Bank, following a ruling Wednesday by the European Court of Justice.

The Crédit mutuel is a non-centralised French banking group made up of a network of local credit unions with the status of cooperatives. Each local mutual credit union must be affiliated with a regional federation and each federation must be affiliated with the Confédération nationale du Crédit mutuel (CNCM), the central body of the network.

The Crédit mutuel Arkéa is a variable-capital cooperative finance company, certified as a credit institution. It was founded in 2002 through the merger of a number of regional mutual credit federations.

In 2015 the Central European Bank (ECB) organised its prudential supervision of the entities in the Groupe Crédit mutuel – including the Crédit mutuel Arkéa – on a consolidated basis through the CNCM. It also considered that the Crédit mutuel Arkéa had to possess additional tier 1 equity capital (fonds propres CET 1), bringing its ratio of tier 1 equity capital to 11%, then to 10.75%.

The Crédit mutuel Arkéa brought an action before the General Court seeking annulment of those decisions. In essence, it challenges the exercise of consolidated prudential supervision of the Groupe Crédit mutuel through the CNCM on the ground that it is not a credit institution, that there is no ‘Groupe Crédit mutuel’ and that the ECB could not require it to have additional equity capital.

In its judgments, the General Court dismissed the actions brought by the Crédit mutuel Arkéa and uphelds the two decisions of the ECB.

The Court begins by holding that, under the EU rules on prudential supervision, the legislature’s intention is to allow the ECB to have an overall picture of the risks likely to affect a credit institution and to avoid fragmentation of the prudential supervision between the ECB and the national authorities.

Regarding the Crédit mutuel Arkéa’s first complaint, to the effect that consolidated prudential supervision of institutions affiliated with a central body is possible only if that body has the status of credit institution (which the CNCM does not), the Court holds that there is nothing in the EU rules on prudential supervision indicating that the concept of ‘central body’ must include classification as a credit institution.

Thus, a ‘group subject to prudential supervision’ comes within the scope of those rules if it meets the conditions laid down therein, irrespective of whether or not the group’s central body has the status of credit institution.

The Court adds that, as the grouping made up of the central body and its affiliated institutions have consolidated accounts, the competent authority may satisfy itself that that grouping’s liquidity and solvency comply with prudential requirements, irrespective of whether or not the central body has the status of credit institution.

As regards the Crédit mutuel Arkéa’s second complaint, to the effect that the Crédit mutuel cannot be categorised as a ‘group’ for the purposes of the Union rules on prudential supervision, the Court finds that the Crédit mutuel, through the CNCM, meets all the conditions laid down in those rules to be categorised as such. Firstly, the fact that the CNCM is an association does not preclude there being solidarity with affiliated institutions, as there is an obligation to transfer equity capital and liquidities within the Groupe Crédit mutuel in order to ensure that obligations towards creditors are met. Secondly and moreover, the Groupe Crédit mutuel’s accounts are in fact drawn up on a consolidated basis, which enables the competent authority to satisfy itself that the liquidity and solvency of all the entities making up the grouping meet prudential requirements. Lastly, the CNCM has the power to issue instructions to the management of the affiliated institutions, who must comply with those instructions; they may be sanctioned by the CNCM in the event of noncompliance.

As regards the Crédit mutuel Arkéa’s third complaint, to the effect that the ECB should not have imposed a requirement of additional equity capital on it, the Court takes the view that the ECB did not err in basing itself on the eventuality of the Crédit mutuel Arkéa’s leaving the Groupe Crédit mutuel. Such an eventuality is in fact not so improbable that taking it into account amounts to a manifest error of assessment by the ECB. Nor did the ECB make a manifest error of assessment in holding that the loss of solidarity mechanism following an exit from the Groupe Crédit mutuel couldhave a negative impact on the Crédit mutuel Arkéa’s external ratings and, consequently, its refinancing costs. Lastly, imposing a requirement of additional equity capital enabling it to cope with such an exit does not amount to a manifest error of assessment and nor is it manifestly disproportionate.

Judgment in Cases T-712/15 and T-52/16 Credit mutuel Arkea v ECB