text: OJ L 189, 3.7.1998, p. 42. 2 Article 2 of the draft law amending Article 5 of the Law. 3 Article 9 of the draft law amending Article 22(2) of the Law. 4 Article 10 of the draft law inserting new

text: Article 22

text: .a in the Law.

text: Article 5(3)

text: and (6) of the Law as amended or, respectively, introduced by Article 2 of the draft law. 6 Article 5(6) of the Law as introduced by Article 2 of the draft law, and Article 20 of the draft law. 7 Guide to consultation of the European Central Bank by national authorities regarding draft legislative provisions, p. 14.

title: Opinion of the European Central Bank of 17 October 2011 on changes of rules applicable to mortgage and municipal bonds (CON/2011/81)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 17 October 2011 on changes of rules applicable to mortgage and municipal bonds (

text: ) Introduction and legal basis

text: On 21 September 2011 the European Central Bank (ECB) received a request from the Slovenian Ministry of Finance for an opinion on a draft law amending the Law on mortgage and municipal bonds (hereinafter the ‘draft law’ and the ‘Law’, respectively). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the sixth indent of

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft law contains rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

text: 1. Purposes of the draft law

text: The main purposes of the draft law are: (a) to facilitate issuance of mortgage and municipal bonds by banks, for instance, by extending the pool of underlying assets for municipal bonds to debt securities issued by the State or local authorities ; and (b) to ensure better protection of bonds holders’ claims, for instance, by requiring that the present value of underlying assets at all times exceeds the present value of 3 4 liabilities under mortgage bonds by at least 2% and that the underlying assets’ reserves are created . The draft law also makes several editorial changes to the Law.

text: 2. General observation

text: The ECB broadly welcomes the draft law which should achieve the intended purposes of the draft law.

text: 3. Specific comments

text: The consultation duty regarding draft secondary legislation

text: 3.1 Pursuant to the draft law, municipal bonds are covered by underlying assets including, inter alia, loans extended to legal entities not governed by public law if the State or local authority guarantees for such entities’ liabilities under such loans without limitations. These guarantees must ensure irrevocable and unconditional fulfilment of the debtor’s obligations on the creditor’s first demand . Banka Slovenije will set out more detailed conditions that must be fulfilled for such guarantees within one month from the entry into force of the draft law . The consultation duty under the Treaty covers all types of legally binding provisions, including secondary legislation. Given the objectives of Decision

text: , an opinion should only be sought from the ECB on draft secondary legislation which implements primary legislation falling within the ECB’s fields of competence if the subject matter is closely related to the ECB’s tasks and if the impact on areas within the ECB’s fields of competence is different from that resulting from the primary legislation itself . If this is the case with the abovementioned Banka Slovenije’s secondary legislation, it should also be submitted to the ECB for an opinion.

text: Application of the net present value principle

text: 3.2 In accordance with Article 22(2) of the Law as amended by Article 9 of the draft law, underlying assets and liabilities arising from mortgage bonds must at all times also match under the net present value principle, whereby the present value of underlying assets must exceed the present value of liabilities arising from mortgage bonds by at least 2%. If the intention of this provision is to simply compare the present value of underlying assets with the present value of liabilities, it is not appropriate to refer to the net present value principle which is used, for instance, to compare the present value of future cash flows with the initial investment in the context of assessing the financial advantage of an investment.

text: Eligibility for Eurosystem credit operations

text: 3.3 New

text: Article 22

text: .a of the Law inserted by Article 10 of the draft law provides that the issuer must at all times ensure underlying assets’ reserves in the form of certain substitute underlying assets complying with the eligibility criteria of the European System of Central Banks. This provision could be improved by referring more accurately to the eligibility criteria for collateral in Eurosystem credit operations to follow the wording of Article 18.1 of the Statute of the European

text: System of Central Banks and of the European Central Bank. Article 20 of the Law should also be brought in line. This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 17 October 2011. [signed]

text: The President of the ECB

text: Jean-Claude TRICHET


text: OJ L 189, 3.7.1998, p. 42.

text: With regard to Belgium the ECB issued Opinion

text: on 13 October 2011. 3 The draft Grand-Ducal Regulation only contains the very basic principles of the guarantee, as the details are left to the implementation measures to be adopted by the Minister for Finance . 4 See Opinion

text: , paragraph 1. 5 See notably the Communication from the Commission on the application, from 1 January 2011, of State aid rules to support measures in favour of banks in the context of the financial crisis, (OJ C 329, 7.12.2010, p. 7); Communication from the Commission – The application of State aid rules to measures taken in relation to financial institutions in the context of the current global financial crisis (OJ C 270, 25.10.2008, p. 8); Commission Communication on the treatment of impaired assets in the Community banking sector, 25.2.2009 (OJ C 72, 26.3.2009, p. 1). 6 This provision, amended by the Law of 29 May 2009, provides that any financial undertaking, including State guarantees exceeding EUR 40 000 000, must be authorised by a law. 7 Mémorial A 200, 23.12.2008, p. 2769.

text: , paragraph 3.1,

text: , paragraph 3.3,

text: , paragraph 3.9. 9

text: , paragraph 3.5. 10

text: , paragraph 3.1,

text: , paragraph 3.2,

text: , paragraph 3.5. 11

text: , paragraph 3.1,

text: , paragraph 3.9,

text: , paragraph 3.2,

text: , paragraph 3.3.2. 12

text: , paragraph 3.1,

text: , paragraph 3.9,

text: , paragraph 3.3.2 and

text: , paragraph 3.7. 13

text: , paragraph 3.1,

text: , paragraph 3.3.2,

text: , paragraph 3.9. 14 DG Competition Staff Working Document - The application of State aid rules to government guarantee schemes covering bank debt to be issued after 30 June 2011, available on the Commission’s website at www.ec.europa.eu. 15

text: , paragraph 3.2,

text: , paragraph 3.1,

text: , paragraph 2.5.2.

text: Recommendations of the Governing Council of the European Central Bank on government guarantees for bank debt, 20 October 2008.

publisher: Europeiska centralbanken

sprak: en

title: Opinion of the European Central Bank of 18 October 2011 on a State guarantee covering certain loans granted to Dexia SA and Dexia Crédit Local SA (CON/2011/82)

serie: con

text: OPINION OF THE EUROPEAN CENTRAL BANK of 18 October 2011 on a State guarantee covering certain loans granted to Dexia SA and Dexia Crédit Local SA (

text: ) Introduction and legal basis

type: rubrik

text: On 14 October 2011, the European Central Bank (ECB) received a request from the Governor of the Banque centrale du Luxembourg (BCL), acting on behalf of the Luxembourg Ministry of Finance, for an opinion on a draft Grand-Ducal Regulation authorising the Government to extend a financial guarantee in the context of the ordered restructuring of the Dexia banking group (hereafter ‘the draft Grand-Ducal Regulation’). The ECB was requested to deliver an opinion under extremely urgent circumstances. The ECB’s competence to deliver an opinion is based on Article 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the sixth indent of

text: Article 2(1) of Council Decision 98/415/EC of 29 June 1998

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , since the draft Grand-Ducal Regulation relates to rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

type: stycke

text: 1. Purpose of the draft Grand-Ducal Regulation

text: The draft Grand-Ducal Regulation authorises the Government to guarantee, on behalf of the Luxembourg State and in return for payment, the financing raised by Dexia SA and Dexia Crédit Local SA from credit institutions and institutional depositors as well as the bonds and debt securities issued by Dexia SA and Dexia Crédit Local SA for institutional investors. This guarantee applies to the financing raised, as well as the bonds and debt securities issued, by Dexia and Dexia Crédit Local until 31 December 2021 and having a maximum duration of 10 years. This guarantee will be granted for a maximum amount of EUR 2 700 000 000. It will be exercised subject to the joint guarantee call of the Kingdom of Belgium and the French Republic. The draft Grand-Ducal Regulation enters into force on the day of its publication in the Mémorial. Its validity will be limited to three months. The Minister for Finance will be entrusted with implementing the draft Grand-Ducal Regulation.

text: 2. General observations

text: 2.1 In the context of the State guarantees supporting the Dexia restructuring plan, the ECB deems that it is important to ensure the coordination of the French, Belgian and Luxembourg legislation. The ECB is unable to fully assess consistency between the legislation due to different legislative techniques , and considering that certain modalities, varying according to the Member States, still have to be defined in implementing agreements between the three States and the Dexia entities . 2.2 It is also important to ensure that the draft Grand-Ducal Regulation and any subsequent implementing measures fully comply with the relevant provisions of Union law, including competition and State aid rules. In particular, national authorities should seek to coordinate their responses to the current financial situation with their Union partners, to act in a united manner and to avoid that national measures adversely affect the functioning of the single market and the other Member States. In this respect, it is essential that Member States comply with the guidance given by the European Commission in its communications on the application of State aid rules to support measures in favour of banks and government guarantee schemes covering bank debt, including with regard to the temporary nature of the acceptability of such aid measures and the necessity for credit institutions receiving State support to submit a restructuring plan . 2.3 The ECB notes that the guarantee to be issued by the Luxembourg Government is a significant financial commitment by the State within the meaning of Article 99 of the Luxembourg Constitution and

text: Article 80(1)

text: (d) of the amended Law of 8 June 1999 on the State budget, accounts and treasury , which must therefore be approved by a law. As this guarantee needs to be granted urgently in the context of an international crisis, the Grand-Duke is empowered by Article 32(4) of the Luxembourg Constitution to enact a regulation that deviates from existing laws, provided that the validity of such regulation is limited to three months. The ECB assumes that the draft Grand-Ducal Regulation will therefore be subsequently confirmed by a law, as was the case for the Grand-Ducal Regulation of 10 October 2008 enacted for the first Dexia rescue package, that was confirmed by Article 44(1) of the Law of 19 December 2008 on the budget for State income and expenditure for 2009 .

text: 3. Interaction of the draft Grand-Ducal Regulation with the monetary policy of the euro area

text: The draft Grand-Ducal Regulation does not define the type of liabilities falling within the meaning of ‘financing’ under Article 1(1) of the Grand-Ducal Regulation. In this respect, the ECB makes the following observations. First, it reminds the consulting authority that government guarantees for bank debt should, when implemented: (i) address the funding problems of liquidity-constrained solvent banks by improving the functioning of the market for bank debt of longer-term maturity; (ii) preserve the level playing field among financial institutions and avoid market distortions; and (iii) ensure consistency in the management of Eurosystem liquidity. In this vein, government guarantees for short-term bank debt with a maturity of three to 12 months may be provided to revitalise the short-term bank debt market . In this regard, the ECB reiterates that granting government guarantees for bank debt with a maturity of less than three months should be avoided to the extent possible . Second, it is also stressed that it is of the utmost importance that support operations conducted by national authorities do not in any way affect the conduct and the implementation of monetary policy in the euro area . In this context, the ECB reiterates its view that the extension of the State guarantee to cover interbank deposits should be avoided , as this could entail substantial distortion in the various national segments of the euro area money market by potentially increasing short-term debt issuance activity across Member States and therefore impairing the implementation of the single monetary policy, which is an exclusive competence of the Eurosystem under Article 127(2) of the Treaty . It could also affect the transmission of monetary policy decisions and make it difficult to maintain the necessary level playing field in the euro area between the financial institutions benefiting from the State guarantee and those not benefiting.

text: 4. Temporary nature of the scheme

text: In line with the assessment in the Commission’s staff working document , the ECB notes the need for national support measures to be temporary in nature . It is understood that the support scheme covers a time period of up to 20 years, as the loans covered by the guarantee may be issued until 31 December 2021 at the latest and may be for a maximum duration of 10 years, and thus could be considered of a longer-term rather than temporary nature.

text: 5. Pricing of the guarantee

text: As the Minister for Finance will determine the remuneration due to the State for the guarantee in accordance with Article 1(1) of the draft Grand-Ducal Regulation, the ECB underlines that the pricing formula recommended by the ECB’s Governing Council should be taken into consideration when determining the remuneration due to the State. This was also affirmed by the Commission staff in their assessment of the application of State aid rules to government guarantee schemes covering bank debt.

text: This opinion will be published on the ECB’s website.

text: Done at Frankfurt am Main, 18 October 2011.

text: [signed]

text: The President of the ECB

text: Jean-Claude TRICHET

type: vagledning

utgivare: ecb


text: Approved by Decree-Law No 298/92 of 31 December.

text: OJ L 189, 3.7.1998, p. 42.

text: See the Economic Adjustment Programme for Portugal – First review, available at http://ec.europa.eu/economy_finance/publications/occasional_paper/2011/pdf/ocp83_en.pdf, and in particular paragraph 22 of the Memorandum of Economic and Financial Policies.

text: OJ L 177, 30.6.2006. 6 Proposal for a regulation of the European Parliament and of the Council on prudential requirements for credit institutions and investment firms, COM(2011) 452 final and proposal for a directive of the European Parliament and of the Council on the access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms amending Directive

text: of the European Parliament and of the Council on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate, COM(2011) 453 final.

text: OJ L 135, 31.5.1994, p. 5.

text: COM(2010) 369 final; SEC(2010)834; SEC(2010)835 final available at http://ec.europa.eu/internal_market/bank/docs/guarantee/20100712_proposal_en.pdf.

text: , paragraph. 9.2.

text: See Article 94 of the Law on bank bankruptcy.

text: See Article 192 of the Law on credit institutions.

text: See Article 38 of Government Ordinance No 10/2004 on the proceedings of judicial reorganisation and bankruptcy of credit institutions.

text: See

text: Article 70(2)

text: (b) of the Commission’s proposal for a directive of the European Parliament and of the Council on the access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms and amending Directive

text: of the European Parliament and of the Council on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate COM(2011) 453 final, which mandates appropriate protection for employees of institutions who denounce breaches committed within the institution.

text: See the ECB’s Convergence Report, May 2010, p. 21. All ECB documents are available on the ECB’s website at www.ecb.europa.eu.

text: See for instance paragraph 3.3 of ECB Opinion

text: See ECB’s Convergence Report, May 2010, p. 25.

text: See paragraphs 2.2 to 2.8 of ECB Opinion

title: Opinion of the European Central Bank of 19 October 2011 on early intervention measures and on amendments to the resolution and winding-up regime for credit and financial institutions subject to supervision by the Banco de Portugal (CON/2011/83)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 19 October 2011 on early intervention measures and on amendments to the resolution and winding-up regime for credit and financial institutions subject to supervision by the Banco de Portugal (

text: ) Introduction and legal basis

text: On 4 October 2011, the European Central Bank (ECB) received a request from the Portuguese Ministry of Finance for an opinion on a draft Government decree-law (hereinafter the ‘draft decree-law’) amending (i) the Legal Framework for Credit and Financial Institutions , (ii) Decree-Law No 345/98 of 9 November regulating the Mutual Agricultural Credit Guarantee Fund, (iii) Decree-Law No 199/2006 of 25 October on the winding up of credit and financial institutions , and (iv) the Organic Law of the Banco de Portugal. The Portuguese Constitution requires prior Parliamentary approval of the scope and terms of such delegated legislation by means of an enabling law on which the ECB is not being consulted. The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the functioning of the European Union and on the third and sixth indents of

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft decree-law relates to the Banco de Portugal and to the rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

text: 1. Purpose and contents of the draft decree-law

text: The purpose of the draft decree-law is to amend several laws to, inter alia: (i) reinforce the supervisory powers of the Banco de Portugal by empowering it to act in case of financial distress of an institution under its supervision, namely through a set of reinforced and expanded preventive and early intervention measures and also through specific resolution measures; (ii) establish a resolution fund to finance the application of the resolution measures provided for in the draft decree-law; (iii) adapt the rules applicable to the deposit guarantee schemes (DGSs); and (iv) amend the winding-up regime for supervised credit and financial institutions to cover reorganisation aspects.

text: 1.1 Preventative and early intervention measures The supervisory powers of the Banco de Portugal are reinforced through an amendment to its Organic Law and several amendments and additions to the Legal Framework for Credit and Financial Institutions regarding bank reorganisation and resolution. The proposed early intervention measures are intended to prevent the aggravation of developing signs of financial distress and must be implemented as soon as a credit institution fails to meet, or is at risk of not meeting, any of the legal or regulatory requirements governing its activity. In particular, the draft decree-law empowers the Banco de Portugal to require all authorised institutions to draw up and submit for its approval contingency plans for recovery and resolution scenarios, under the conditions and within the deadlines specified by the Banco de Portugal. Such plans should aim at restoring in a timely manner the financial situation of a credit institution showing signs of distress (recovery) and, if necessary, at ensuring the orderly winding-up of the credit institution before entering into liquidation (resolution). At the early intervention stage, the Banco de Portugal may adopt the following measures with regard to an institution: (i) to appoint, early on, own representatives and/or interim members of the management board, whose performance will be subject to its guidelines; (ii) to appoint new auditors; (iii) to impose restrictions on the granting of credit and the investment of funds by the credit institution, especially in the context of intra-group or offshore transactions; (iv) to impose additional reporting requirements; (v) to require the submission of a debt restructuring plan to be negotiated with the creditors; (vi) to require an independent general or partial audit of the business of the authorised institution, at the latter’s expense; and/or (vii) to call a general meeting of the shareholders of the authorised institution and to submit proposals to it. 1.2 Resolution measures Currently only the judicial liquidation of already insolvent credit institutions is regulated in Portugal. The Legal Framework for Credit and Financial Institutions is now being amended to introduce resolution mechanisms for the orderly winding-down of a credit institution in serious financial distress as a going concern under official control, to promote financial stability, prevent systemic risk and protect public funds and depositors. Therefore, the draft decree-law provides that whenever remedial actions do not achieve the financial recovery of the credit institution, or if a credit institution does not comply with an approved recovery plan and fails to meet, or is at risk of not meeting, its licensing requirements, the Banco de Portugal may: (i) withdraw the banking license, which will automatically lead to judicial liquidation; or (ii) appoint a new interim administration whose members will have additional powers and duties, without prejudice to its right to order the transfer of the business (total or partial sale of assets and liabilities, off-balance sheet commitments and assets under management) to other duly authorised credit institutions or to one or more bridge banks (fully held by the Resolution Fund and authorised by the Banco de Portugal) independently of, or in addition to, imposing any other corrective measure.

text: 1.3 Establishment of a resolution fund within the Banco de Portugal to finance the resolution measures The draft decree-law establishes a resolution fund as an independent public institution with its head office at the premises of the Banco de Portugal, to provide financial assistance for the application of the resolution measures adopted by the Banco de Portugal. The draft decree-law regulates the composition, administration and funding regime of the Resolution Fund, specifying that financial resources may not be granted by the Banco de Portugal. 1.4 Further amendments to the Legal Framework for Credit and Financial Institutions: The draft decree-law sets out early reporting obligations, and penalties for failure to contribute to the Deposit Guarantee Fund or to the Resolution Fund and for non-compliance with reporting requirements, corrective action or resolution measures imposed by the Banco de Portugal. 1.5 Deposit Guarantee Funds The roles of the DGSs (Deposit Guarantee Fund and Guarantee Fund for Mutual Agricultural Credit Institutions) are enhanced, the protection of guaranteed depositors is strengthened, and the rules applicable to both schemes are harmonised. On request by the Banco de Portugal and under certain conditions, the funds may be involved in the resolution of distressed credit institutions, in particular by cooperating with the Resolution Fund in the sale of insured deposits or in the transfer of insured deposits to a bridge bank. Guaranteed depositors and/or the funds (directly or through subrogation) are granted priority ranking over unsecured creditors in the credit institution’s insolvent estate. 1.6 Amendment to the Organic Law of the Banco de Portugal Article 17 of the Organic Law of the Banco de Portugal is amended to reinforce its supervisory powers by authorising it to apply preventive, corrective and resolution measures.

text: 2. General observations

text: 2.1 The draft decree-law is a structural benchmark under the EU/IMF support programme to Portugal, in particular with regard to strengthening the framework for early intervention, resolution and deposit insurance . 2.2 The ECB welcomes the introduction of a comprehensive bank resolution framework, aiming at safeguarding the financial soundness of credit institutions, the interest of guaranteed depositors and the stability of the financial system. This Opinion proposes technical improvements to the overall good quality of the draft decree law. 2.3 The ECB understands that the enactment of a legal framework on bank recovery and resolution is somewhat complicated due to the absence of a stable legislative proposal at Union level, and invites the consulting authority to review the content of the law in light of the future Union regulatory framework on bank recovery and resolution, in particular with regard to resolution tools

text: and powers of resolution authorities, and of the forthcoming recast Directive on deposit guarantee schemes. 2.4 The ECB also notes that while the Legal Framework for Credit and Financial Institutions applies to credit and financial institutions, the extent to which each measure of the draft decree-law would apply to both types of supervised entities depends on the concrete provision relating to the measure concerned. 2.5 While the ECB takes note of the Portuguese authorities’ wish to address the legal matters related to bank recapitalisation by a separate law, it notes with some concern that Law No 63-A/2008 of 24 November establishing the legal framework for mandatory recapitalisation of credit institutions is in force only until 31 December 2011. The ECB expects the Portuguese authorities to take urgent steps to adopt the new legal framework before the end of the year, after having consulted the ECB. This would, inter alia, facilitate Portugal’s recourse to the Bank Solvency Support Facility in line with the Memorandum of Economic and Financial Policies. 2.6 The ECB notes that, for legality and consistency reasons, the contents of the enabling law, on which it is not being consulted, may need to be amended in the light of this opinion.

text: 3. Preventative and early intervention (corrective action) measures

text: The draft decree-law requires deposit-taking credit institutions to prepare and submit recovery and resolution plans to the Banco de Portugal. However, as regards the resolution plans, the ECB understands that such plans will be thoroughly reviewed by the Banco de Portugal, as the resolution authority, based on the information provided and regularly updated by the credit institution .

text: 4. Resolution measures

text: 4.1 According to proposed

text: Article 145

text: -D(1), the application of a resolution measure by the Banco de Portugal automatically leads to the suspension of the members of the management and supervisory boards, and possibly also the auditors, of the credit institution. The Banco de Portugal is invited to consider whether in certain cases the retention of key members of the management may at least temporarily be helpful to the resolution process and to ensuring continuity of banking services. 4.2 The ECB welcomes that pursuant to proposed

text: Article 153

text: -C, resolution measures are financed by the Resolution Fund. Along these lines, the ECB understands that the reference in proposed

text: Article 145

text: -F(7) to the fact that the Banco de Portugal ‘may invite’ the Deposit Guarantee Fund or the Guarantee Fund for Mutual Agricultural Credit Institutions, as the case may be, to cooperate in the sale of insured deposits, is to be interpreted as conferring a limited role for the Deposit Guarantee Fund. In particular, it is understood that this possibility can be activated only (i) on the basis of a thorough evaluation by the Banco de Portugal, (ii) following an autonomous decision by the relevant fund’s management committee, (iii) taking into account the limits on the amount of 4 European Commission’s public consultation on the technical details of a possible EU framework for bank recovery and resolution - ESCB Contribution, May 2011.

text: permissible financing by the Deposit Guarantee Fund set forth in proposed

text: Article 167

text: -A, and (iv) provided that the participation of the Deposit Guarantee Fund in the financing of resolution measures does not jeopardise its original mission. 4.3 The ECB draws the attention of the consulting authority to the possibility of improving the wording of proposed

text: Article 145

text: -G, by expressly providing that, as regards the disposal of the shares of the bridge bank which are fully owned by the Resolution Fund, the Resolution Fund should abide by the instructions of the Banco de Portugal. 4.4 Concerning the sale of the portfolio of the bridge bank, the ECB notes that pursuant to proposed

text: Article 145

text: -I(6), if it is not possible to sell the business transferred to the bridge bank, the Banco de Portugal may decide to put the bridge bank into voluntary winding up. If the Banco de Portugal - as the resolution authority - considers that there are serious public interest grounds, such as financial stability, for the bridge bank to continue in existence, it should not be obliged to liquidate the bridge bank.

text: 5. Broad temporary waiver

text: Among the other measures which the Banco de Portugal may take under proposed

text: Article 145

text: -J, support resolution measures, is ‘temporary waiving of compliance with prudential rules’. The ECB considers that such a broad temporary waiver is inappropriate and is not mandated by either Directive

text: of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions or the Commission’s proposed legislative package to strengthen regulation in the banking sector . Although the measures in proposed

text: Article 145

text: -J are not in themselves resolution measures, they are strictly linked with the adoption of resolution measures, subject to the restrictive conditions laid down in

text: Article 145

text: -A and

text: Article 145

text: -C(1) and (2), and therefore must satisfy the objectives and pre-conditions for resolution measures, such as public interest. Thus, when applying any waiver of compliance with prudential rules, the Banco de Portugal is under a legal obligation to comply with mandatory Union law requirements. Furthermore, the draft decree law should clarify that any temporary waiver of compliance with prudential rules must be limited not only in time, but also in scope. That is, such waiver must clearly indicate which specific prudential rules are being waived and to what extent.

text: 6. Deposit Guarantee Fund and Resolution Fund

text: 6.1 The ECB acknowledges that proposed

text: Article 166

text: -A of the draft decree law provides for preferential ranking of claims in respect of deposits covered by the Deposit Guarantee Fund. Such

text: claims will rank above other preferential rights, but below those related to judicial costs, claims of the financial institution’s employees arising from employment contracts and the tax claims of the State, local authorities and social security entities. This provision is in line with the requirements set out in the economic adjustment programme for Portugal. Proposed

text: Article 166

text: -A furthermore provides for preferential ranking of claims of the Deposit Guarantee Fund and of the Resolution Fund arising from the financial support provided for application of resolution measures. 6.2 Directive

text: of the European Parliament and of the Council of 13 May 1994 on depositguarantee schemes does not provide for any harmonisation of matters related to ranking of depositor claims and/or DGSs. The only harmonisation in this context is contained in

text: Article 11 of Directive 94/19/EC

text: – schemes which make payments under guarantee have the right of subrogation to the rights of depositors in liquidation proceedings for an amount equal to their payment. The latest available proposal for a recast directive on deposit guarantee schemes does not provide for any further harmonisation regarding the ranking of claims. The proposed recast Directive, however, considerably strengthens and harmonises the funding requirements applicable to DGSs: (i) DGS members will be required to pay extraordinary contributions up to 0,5% of eligible deposits; (ii) a mutual borrowing scheme between DGSs may be activated, provided such arrangements are established on a voluntary basis and that the borrowed funds are only used for payment of depositors claims ; and (iii) Member States will ensure that DGS have in place adequate alternative funding arrangements to enable them to obtain short-term funding where necessary to meet claims against those DGSs. The above provisions, once transposed by the Member States, will significantly improve the ability of the DGS to always meet their obligations vis-à-vis the guaranteed depositors. Such ex ante funding arrangements for DGSs strengthen their capacity to ensure that depositor claims are adequately covered. From this perspective, the introduction of depositor preferences may be seen as aligned with the objectives of the recast Directive. 10 11 12 13 6.3 Currently, four Member States – Bulgaria , Latvia , Romania and recently also Greece – have granted priority ranking to claims that the DGS has acquired by subrogation after having paid out the amounts corresponding to covered deposits, thus further contributing to ensuring that sufficient funding is always available to the DGS. 6.4 Views on the impact of granting preferential ranking are highly divergent, as it is believed that preferential ranking of depositors may have an impact on the funding costs available to banks and that greater efforts will be made by other creditors to secure their claims. On the other hand, this would be somewhat mitigated to the extent that priority claims extend to guaranteed deposits only.

text: Furthermore, a legal regime that establishes priority ranking of guaranteed depositors should facilitate the use of resolution measures provided for in proposed

text: Article 145

text: -C of the Legal Framework for Credit and Financial Institutions (total or partial sale of business to another authorised credit institution or to a bridge bank). From a financial stability perspective, the priority claim in respect of the covered deposits is also supported as it reduces the risks of bank runs, potential losses of the insured depositors in a liquidation phase as well as the excessive depletion of the DGS.

text: 7. Protection for whistleblowers

text: According to proposed

text: Article 116

text: -F, there is a duty to communicate information to the Banco de Portugal about the financial distress of an institution or the risk thereof and about other situations and any serious irregularities within the management of the credit institution. According to the draft decree-law, the persons to whom this duty applies are protected from disciplinary sanctions by the credit institutions, but this protection may not be sufficient. To facilitate the communication of necessary information and the reporting of breaches, it would be necessary to provide appropriate protection for all persons within the credit institution who denounce breaches committed within the institution . For example, the conditions under which this communication will not give rise to any sanctions or liability could be clarified. Furthermore, the extent to which it is appropriate to impose sanctions on persons who do not have any high level managerial responsibilities, where there is failure to report promptly to the Banco de Portugal, should be examined.

text: 8. Independence of the Banco de Portugal

text: 8.1 The draft decree-law specifies in proposed

text: Article 92

text: that powers conferred to the Banco de Portugal by the draft decree-law will not affect its independence in the performance of functions as a central bank and as a member of the European System of Central Banks (ESCB). Although the proposed

text: Article 92

text: does not expressly refer to the Treaty principle of central bank independence, or provide that it prevails over any incompatible decree-law provision, the ECB understands that

text: Article 92

text: confirms the obligations arising under the Treaties, including the protection of central bank independence. 8.2 Further, and more specifically, the requirement in proposed

text: Article 153

text: -P that the Banco de Portugal provides technical and administrative services for the regular operation of the Resolution Fund should not affect the Banco de Portugal’s ability to carry out its ESCB-related tasks from an operational and financial point of view. The involvement of the Banco de Portugal in the operation of the Resolution Fund must be compatible with the institutional and financial independence of the

text: Banco de Portugal, and to this end it is recommended that the Banco de Portugal be ensured adequate financial and human resources. The ECB has consistently underscored that an NCB must have sufficient means not only to perform its ESCB-related tasks, but also its national tasks . Additional tasks under national law need to be accompanied by the allocation of adequate human and financial resources allowing for such tasks to be carried out in a manner which will not affect the Banco de Portugal’s operational and financial capacity to carry out its ESCB-related tasks . The ECB understands that

text: Article 153

text: -P will be implemented with due respect of the Banco de Portugal’s financial and institutional independence. 8.3 Proposed

text: Article 153

text: -E provides that the members of the management committee of the Resolution Fund will remain in office for a renewable term of three years. One member of the Board of Directors of the Banco de Portugal is a member of the management committee. Moreover, the term of office as a member of the Board of Directors of the Banco de Portugal is five years, renewable once. The ECB notes that because of the inconsistency in the terms of office, in practice the same member of the Board of Directors of the Banco de Portugal could not, generally, have a renewed term of office of three years as a member of the management committee of the Resolution Fund. The draft-decree law should be clarified as regards the application of

text: Article 153

text: -E to the members of the Board of Directors of the Banco de Portugal.

text: 9. Prohibition on monetary financing

text: 9.1 It is important to safeguard compliance with the monetary financing prohibition under Article 123 of the Treaty. This prohibition is designed to prevent central banks from providing overdraft facilities or any other type of credit facility to the public sector, which includes any financing of the public sector’s obligations vis-à-vis third parties. The only compatible forms of central bank financing of DGSs are: (a) intraday credit in line with the general rules on provision of such credit by the central bank, and (b) short-term emergency liquidity financing under strict conditions established in the ECB’s Convergence Reports, i.e. if such funding is short term, addresses urgent situations, systemic stability aspects are at stake and decisions are at the NCB’s discretion . These conditions need to be listed in national law in the cases where emergency liquidity financing of the DGS is foreseen by the national legal system. 9.2 Proposed Article 162(8) of the Legal Framework for Credit and Financial Institutions approved by Decree-Law No 298/92 of 31 December) and Article 10(7) of the draft decree-law (amending Decree-Law No 345/98 of 9 November) list conditions for loans from the Banco de Portugal to the Fund. It is understood that these conditions are intended to ensure compliance with the monetary financing prohibition. In this respect, the condition that loans are granted at the full discretion of the

text: Banco de Portugal would need to be included in the draft decree-law. When exercising its discretion to grant a loan, the Banco de Portugal has to ensure that by doing so it is de facto not taking over a State task. This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 19 October 2011. [signed]

text: The President of the ECB

text: Jean-Claude TRICHET


text: Directive

text: of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse) (OJ L 96, 12.4.2003, p. 16). 8 Directive

text: of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive

text: (OJ L 390, 31.12.2004, p. 38). 9 Directive

text: of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (OJ L 177, 30.6.2006, p. 1). 10 Directive

text: of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (OJ L 177, 30.6.2006, p. 201).

text: See section 8(1) of the Financial Services (Deposit Guarantee Scheme) Act 2009. 16 See the ECB’s Convergence Report, May 2010, p. 25. 17 See paragraphs 2.2 to 2.8 of ECB Opinion

text: and paragraph 3.1.3 of ECB Opinion

text: . 18 See paragraph 13 of the ECB Opinion

text: and paragraph 2.7 of the ECB Opinion

text: . 19 See the ECB’s Convergence Report, May 2010, p. 21. 20 See the ECB’s Convergence Report, May 2010, p. 21. 21 See for instance paragraph 3 of ECB Opinion

text: and paragraph 3.3 of ECB Opinion

text: See the ECB’s Convergence Report, May 2010, p. 21. 23 Section 101(1) of the draft law. Opinion

text: also refers to the need for a ‘relationship framework’ between the Minister and the Governor. See also Opinions

text: and

text: concerning the ‘relationship framework’. 24 OJ L 125, 5.5.2001, p. 15. See for example the insertion of a new sub-section 2A in section 29 of the 2010 Act dealing with subordinated liabilities orders.

title: Opinion of the European Central Bank of 21 October 2011 on recovery and resolution measures for credit institutions (CON/2011/84)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 21 October 2011 on recovery and resolution measures for credit institutions (

text: ) Introduction and legal basis

text: On 28 September 2011, the European Central Bank (ECB) received a request from the Irish Minister for Finance for an opinion on the proposed parliamentary committee stage amendments to the Central Bank and Credit Institutions (Resolution) (No 2) Bill 2011 (hereinafter the ‘draft law’). On 11 October 2011, the ECB received a letter from the Minister indicating the report stage amendments for the ECB’s consideration. The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the third and sixth indents of

text: Article 2(1) of Council Decision 98/415/EC of 29 June 1998

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft law relates to the Central Bank of Ireland (CBI) and contains rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

text: 1. Purpose of the draft law

text: The ECB published Opinion

text: on the draft Central Bank and Credit Institutions (Resolution) Bill 2011 (the ‘No 1 Bill’) on 26 April 2011. Following a change in government, the No 1 Bill lapsed and was reintroduced to Parliament in the near identical form of the draft law. This Opinion concerns the amendments. The draft law was one of the actions implementing the financial assistance programme agreed between the Minister, the European Commission, the ECB and the International Monetary Fund, to restore confidence in the banking sector and achieve financial stability in the Irish economy , alongside the Credit Institutions (Stabilisation) Act 2010 on which the ECB issued Opinion

text: on 17 December 2010 (the ‘2010 Act’). 1 OJ L 189, 3.7.1998, p. 42. 2 All ECB opinions are available on the ECB’s website at www.ecb.europa.eu. 3 See the Memorandum of Understanding on specific economic policy conditionality, 3.12.2010, p. 4, available on the Commission’s website at www.ec.europa.eu.

text: The amendments to the No 1 Bill include the following: (i) a new section to provide for cooperation between the CBI and relevant foreign authorities in respect of the CBI’s resolution powers under the draft law; (ii) extra provisions to allow the CBI to require authorised credit institutions, and their subsidiary or holding companies, to provide information in connection with transfer orders in respect of their assets and/or liabilities; (iii) a new section to deal with valuations of such assets and liabilities; (iv) new provisions on which creditors of authorised credit institutions or their subsidiary or holding companies may apply for compensation where they are subject to transfer orders and how such compensation is to be calculated; (v) new provisions to extend the scope of the CBI’s powers in respect of the liquidation of authorised credit institutions; and (vi) amendments to other legislation, including to the 2010 Act.

text: 2. General observations

text: 2.1 The ECB welcomes that the amendments address several specific issues raised by the ECB in Opinion

text: , whilst the comments in that Opinion remain valid for the issues not addressed. 2.2 Prior to the amendments, the draft law would apply to banks, building societies and credit unions licensed in Ireland (hereinafter ‘authorised credit institutions’), but only to the extent that such institutions were not ‘relevant institutions’ under the 2010 Act, which includes Irish licensed banks to which financial support has been given by the Minister. Thus, relevant Irish licensed banks would not have been subject to both the draft law’s resolution regime and the 2010 Act’s stabilisation regime contemporaneously. This has been amended by the draft law, where the CBI’s liquidation powers under the draft law are concerned. Relevant institutions are now to be included within the definition of ‘authorised credit institutions’. Therefore, under the draft law, the CBI will be able to exercise its liquidation resolution powers over all authorised credit institutions, including Irish licensed banks credit institutions which are subject of the 2010 Act and which have received financial support from the Minister, which is welcomed by the ECB. 2.3 Under the draft law in its current form, credit unions are no longer ‘relevant institutions’ under the 2010 Act, as Part 5 of Schedule 2 of the draft law will delete the reference to credit unions in the definition of ‘relevant institution’. Consequently, the 2010 Act will no longer apply to credit unions except to the extent that any orders or requirements have been made in regard to them under the 2010 Act and therefore, credit unions will be fully subject to the draft law’s resolution regime. Furthermore, the ECB understands and welcomes that legislation will shortly be introduced which will provide for a strengthened regulatory framework for credit unions, including effective governance and stabilisation requirements. 2.4 Opinion

text: welcomed the wider powers under the draft law that will be available to the CBI to manage and resolve financial institutions which are financially distressed and whose demise would threaten the stability of the financial system. The ECB notes, however, that in certain instances, the draft law does not clearly link the exercise of resolution tools to the objectives of the

text: draft law and would welcome further clarity in this regard. By way of example, section 10(2) of the draft law provides that the purpose of the resolution fund (hereinafter the ‘Fund’) is to provide a source of funding for the resolution of financial instability or a serious threat thereto in an authorised credit institution. The ECB would welcome the draft law clarifying that the use of resolution tools, such as the establishment of the Fund, should be linked to the objectives of the draft law, for example by making specific reference to the requirement to satisfy the intervention conditions prior to the exercise of any resolution tool provided for in the draft law.

text: 3. Adaptation of the Irish resolution framework to future Union legislation on a Union crisis management and bank resolution regime

text: The Irish resolution framework may have to be adapted in the light of the forthcoming Commission’s legislative proposals on a Union crisis management and bank resolution regime.

text: 4. Resolution Fund

text: The draft law provides that ‘the Minister may contribute to the Fund such sums as he or she considers appropriate from the Central Fund or the growing produce of the Central Fund’ . Such contributions would be in addition to, amongst other sources of funding, contributions made by authorised credit institutions to the Fund. The ECB recommends that the draft law should provide that the level of such additional contributions by the Minister should be linked to the purpose of the Fund as set out in section 10(2) of the draft law.

text: 5. Bridge banks

text: The ECB welcomes that a bridge bank is to be wholly owned by the CBI or its nominees . However, the ECB assumes that the nominees will be another State entity, for example the National Treasury Management Agency, and would welcome clarification in this regard. Moreover, the ECB reiterates that it would welcome an express provision in the draft law that the CBI as a shareholder in a bridge bank will in no event assume or finance any obligation of a bridge bank, and that this role will remain, under any circumstances, consistent with the prohibition on monetary financing under Article 123 of the Treaty. In this respect, the ECB would welcome further clarification in the draft law to address any potential liability that might attach to the CBI or its nominees in regard to its ownership of the bridge bank. Second, the ECB notes that draft amended section 17 provides that the CBI may set up a bridge bank only if, having regard to any of the matters in section 9(6) of the draft law that appear to be relevant to the CBI in the circumstances, it would be in the public interest to do so. The ECB notes that this need to show that

text: the setting up of the bridge bank is in the public interest does not expressly apply to the other resolution tools and therefore appears to set the bridge bank apart from the other tools in this respect. In that case, however, it is unclear whether the decision to set up a bridge bank requires the intervention conditions in section 8 of the draft law to be first fulfilled, as is the case with the other resolution tools (section 21(1)(a) in respect of transfer of assets and liabilities and section 55(a) in respect of special management). These matters should be further clarified in the draft law for the bridge bank to remain effective and of equal rank with the other resolution tools.

text: 6. Disclosure of information

text: The ECB notes the inclusion, in respect of transfer orders, of the new section 23 which providing that notwithstanding any other rule of law, the CBI may disclose information that it obtains to a potential transferee. The ECB would welcome clarification in the draft law to address either (i) how such disclosure is to interact with other disclosure obligations or disclosure prohibitions provisions of national 7 8 9 10 and Union law, for example Directives

text: and

text: , and the stock exchange rules etc., that might apply to transferors and transferees, or (ii) where such other obligations or prohibitions do apply, that they are to be disregarded when section 23 applies.

text: 7. Transfer orders

text: 7.1 Valuation and compensation Paragraph 3.8 of Opinion

text: noted that the draft law did not set out any specific approach to valuation of assets to be transferred by virtue of a transfer order. The ECB therefore welcomes the inclusion of extensive new provisions to deal with (i) the calculation of the value of the assets to be transferred ‘market value’ (section 28), (ii) circumstances where creditors of transferor institutions may apply for compensation (section 35) and (iii) the appointment of an ‘assessor’ to calculate any such compensation due to such a creditor (section 36). The ECB also welcomes the elaboration in the draft law dealing with where a transferor may dispute the valuation of transferred assets and/or liabilities determined by the CBI for the purposes of a transfer order (section 48). The ECB notes that, where such a dispute arises, the CBI must appoint an independent valuer to determine whether a competitive process was carried out by the CBI and if not, what the likely market value would have been had such a competitive process been

text: carried out (section 48(3)). In determining the likely market value in such circumstances, the independent valuer is to assume various particulars set out in section 48(5)(a) to (e). The ECB would recommend the inclusion of a further point (f), whereby the independent valuer should also assume that the competitive process would have been carried out on the basis that the institution concerned had not received any state financial assistance. 7.2 Consideration for the transfer and publication The ECB notes that the draft law now includes a specific obligation on the CBI to publish details of the consideration calculated for assets and/or liabilities transferred under a transfer order (section 29 in conjunction with section 31(1)(b)). The ECB also notes that Union law already imposes are specific disclosure obligations and prohibitions. While the ECB welcomes the obligation to publish the consideration from a transparency perspective, it would welcome clarification in the draft law as to the interaction and priority between the consideration disclosure to be made pursuant to the draft law and disclosure obligations or prohibitions under Union law and the national regulations transposing it. The ECB also queries whether the draft law should provide some flexibility to the CBI as regards whether to publish all the contents of a transfer order, in particular details of the consideration.

text: 8. Prohibition on monetary financing

text: The ECB emphasises that it is important that national provisions comply with the monetary financing prohibition under Article 123 of the Treaty. This provision prohibits central banks from providing overdraft facilities or any other type of credit facility to the public sector, including any financing of the public sector’s obligations vis-à-vis third parties . The draft law provides that the CBI may make payments and charge them to the deposit protection account, to facilitate the transfer of accounts of eligible depositors of an authorised credit institution subject to the CBI’s liquidation powers under the draft law and for the purpose of cooperating in the pursuit of Objective 1 of a liquidator. The draft law further provides that, where the CBI makes such payments and charges them to the deposit protection account, the amount of the payments, with the approval of the Minister, must be repaid to the CBI out of the Central Fund or the growing produce of that Fund within three months. Furthermore, any amount paid out of the Central Fund to the CBI must be repaid to the Central Fund from the deposit protection account with interest at the rate or rates that the Minister determines, or without interest . Thus, the ECB understands that the draft law implies that the CBI may temporarily finance the Irish DGS’ tasks, until it is reimbursed by the Central Fund, and that the CBI may not be entitled to be 11 See

text: Article 1

text: (b)(ii) of

text: Council Regulation (EC) No 3603/93 of 13 December 1993

text: specifying definitions for the application of the prohibitions referred to in Articles

text: and

text: (b)(1) of the Treaty (OJ L 332, 31.12.1993, p. 1). 12 Section 81(1)(b) of the draft law. 13 See section 80(1) (a) of the draft law. 14 See section 81(2) of the draft law.

text: reimbursed if the Minister does not consent . Such advance payments by the CBI in the context of the operation of its liquidation powers under the draft law are incompatible with the monetary financing prohibition and consequently, the draft law needs to be amended. The only compatible forms of central bank financing of deposit guarantee schemes are: (a) intraday credit in line with the general rules on provision of such credit by the central bank; and (b) short-term emergency liquidity financing under strict conditions established in the ECB’s Convergence Reports, i.e. if such funding is short term, addresses urgent situations, systemic stability aspects are at stake and decisions are at the NCB’s discretion . These conditions need to be listed in the draft law where emergency liquidity financing by the CBI of the Irish DGS is foreseen by the draft law. In this respect, it is noted that central bank support extended to deposit guarantee schemes should not amount to a systematic ‘pre-funding’ operation. Consequently, the ECB proposes amending the draft law either to (i) clarify that there will be no such advance financing by the CBI, or (ii) specify in section 81 that the Minister transfers the necessary amounts from the Central Fund to the CBI before the CBI makes any payments related to the performance of the Irish DGS’ tasks. Alternatively, it should provide expressly that any advance payments by the CBI are only intraday. If, in addition, short-term emergency liquidity financing of Irish DGS operations by the CBI is foreseen, conditions for such financing referred to above should be expressly listed in the draft law. In such case, when exercising its discretion to grant a loan, the CBI has to ensure that by doing so it is de facto not taking over a State task. Moreover, to rule out any breach of the monetary financing prohibition, it may be useful to specify in the draft law that the credit facilities extended by the CBI to the Irish DGS are based on adequate collateral and are granted without prejudice to Article 123 of the Treaty .

text: 9. Central bank independence

text: In relation to the same provisions of the draft law as mentioned in the previous paragraph, the ECB refers to the principle of financial independence under which a national central bank (NCB) must have sufficient means not only to perform its tasks related to the European System of Central Banks (ESCB), but also its national tasks, e.g. financing its administration and own operations . Financial independence also implies that an NCB should always be sufficiently capitalised . Previous ECB opinions pointed out that the allocation to the NCBs of specific non-ESCB related tasks, such as tasks in the area of financial supervision or consumer protection, needs to be accompanied by the allocation of adequate human and financial resources allowing such tasks to be carried out in a manner which will not affect the NCBs’ operational capacity to carry out their ESCB-related tasks . In particular, the ECB has advocated a

text: prudent approach in this respect when reimbursement arrangements are proposed in national legislation to finance the non-ESCB related tasks . In addition to the monetary financing prohibition observations made in paragraph 8, the respective provision of the draft law, in conjunction with the provision of the Financial Services (Deposit Guarantee Scheme) Act 2009 that the CBI may not be entitled to be reimbursed if the Minister does not consent, raises concerns in respect of the CBI’s financial and institutional independence to the extent that in practice the CBI will not be able to autonomously avail itself of sufficient financial resources to fulfil its mandate . Opinion

text: noted that the draft law allowed the Minister in certain circumstances to make orders mitigating any unfairness or undue hardship caused by the operation of an effective ‘switch-off’ of certain rights, such as netting and set-off, of counterparties dealing with authorised credit institutions under relevant agreements. The ECB recommended amending the relevant section to require the Minister to consult with the CBI prior to making any such order and the ECB welcomes that the draft law has now been amended .

text: 10. 2010 Act amendments

text: The draft law will make substantial amendments to the 2010 Act. The ECB understands that such amendments are mainly designed to mirror the amendments made to the No 1 Bill to ensure coherent, robust and effective resolution and stabilisation mechanisms and to reflect the authorities’ experience from litigation of a number of resolution orders under the 2010 Act. The ECB notes for example the mirror insertions relating to, for example, (i) applications to set aside transfer orders under the 2010 Act (14 day window now instead of 5 day window under both the stabilisation and resolution regimes), (ii) the publication and effectiveness of transfer orders. In addition, the ECB welcomes the clarification that stabilisation orders made under the 2010 Act are intended to fall within Directive

text: of the European Parliament and of the Council of 4 April 2001 on the reorganisation and winding up of credit institutions .

text: This opinion will be published on the ECB’s website.

text: Done at Frankfurt am Main, 21 October 2011. [signed]

text: The President of the ECB

text: Jean-Claude TRICHET


text: OJ L 189, 3.7.1998, p. 42. 2 Draft Law on the budget 2011 No 3804. 3 See the explanatory memorandum to the draft law. 4 See Article 4 of the draft law. 5 In accordance with

text: Article 34

text: -II-5 of Organic Law No 2001-692 of 1 August 2001 on finance laws.

text: See draft law. 7

text: . 8

text: See

text: Article 4

text: -III of the draft law. 10 See notably the Communication from the Commission on the application, from 1 January 2011, of State aid rules to support measures in favour of banks in the context of the financial crisis, (OJ C 329, 7.12.2010, p. 7); Communication from the Commission – The application of State aid rules to measures taken in relation to financial institutions in the context of the current global financial crisis (OJ C 270, 25.10.2008, p. 8); Commission Communication on the treatment of impaired assets in the Community banking sector, 25.2.2009 (OJ C 72, 26.3.2009, p. 1). 11

text: , paragraph 3.1,

text: , paragraph 3.3,

text: , paragraph 3.9. 12

text: , paragraph 3.5. 13

text: , paragraph 3.1, and 3.3.2

text: , paragraph 3.5.

text: , paragraph 3.1,

text: , paragraph 3.9,

text: , paragraph 3.2,

text: , paragraph 3.3.2. 15

text: , paragraph 3.1,

text: , paragraph 3.9,

text: , paragraph 3.3.2 and

text: , paragraph 3.7. 16

text: , paragraph 3.1,

text: , paragraph 3.3.2,

text: , paragraph 3.9. 17 DG Competition Staff Working Document - The application of State aid rules to government guarantee schemes covering bank debt to be issued after 30 June 2011, available on the Commission’s website at www.ec.europa.eu. 18

text: , paragraph 3.2,

text: , paragraph 3.1,

text: , paragraph 2.5.2. 19

text: Article 4

text: -I (a) of the draft law. 20 See explanatory memorandum. 21 See explanatory memorandum: ‘This guarantee will be remunerated according to European standards’. 22 Recommendations of the Governing Council of the European Central Bank on government guarantees for bank debt, 20 October 2008.

title: Opinion of the European Central Bank of 24 October 2011 on a State guarantee covering certain loans granted to Dexia SA and Dexia Crédit Local SA (CON/2011/85)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 24 October 2011 on a State guarantee covering certain loans granted to Dexia SA and Dexia Crédit Local SA (

text: ) Introduction and legal basis

text: On 21 October 2011, the European Central Bank (ECB) received a request from the French Ministry of Economic Affairs, Finances and Industry for an opinion on a draft Supplementary Budget Act providing for a State guarantee covering certain loans to Dexia SA and Dexia Crédit Local SA (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and on the sixth indent of

text: Article 2(1) of Council Decision 98/415/EC of 29 June 1998

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft law, and in particular

text: Article 4

text: thereof, relates to rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

text: 1. Purpose of the draft law

text: 1.1 The draft law is motivated by the current financial market crisis, and in particular in the context of the restructuring plan for the Dexia group, by the need to restore investor confidence and reassure Dexia’s clients and creditors that Dexia will be able to continue to meet its obligations . To this end, the French State will grant two types of guarantees under the draft law covering financing of certain entities of the Dexia group . 1.2 Under the draft law , the Minister for Economic Affairs will be authorised to grant the State guarantee in return for payment (first guarantee) for: (a) financing raised by Dexia SA and Dexia Crédit Local from credit institutions and institutional depositors, as well as bonds and debt securities that they issue for institutional

text: investors, provided that such financing, bonds and securities have been raised or subscribed between the date of publication of this draft law once adopted and 31 December 2021; and (b) debt securities issued by Dexia Crédit Local SA and entered into its balance sheet at the date of publication of this draft law once adopted. The guarantee is granted for a maximum ceiling of EUR 32 850 000 000. In the event of a transfer by Dexia SA of direct or indirect control over Dexia Crédit Local SA to a third party, the guarantee will cease to apply to financing, bonds and debt securities raised or issued after the transfer. The guarantee is subject to a joint call by the beneficiaries of the Belgian and Luxembourg guarantees granted within the limit of 36.5% of the eligible amounts. 1.3 Under the draft law, the Minister for Economic Affairs will also be authorised to grant in return for payment the State guarantee (second guarantee) to Dexia SA and Dexia Crédit Local SA for commitments the two entities took, with the agreement of the French State, with regard to assets entered into the balance sheet of Dexia Municipal Agency on the date of transfer of Dexia Crédit Local SA of more than 50% of Dexia Municipal Agency’s capital. This second guarantee is granted for a maximum of EUR 10 000 000 000. It will apply above a ceiling of EUR 500 million within a limit of 70% of the amounts due and of a total of EUR 6 650 000 000. 1.4 The conditions under which each of the guarantees mentioned may be called will be defined in one or several agreements entered into by the Minister for Economic Affairs with the undertakings in question and, as far as the first guarantee is concerned, with the two other States. 1.5 The draft law further provides that the governing bodies of a credit institution receiving from State support may not decide or propose (i) the allocation of stock options or bonus shares to members of the governing bodies; (ii) the allocation or payment of variable elements of remuneration based on performance and the allocation or payment of delayed remuneration; and (iii) the distribution of dividends by the credit institution to shareholders when its solvency or liquidity is or likely to be jeopardised.

text: 2. General observations

text: 2.1 As explained in the draft law , the State guarantees supporting the Dexia restructuring plan will emanate from Belgium, Luxembourg and France. In this respect, the ECB was also consulted on 12 October 2011 by the Belgian authorities regarding a draft royal decree granting a State guarantee covering certain loans granted to Dexia SA and Dexia Crédit Local SA and on 14 October 2011 by the Luxembourg authorities regarding a draft Grand-Ducal Regulation authorising the Government to extend a financial guarantee in the context of the ordered restructuring of the Dexia banking group . The ECB is unable to fully assess consistency between the legislation due to

text: different legislative techniques, and considering that certain modalities, varying according to the Member States, still have to be defined in implementing agreements between these States and the Dexia entities . The ECB emphasises the importance of ensuring the utmost consistency between the three sets of rules. 2.2 It should also be ensured that the draft law and any subsequent implementing measures fully comply with the relevant provisions of Union law, including competition and State aid rules. In particular, national authorities should seek to coordinate their responses to the current financial situation with their Union partners, to act in a united manner and to avoid that national measures adversely affect the functioning of the single market and the other Member States. In this respect, it is essential that Member States comply with the guidance given by the European Commission in its communications on the application of State aid rules to support measures in favour of banks and government guarantee schemes covering bank debt, including with regard to the temporary nature of the acceptability of such aid measures and the necessity for credit institutions receiving State support to submit a restructuring plan .

text: 3. Interaction of the draft law with the monetary policy of the euro area

text: The draft law does not define the type of liabilities falling within the meaning of ‘financing’ under

text: Article 4

text: -I of the draft law. It also does not specify in detail the assets covered under the second guarantee. In this respect, the ECB makes the following observations. First, the ECB reminds the consulting authority that government guarantees for bank debt should, when implemented: (i) address the funding problems of liquidity-constrained solvent banks by improving the functioning of the market for bank debt of longer-term maturity; (ii) preserve the level playing field among financial institutions and avoid market distortions; and (iii) ensure consistency in the management of Eurosystem liquidity. In this vein, government guarantees for short-term bank debt with a maturity of three to 12 months may be provided to revitalise the short-term bank debt market . In this regard, the ECB reiterates that granting government guarantees for bank debt with a maturity of less than three months should be avoided to the extent possible . Second, it is also stressed that it is of the utmost importance that support operations conducted by national authorities do not in any way affect the conduct and the implementation of monetary policy in the euro area . In this context, the ECB reiterates its view that the extension of the State guarantee to cover

text: interbank deposits should be avoided , as this could entail substantial distortion in the various national segments of the euro area money market by potentially increasing short-term debt issuance activity across Member States and therefore impairing the implementation of the single monetary policy, which is an exclusive competence of the Eurosystem under Article 127(2) of the Treaty . It could also affect the transmission of monetary policy decisions and make it difficult to maintain the necessary level playing field in the euro area between the financial institutions benefiting from the State guarantee and those not benefiting.

text: 4. Temporary nature of the scheme

text: In line with the assessment in the Commission’s staff working document , the ECB notes the need for national support measures to be temporary in nature . The financing that will be covered by the first guarantee may be issued until 31 December 2021 . Moreover, the maturity of the financing covered is not defined in the enacting terms of the draft law, and a 10 years’ maturity is only indicated in its recitals . No time restriction is specified for the second guarantee. Thus, the support scheme could be considered of a longer-term rather than temporary nature.

text: 5. Pricing of the guarantee

text: The explanatory memorandum to the draft law specifies that the remuneration due to the French State for the first guarantee will take into account European standards. The ECB takes note of the intention of the 21 22 French State to apply the pricing formula recommended by the ECB’s Governing Council , which is also affirmed by the Commission’s staff in their assessment of the application of State aid rules to Government guarantee schemes covering bank debt.

text: This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 24 October 2011. [signed]

text: The President of the ECB

text: Jean-Claude TRICHET


text: Published in Monitorul Oficial al României, Part One, No 1027, 27.12.2006. 2 Republished in Monitorul Oficial al României, Part One, No 587, 19.8.2010. 3 OJ L 189, 3.7.1998, p. 42.

text: Article 58(1)

text: to be inserted in GO No 39/1996. 9 OJ L 135, 31.5.1994, p. 5. 10 See Article 10(1) of the Directive

text: . 11 See recital (23) of Directive

text: specifying that financing capacity of DGSs must be in proportion to their liabilities; see also paragraph 2.5 of ECB Opinion

text: . 12 Article 60 of GO No 39/1996. 13 See ESCB contribution to the Commission’s public consultation on the technical details of a possible EU framework for bank recovery and resolution, p. 18. All ECB documents are available on the ECB’s website at www.ecb.europa.eu. 14 Section 2

text: Article 254

text: to be inserted in GEO No 99/2006. 15 This is not the case in the draft ordinance. See Section 2

text: Article 254 (1)

text: to be inserted in GEO No 99/2006 and Article 9(2) of GO No 39/1996 to be amended.

text: See paragraph 3.7 of Opinion

text: and paragraph 3.3 of Opinion

title: Opinion of the European Central Bank of 31 October 2011 on stabilisation measures and bridge banks (CON/2011/86)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 31 October 2011 on stabilisation measures and bridge banks (

text: ) Introduction and legal basis

text: On 20 October 2011, the European Central Bank (ECB) received a request from Banca Naţională a României (BNR) for an opinion on a draft government emergency ordinance amending and supplementing Government Emergency Ordinance No 99/2006 on credit institutions and capital adequacy (GEO No 99/2006) and Government Ordinance No 39/1996 on the setting up and operation of the deposit guarantee fund in the banking system (GO No 39/1996) (hereinafter the ‘draft ordinance’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the third and sixth indents of

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft ordinance relates to BNR and to rules applicable to the financial institutions insofar as they materially influence the stability of financial institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

text: 1. Purpose of the draft ordinance

text: 1.1 The draft ordinance will provide the supervisory authority with the tools to manage financial stability threats posed by the deterioration of the financial situation of authorised credit institutions or of the group to which they belong. To this end, it will introduce a set of stabilisation measures for the credit institution in distress, in addition to the special administration procedure already applicable. 1.2 Amendments to GEO No 99/2006 The draft ordinance will introduce the following stabilisation measures in the legal framework for credit institutions and financial investment companies in Romania:

text: (a) the total or partial transfer of assets and liabilities of a credit institution to one or more eligible institutions; (b) the appointment of the Bank Deposit Guarantee Fund (BDGF) as a delegated administrator and shareholder of the credit institution , by increasing that credit institution’s share capital and subscribing to the new shares issued by the BDGF. The shares acquired by the BDGF must be sold within two years following the date of acquisition; (c) the transfer of assets and liabilities of a credit institution to a bridge bank, established for this purpose, if measures (a) and (b) cannot be applied or if their application does not ensure the removal of the threat to financial stability. The BDGF, which is a public law legal entity , provides the financing for the stabilisation measures: first, from the resources of the Bank Resolution Fund and, then, if those resources have been used up, from its own resources. Such financing may not exceed a level by which the coverage degree of the BDGF’s exposure decreases below the limit of 0.5% of the total value of the guaranteed deposits. Where the BDGF’s resources are insufficient, the difference is provided by loans granted by the Ministry of Public Finance to the BDGF within 15 banking days from receipt of the request from the BDGF. A government decision will regulate the loan. The bridge bank is established and operates for up to two years - unless extended for serious reasons - according to the legislation applicable to the credit institutions and is subject to BNR’s prudential supervision. The stated purpose of the bridge bank is to ensure the prudent continuous provision of banking services related to the assets and liabilities taken over in view of its subsequent sale to an eligible third party purchaser. The bridge bank subrogates to the rights and obligations arising from agreements entered into by the credit institution from which the transfer was made. The bridge bank is sold on the basis of BNR’s decision by: (a) selling shares, or (b) selling assets with assumption of liabilities. 1.3 Amendments to GO No 39/1996 The legal framework for the Romanian Deposit Guarantee Scheme is also amended to foster the stabilisation measures and its new competences: the BDGF may become the delegated administrator and shareholder of a credit institution which is subject to a stabilisation measure; where a bridge bank is created, the BDGF is its sole shareholder and exercises the tasks of the supervisory committee. In these cases, the BDGF finances the stabilisation measures with BNR’s prior approval. The draft ordinance also modifies the regime for the special fund initially created for compensating persons negatively affected by the measures implemented during the special administration procedure. This Fund is renamed the Bank Resolution Fund and it may also finance the stabilisation measures.

text: 2. General observations

text: 2.1 The amendments in the draft ordinance are part of Romania’s commitments in the Letter of Intent of 14 September 2011 in the context of the Stand-by Arrangement between Romania and the International Monetary Fund and the European Union; their entry into force is envisaged for 31 October 2011. The consulting authority therefore invokes extreme urgency and asks the ECB to deliver its opinion by 26 October 2011 to enable the Romanian legislator to take the ECB’s opinion into account. The ECB draws the consulting authority’s attention to the second sentence of

text: Article 4 of Decision 98/415/EC

text: according to which the ECB must be consulted ‘at an appropriate stage’ in the legislative process. This implies that the consultation should take place at a point in the legislative process that affords the ECB sufficient time to carefully examine the draft legislative provisions and to adopt its opinion in the required language versions and which also enables the relevant national authorities to take the ECB’s opinion into consideration before the provisions are adopted. 2.2 Furthermore, the ECB notes that the draft ordinance will need to be reviewed in the light of the future Union regulatory framework on bank recovery and resolution, in particular with regard to resolution tools and resolution authorities’ powers, and of the forthcoming recast Directive on deposit guarantee schemes.

text: 3. Specific observations

text: 3.1 The ECB welcomes the introduction of a bridge bank as a stabilisation measure, with the specific purpose of transferring to it the assets and liabilities of a troubled credit institution in the circumstances set out by the draft law. As regards the period of two years for the existence of the bridge bank , the ECB considers that BNR should have the power to extend this period if it deems necessary. In that case, the ECB considers that it is not sufficient that this decision will be taken ‘for serious reasons…in order to ensure continuity of banking services’. In the interest of legal certainty and in keeping with the interim nature of the bridge bank as a resolution tool, the grounds on which BNR may decide to extend the bridge bank should be set out precisely; such grounds may include a continuing risk to financial stability or the fact that negotiations with a purchaser are not yet completed. 3.2 The draft ordinance provides that ‘After the transfer, the BDGF shall appoint an authorised independent expert to assess the quality of assets taken over by the bridge bank, to calculate, according to the applicable accounting regulations, the fair value of the transferred assets and liabilities and the total value of the transfer’ . It is important for the draft law to express clearly that any State or central bank financial assistance provided or potentially to be provided, apart from ordinary market operations on the usual terms, will be deducted from the calculation of the fair value of the transferred assets and liabilities.

text: 3.3 Funding of resolution measures by the Bank Resolution Fund and by the BDGF The purpose of the Bank Resolution Fund (BRF), which is based on the former Special Fund, needs to be clarified. The new BRF appears to support compensation of ‘persons prejudiced by measures taken’ both at an early intervention and resolution phase. In addition the BRF’s financial resources may be used to finance the stabilisation measures but the draft ordinance does not specify unambiguously when and how such financing will be triggered. Furthermore, the respective roles of the BRF and the BDGF in financing the stabilisation measures are not sufficiently clear and the relationship between the BRF and the BDGF needs to be clarified. Directive

text: of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes requires that deposit-guarantee schemes (DGSs) should be in a position to pay duly verified claims by depositors in the periods specified by this Directive which also implies that the DGSs should have adequate financial means at their disposal to realise this objective . Generally, the ECB considers that, to avoid confusing the deposit guarantee role of the BDGF and the resolution role of the BRF, it would be more appropriate for the BRF’s financial resources , rather than the BDGF’s resources, to be used to finance the stabilisation measures and to capitalise the bridge bank. In any case, the BDGF’s financial resources available for paying guaranteed deposits should be ring-fenced and, if necessary, only used to cover the part of the resolution cost that indirectly ensures the depositors’ protection . In resolution, the amount paid by the BDGF for the financing of stabilisation measures should therefore be limited to the amount of guaranteed deposits transferred to a private sector purchaser or a bridge bank . This is crucial to ensure that the objective of the deposit guarantee scheme is fully respected. In the same vein, the BDGF’s involvement as shareholder and administrator of the ailing or bridge bank should be reconsidered and the BRF should instead assume this role. The ECB considers it very important for a satisfactory level of funds to be collected ex ante from the financial sector for the deposit guarantee and the resolution fund, given the countercyclical nature of such pre-collected funds. The ECB welcomes the special supplementary contributions ex post as a complement to the ex ante funding regime for the BDGF and the BRF where BNR considers the financial resources accumulated in the BDGF and in the BRF to be insufficient to ensure payments due.

text: 3.4 Central bank independence The ECB appreciates that any decision on the use of the BDGF’s financial resources to finance transactions involving the transfer of covered deposits is subject to BNR’s approval and hence recognises BNR’s expertise. The ECB restates its view that the functions to be performed by BNR to assist stabilisation measures must be conducted in a manner that is fully compatible with BNR’s institutional and financial independence which safeguards the proper performance of its tasks under the Treaty and the Statute of the European System of Central Banks and of the European Central Bank .

text: This opinion will be published on the ECB’s website.

text: Done at Frankfurt am Main, 31 October 2011.

text: [signed]

text: The President of the ECB

text: Jean-Claude TRICHET