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

text: Referred to as ‘common shares’ under some legal systems.

text: The State may underwrite or guarantee the placement of the issue in whole or in part.

text: Article 4 of the draft law.

text: See Title VIII of the Legal Framework for Credit Institutions and Financial Companies as it currently reads.

text: Second

text: Council Directive 77/91/EEC

text: of the Council of 13 December 1976 on coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of the Treaty, in respect of the formulation of public limited liability companies and the maintenance and alteration of their capital, with a view to making such safeguards equivalent (OJ L 26, 31.1.1997, p 1).

text: See

text: Article 25(2) of Directive 77/91/EEC

text: . 13 Directive

text: of the European Parliament and of the Council of 11 July 2007 on the exercise of certain rights of shareholders in listed companies (OJ L 184, 14.7.2007, p. 17) 14 See Article 5 of the Directive. 15 Articles 9 and 12 of the draft law. 16 Article 20(1) of the draft law.

text: See Commission Communication on the return to viability and the assessment of restructuring measures in the financial sector in the current crisis under the State aid rules, (OJ C 195, 19.8,2009, p. 9), in particular paragraph 15.

title: Opinion of the European Central Bank of 22 November 2011 on the recapitalisation of credit institutions by the State (CON/2011/95)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 22 November 2011 on the recapitalisation of credit institutions by the State (

text: ) Introduction and legal basis

text: On 9 November 2011, the European Central Bank (ECB) received a request from the Portuguese Ministry of State and for Finance for an opinion on a draft law amending and republishing Law No 63-A/2008 of 24 November, which adopted measures reinforcing the financial robustness of credit institutions in the context of the initiative for financial stability and liquidity supply (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 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 Banco de Portugal (BdP) 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 background of the draft law

text: 1.1 The draft law is one of the actions considered necessary under the Economic Adjustment Programme for Portugal, with a view to restoring confidence in the banking sector and achieving financial stability in the Portuguese economy. 1.2 The draft law will establish the conditions and procedures for providing temporary support from public sources to viable credit institutions to bolster the resilience of the banking sector. To achieve this goal, banks have been asked to further strengthen their capital buffers to raise core Tier 1 capital ratio to 9% by the end of 2011 and to 10% by the end of 2012. Subsequently, on 26 October 2011, the European Banking Authority (EBA) announced measures aimed at addressing the increase in systemic risk triggered by the sovereign debt crisis in the euro area. In particular, banks are required to strengthen their capital positions by building up a temporary capital buffer against sovereign debt exposures to reflect market prices by the end of June 2012. All credit institutions with a head office in Portugal, regardless of the legal form in which they were incorporated, may benefit from public recapitalisation on the basis of the draft law.

text: 1.3 Capitalisation may have recourse to financial instruments or resources eligible for Core Tier 1 capital, through (a) acquiring the credit institution’s own shares or other equity stakes; (b) increasing the share capital through the issuance of (i) special shares to the State; or 2 3 (ii) ordinary shares to the shareholders and/or the public ; and (c) other financial instruments or resources eligible for Core Tier 1 capital under the applicable eligibility conditions. According to the draft law, the shares issued under the draft law are special shares, subject to the ordinary shares regime, except that they grant the State a priority dividend. The State may only exercise its voting rights in matters pertaining to amendments to the articles of association, mergers, split-ups, conversion or dissolution of the credit institution or other matters in which the law or the institution’s by-laws require a qualified majority. The issuance of ordinary shares with voting rights is also envisaged by the draft law if the State’s stake exceeds a certain threshold to be determined by the implementing legislation. 1.4 Access to public investment depends on the submission to the BdP of a recapitalisation plan by the credit institution. Such a plan must provide for the necessary and appropriate measures for that purpose, including the timetable, and demonstrate that the credit institution meets conditions of soundness and solvency thus allowing its activity to continue. The State may under certain conditions appoint one representative to the administration and supervisory bodies of the institution that should among others: (i) ensure verification of compliance with the recapitalisation plan and other obligations of the credit institution under the recapitalisation legal framework; (ii) prepare and send monthly situation assessment reports to the BdP and the Minister for Finance and inform them of any relevant facts. As long as a credit institution benefits from public investment, it will be subject to the terms, conditions and financial charges set out in the ministerial decision approving the recapitalisation operation. 1.5 In principle, recapitalisation will be voluntary, and public disinvestment is to occur within three years unless market conditions justify an extension by up to another two years. If a credit institution does not meet the required Core Tier 1 capital ratio and does not request recapitalisation on its own initiative, or if it does not submit a recapitalisation plan compliant with the BdP’s guidelines, the latter may require the credit institution to submit a recapitalisation plan with recourse to public capital, under the control of the BdP. If the credit institution does not comply, the BdP may (i) appoint a transitional administration to run the credit institution, (ii) withdraw the institution’s banking licence which will imply its winding-up, or (iii) apply any resolution measures foreseen in the Legal Framework for Credit Institutions and Financial Companies. 1.6 Provided that the credit institution ensures maintenance of a proper Core Tier 1 capital ratio, public disinvestment must take place within three years in accordance with the market conditions. During such time, the State may only dispose partially or entirely of its stake in the credit institution to shareholders of the institution on the date of disinvestment, and in accordance with pre-emptive

text: right rules. The shares constituting the State’s stake will automatically convert to ordinary shares at the time of disinvestment. If public disinvestment does not take place within three years, or at any time in the event of non-fulfilment of a recapitalisation plan, the State will have increased powers. As a final rule, public disinvestment must occur within five years at the latest.

text: 2. General observations

text: 2.1 The ECB was not consulted on Law No 63-A/2008 which the draft law amends. Furthermore, the ECB understands that the current text of the draft law is evolving and that it may have to be amended in the light of future developments. Moreover, the ECB notes that the draft law will be implemented by means of a ‘portaria’ (hereinafter the ‘Ministerial Order’) on which the ECB expects to be consulted in due time, due to the many important issues not yet contained in the draft law that it will address. It trusts that the observations contained in this opinion will be considered in connection with the drafting of the Ministerial Order. 2.2. The ECB welcomes the draft law and its approach directed at restoring the solvency of viable banks. The draft law delegates to implementing legislation the setting of the threshold above which the State may exercise the voting rights connected to its participation in the credit institution. The ECB understands that even in this case, the beneficiary credit institution must be a viable bank. To the extent that special shares with limited voting rights constitute a special class of shares not envisaged by the Companies Code, the ECB invites the Portuguese authorities to consider specifying in the draft law, instead of the Ministerial Order, the shareholding threshold that would result in the conversion of a certain portion of shares held by the State from special shares, with limited voting rights attached, into ordinary shares with full voting rights. This would be beneficial to legal certainty and transparency. 2.3 The draft law defines the ‘State’ for the purpose of the draft law as including any entity whose capital is fully held by the State . Under this wide definition, the State’s capital injection into the credit institution could also be undertaken by a State-owned company such as another publiclyowned bank. As any such entity could be a competitor of the State-supported institution, the ECB questions whether this was the legislator’s intention. 2.4 Finally, the draft law should specify that any recapitalisation from public resources will be made exclusively by means of a cash transfer, other than by means of new bonds or other debt instruments issued by the State which can be used as collateral in credit operations with the BdP.

text: 3. Nature of the shares to be issued under the draft law

text: 3.1 The draft law provides that the special shares are subject to the ordinary share regime under the Companies Code, but that they do have special restrictions attached to them while temporarily held

text: by the State . However, the ECB understands that the special shares are to be treated as another class of shares and that attached to the special shares will be the right to appoint one non-executive director to the Board of the institution according to Article 14(2) of the draft law. If that is the case, the State as the special shareholder will not be in the same position as the other ordinary shareholders as regards the rights it can exercise. In view of the credit institution now having different classes of shareholders, its statutes may need to be amended. It will also be necessary for the voting and other rights and powers of the non-executive director to be further specified. 3.2

text: Article 14(1)

text: (a) provides that the credit institution covered by the public investment is subject to a Ministerial decision with regard to the use of means provided within the scope of strengthening the equity capital, in particular the contribution of such credit institution to financing the economy and small and medium-sized enterprises. The ECB understands that this provision intends only to set out general obligations and should not lead the State to direct the allocation of credit by such credit institution. In particular, the credit institutions covered by the public investment should retain the ability to prioritise lending to the productive sectors of the economy, and not, for instance, Stateowned undertakings. To the extent that this provision may be understood as allowing the State to interfere with the day-to-day business of the credit institution, it is inconsistent with the State’s special shares carrying limited voting rights aimed at ensuring that the State does not intervene in the day-to-day business of the credit institution. If this provision was to be retained in the draft law, the ECB recommends clearly confining its scope to the adoption of guidelines of a general nature, to eliminate the possibility of interpreting this provision as requiring the recapitalised credit institution to finance a specific entity and a specific amount of such financing.

text: 4. Shareholder rights

text: 4.1 The draft law derogates from certain provisions of the Companies Code. It is important for fundamental shareholder rights not to be infringed while the credit institution is still being supervised as a going concern and the conditions for its resolution have not been triggered . It is also particularly important, in a period when markets are unsettled, for current shareholders of institutions which may need to be recapitalised under the draft law to have legal certainty as to their rights under the recapitalisation regime. In this respect the ECB appreciates that the draft law requires the capital increase and the recapitalisation plan to be submitted to and approved by the shareholder meeting . Nonetheless the Portuguese authorities are invited to consider further clarifying a number of relevant provisions with a view to Directive

text: 4.2 The draft law specifies that an increase of capital by subscription for special shares may only take place under certain conditions, which could be read as setting aside the procedure of the Companies Code regarding the issuance of subscribed shares . 4.3 Furthermore, the draft law appears to empower the shareholder meeting to mandate the institution’s Board to take any decision regarding implementing measures under the draft law, including increasing capital by any amount required . The ECB considers that if the maximum amount of the increase is laid down by the credit institution’s statutes, and there is no legislatively prescribed maximum, the shareholders’ agreed maximum amount should be respected . 4.4 Under the draft law, in the event of a shareholder meeting convened specifically for the approval of the recapitalisation plan, the convocation must be issued to shareholders not later than 14 days 12 13 before the meeting . Under Directive

text: such reduced convocation period is only available if the company ‘offers the facility for shareholders to vote by electronic means accessible to all shareholders’ and that the shareholder meeting has taken a decision on the matter which meets the conditions set down in the Directive . 4.5 Finally, the ECB notes that

text: Article 8(3)

text: appears to go further than necessary to safeguard preemptive rights of the existing shareholders. According to Directive

text: , the aim of preemptive rights is to offer shareholders the right to acquire new shares in proportion to their existing shareholdings. The ECB sees no compelling reason to rule out the possibility of selling shares to third parties after the pre-emptive rights of existing shareholders have been exhausted by means of law. Furthermore, to the extent that the draft law departs from the Companies Code, it may be necessary to specify the time frame during which the existing shareholders may exercise their preemptive rights according to

text: Article 8(3)

text: 5. Other issues

text: 5.1 The ECB understands that the recapitalisation plan referred to in the draft law is synonymous with the restructuring plan that will be required from the State-supported institution by the European Commission in compliance with its State aid rules. 5.2 The draft law provides that acquisition by the State of shareholdings or assets in credit institutions will not be considered a concentration of companies . The draft law should clarify how this provision relates to the exclusive competence of the Commission to assess Union-wide mergers. The draft law further provides that insofar as public intervention is maintained under the draft law,

text: certain aspects must be considered. This provision should be further clarified, as it is currently unclear what it addresses. 5.3 The ECB notes that the Ministerial Order implementing the draft law will specify the methods for determining the purchase price of the shares to be subscribed by the State. The ECB recommends that the delegated authority, in laying down the relevant rules to determine the fair value, should abide by the general principles of lowering the taxpayers’ burden and ensuring reasonable expectations of State remuneration in compliance with the relevant Union law. 5.4 Finally, under ordinary circumstances the State must divest its special shareholding in the credit institution within three years . The ECB considers that this period could also be more closely aligned with the European Commission’s developing practice as regards the duration of a restructuring plan . Finally, the ECB recommends extending the scope of

text: Article 17

text: , which refers to the bank solvency support facility (EUR 12 billion) under the Economic Adjustment Programme of Portugal as the sole source of public financing to be used for the purposes of capital increase under this draft law. Such provision may prove to be too restrictive, in case other sources of public financing could be usefully relied on.

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

text: Done at Frankfurt am Main, 22 November 2011.

text: [signed]

text: The President of the ECB

text: Mario DRAGHI


text: OJ L 189, 3.7.1998, p. 42. 2 Article 1 of the draft law. 3 Article 3(1) of the draft law. 4 Article 3(2) of the draft law. Pursuant to

text: Article 10(3)

text: , at the first election, the candidate will be proposed by at least one fifth of all deputies. 5 Article 3(4) of the draft law. 6 Article 3(8) of the draft law. 7 Article 4(2) of the draft law.

text: Explanatory memorandum to

text: Article 3

text: . 9 The precise scope of application of the monetary financing prohibition is further clarified by

text: Council Regulation (EC) No 3603/93

text: . 10 Convergence report, May 2010, p. 25.

text: 12 Member States , as well as in the Euro summit statement of 26 October 2011 . The fiscal rule should, moreover, make provisions for the economic cycle that go beyond the current escape clause applicable only in the severest circumstances. The fiscal rule should also refer to Union legislation to take into account possible changes of Union limits on deficit or debt in the future. The abovementioned rules in Directive

text: should preferably be reflected in the draft law, as the Euro summit statement of 26 October 2011 recommends their adoption at constitutional level. The ECB notes that the Slovak legislator addresses only the matters of highest importance in such constitutional laws and that, in any event, the rules should be duly reflected in Slovak legislation.

text: Available on the Council of the European Union’s website at www.consilium.europa.eu.

publisher: Europeiska centralbanken

sprak: en

title: Opinion of the European Central Bank of 5 December 2011 on fiscal responsibility (CON/2011/96)

serie: con

text: OPINION OF THE EUROPEAN CENTRAL BANK of 5 December 2011 on fiscal responsibility (

text: ) Introduction and legal basis

type: rubrik

text: On 11 November 2011, the European Central Bank (ECB) received a request from the Committee of the National Council of the Slovak Republic on Finance and the Budget for an opinion on a draft constitutional law on fiscal responsibility (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 the third 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 relates to Národná banka Slovenska (NBS). 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 law

text: The draft law establishes rules of fiscal responsibility and fiscal transparency and the Fiscal Responsibility Board . The Fiscal Responsibility Board (hereinafter ‘the Board’) will be an independent body monitoring and evaluating the development of the Slovak economy and evaluating compliance with fiscal responsibility rules . It will comprise a chair and two other members elected by the Slovak Parliament. NBS’ Governor will propose a candidate for one of the members . Membership of the Board will be incompatible with membership of NBS’ Bank Board . NBS will finance and set a limit on expenditure for the Office of the Board (hereinafter ‘the Office’) . To the extent of its competence, the Board will cooperate with NBS and provide data to NBS .

text: The draft law initially sets the government debt (hereinafter the ‘debt’) threshold at 60% of GDP and establishes procedures for reducing the debt that will apply to debt of at least 50% of GDP; starting in 2018 the thresholds will be reduced by 1 percentage point annually, until reaching final levels of 50% and 40% of GDP respectively in 2028.

text: 2. Funding the Board and the Office

text: The Office will have legal capacity and will perform professional, organisational, administrative, human resources and technical tasks for the Board. It will be managed by an Executive Director and have its own staff acting as budget analysts . The Board will decide on the structure of the budget of both the Board and the Office. Whereas NBS will finance and set a limit on the Office’s expenditure, the explanatory memorandum to Article 3 of the draft law also states that NBS will finance the Board. The ECB notes that it is important to safeguard compliance with the monetary financing prohibition pursuant to Article 123 of the Treaty. The prohibition is essentially designed to prevent central banks from providing overdraft facilities or any other type of credit facility to the public sector . National legislation may not therefore require that a national central bank finance the performance of functions of other public sector bodies . The Board and Office are independent of the NBS and the task assigned to them is neither a central banking task, nor does it facilitate the performance of such task. In this context, the Office’s tasks are to be fulfilled and financed from the Government’s budget. On this point, the financing of the Office’s and the Board’s expenditure by NBS breaches the prohibition on monetary financing.

text: 3. Fiscal rules

text: The proposed fiscal rule provides for a debt threshold and escalating measures to tighten fiscal policy as it is approached or exceeded. No limits are imposed on fiscal policy when debt remains at least 10% of GDP below the threshold. If debt exceeds various levels, increasingly strong measures are required, such as justifications, expenditure limits and a vote of confidence when the threshold is breached. Escape clauses cover severe recessions, financial crises, natural catastrophes and war. Interim provisions clarify that the initial debt threshold is set at 60% of GDP, and will be reduced by 1 percentage point per year starting in 2018 and reaching a final limit of 50% of GDP in 2028. The ECB considers that the proposed fiscal rule set out in the draft law does not fulfil all the fiscal requirements, as it does not include a deficit limit, provisions to allow for the economic cycle and references to Union legislation. The rule should limit general government deficits in addition to debt in order to bind fiscal policies even when debt is relatively low. A deficit limit is also required under the

text: Council Directive 2011/85/EU of 8 November 2011

text: on requirements for budgetary frameworks of the

text: 4. Fiscal transparency

text: The provisions on transparency do not cover all the requirements under Directive

text: , such as the obligation to publish monthly cash-based data, the obligation to compare the own macro-fiscal scenario with the European Commission forecast and the need for regular published ex post evaluations of projections. Moreover, fiscal transparency would be enhanced by giving the task of fiscal projections to the Fiscal Responsibility Board, rather than to a committee under the Ministry of Finance.

text: 5. Definition of government debt

text: The ECB understands that the term ‘government debt’ (‘dlh verejnej správy’) in the draft law has the same meaning as in

text: Article 1(5) of Council Regulation (EC) No 479/2009 of 25 May 2009

text: on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community . For the purpose of clarity, however, the ECB suggests inserting the definition of government debt in the list of definitions and clarifying the valuation and consolidation of government debt and financial instruments covered. Further, the level of debt mentioned in

text: Article 5(2)

text: should additionally refer to the abovementioned Protocol and to

text: Regulation (EC) No 479/2009

text: Done at Frankfurt am Main, 5 December 2011. [signed]

text: The President of the ECB

text: Mario DRAGHI

type: vagledning

utgivare: ecb


text: The Law on incurring and implementing proprietary obligations related to the membership of the Republic of Estonia in international organisations (Riigi Teataja I 2002, 11, 58), Decision of the Parliament ‘Consent given to accession of the Republic of Estonia to the IMF, IBRD and their affiliated organisations’ (Riigi Teataja 1992, 18, 258; Riigi Teataja I 2002, 11, 58) and the Law on Eesti Pank (Riigi Teataja I 1993, 28, 498).

text: See the most recent opinions,

text: and

text: . All opinions are published on the ECB’s website at www.ecb.europa.eu.

title: Opinion of the European Central Bank of 5 December 2011 on representation and the payment of quota shares in the International Monetary Fund (CON/2011/97)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 5 December 2011 on representation and the payment of quota shares in the International Monetary Fund (

text: ) Introduction and legal basis

text: On 22 November 2011, the European Central Bank (ECB) received a request from Riigikogu (the Parliament of Estonia) for an opinion on a draft law on amendments to legislation governing aspects of International Monetary Fund (IMF) membership (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 the third indent of

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft law relates to Eesti Pank. 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 laws

text: The draft law regulates Eesti Pank’s role in relation to Estonia’s IMF membership. Eesti Pank was involved in the legislative process and agrees with the transfer of Estonia’s IMF-related responsibilities from the Estonian Government to Eesti Pank. According to the draft law, among other things, Eesti Pank will represent Estonia in the IMF and be responsible for paying Estonia’s quota share in the IMF and any quota increases.

text: 2. General observations

text: 2.1 As regards representation under the draft law, the ECB notes that Eesti Pank will be authorised to represent Estonia in the IMF subject to coordination with the Ministry of Finance and in other international organisations upon governmental authorisation. Pursuant to Articles 23 and 31.1 of the Statute of the European System of Central Banks and of the European Central Bank, the national central banks are allowed to establish relations with international organisations and perform transactions in fulfilment of their obligations towards international organisations.

text: 2.2 As regards financial obligations, the draft law provides the legal basis for Eesti Pank to act in accordance with Article V of the Articles of Agreement of the International Monetary Fund and Article III, Section 2, of the Articles of Agreement of the International Bank for Reconstruction and Development and to execute all operations and transactions provided for by these Articles of Agreement in Estonia’s name. Accordingly, Eesti Pank will make payments related to Estonia’s IMF membership and any additional quota increase. The ECB notes that any quota increase will be subject to the consent of Riigikogu. 2.3 Several opinions have stated that the tasks performed by a national central bank must comply with the monetary financing prohibition under Article 123 of the Treaty and with

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 . Pursuant to

text: Article 7 of Regulation (EC) No 3603/93

text: , the financing by national central banks of obligations falling upon the public sector vis-àvis the IMF is not regarded as a credit facility within the meaning of Article 123 of the Treaty. Recital 14 of Regulation 3603/93 sets out the rationale of the exemption and confirms that it is appropriate to authorise the financing by the national central banks of obligations falling upon the public sector vis-à-vis the IMF, as this financing results in claims which have all the characteristics of reserve assets. Therefore, the ECB finds that the obligations assumed by Eesti Pank in relation to Estonia’s IMF membership comply with

text: Article 7 of Regulation (EC) No 3603/93

text: and do not infringe the monetary financing prohibition.

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

text: Done at Frankfurt am Main, 5 December 2011.

text: [signed]

text: The President of the ECB

text: Mario DRAGHI


text: OJ L 189, 3.7.1998, p. 42. 2 All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 3

text: Articles 2

text: to 6 of the draft royal decree. The following data must be communicated: (a) the client’s identity, (b) the client’s bank account numbers, (c) the agreements with such clients, and (d) the reference date for the data. 4

text: Articles 9

text: to 14 of the draft royal decree. 5

text: Articles 15

text: to 19 of the daft royal decree.

text: Article 20 of the royal draft decree. See also the reference to

text: in the explanatory memorandum, Part D, p. 18. 7 Article 21 of the royal draft decree. 8 See, for instance, Articles 7 and 12 of the draft royal decree. 9 Explanatory memorandum, Part C, p. 18. 10 See

text: . 11

text: Article 20

text: , second paragraph, of the royal draft decree. The ECB understands that costs other than the operational costs will be charged partly in advance and partly at delivery. 12 Explanatory memorandum, Part D, p. 19.

title: Opinion of the European Central Bank of 7 December 2011 on the legislation governing the financing of the central register of bank account numbers (CON/2011/98)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 7 December 2011 on the legislation governing the financing of the central register of bank account numbers (

text: ) Introduction and legal basis

text: On 25 November 2011, the European Central Bank (ECB) received a request from the Belgian Ministry of Finance for an opinion on a draft royal decree on the functioning of the central contact point referred to in Article 322 §3 of the Belgian Income Tax Code (hereinafter the ‘draft royal decree’). 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 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 royal decree relates to the Nationale Bank van België/Banque Nationale de Belgique (NBB). 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 royal decree

text: 1.1 The draft royal decree implements

text: Article 322

text: §3 of the Belgian Income Tax Code establishing a central contact point, i.e. a central register of bank account numbers managed by the NBB (hereinafter the ‘central register’). The ECB was consulted on an earlier draft of the legislation establishing this central register, in respect of which it issued Opinion

text: . 1.2 The draft royal decree: (i) defines the tasks entrusted to the NBB in relation to the central register; (ii) lays down the procedures for the credit institutions’ communication of data to the central 3 4 register and for the consultation of the central register ; and (ii) lays down the data protection rules . With regard to the financing of the tasks entrusted to the NBB, the draft royal decree provides that the NBB will charge to the Belgian State all costs incurred in relation to the development, installation, operation and maintenance of the central register and that the operating costs will be charged on a quarterly basis. The payment terms of such costs will be agreed between

text: the NBB and the Belgian Treasury . Finally, the liability of the NBB in relation to the operation of the central register will be explicitly limited to cases of misconduct or wilful negligence , on account of the extremely limited control that the NBB has over the accuracy and completeness of the data contained in the central register .

text: 2. Monetary financing prohibition and central bank independence

text: In order to comply with the prohibition on monetary financing under Article 123 of the Treaty, it needs to be ensured that the NBB will be fully and adequately remunerated for all the costs incurred when performing activities related to the tasks entrusted to it in connection with the central register . If the remuneration is not provided in advance, it should be ensured that the costs incurred by the NBB in performing these activities will be fully and promptly reimbursed on market terms. The ECB understands: (i) that the financing arrangements in the draft royal decree ensure that the NBB will be fully reimbursed by the Belgian State for all costs incurred in developing, installing, operating and maintaining the central register; (ii) that the Federal Public Service Finance and the NBB will agree on the procedures for the reimbursement of these costs ; (iii) that the costs for the operation of the central register will be reimbursed on a quarterly basis; and (iv) that the terms on which the operating costs are charged to the State reflect the standard practice for IT contracts . The ECB considers that the financing arrangements laid down in the draft royal decree address in a satisfactory manner the concerns that the ECB had expressed in

text: in respect of the monetary financing prohibition and central bank independence.

text: Done at Frankfurt am Main, 7 December 2011.

text: [signed]

text: The President of the ECB

text: Mario DRAGHI


text: All ECB opinions are available on the ECB’s website at www.ecb.europa.eu.

text: Paragraph 3.6 of Opinion

text: ECB’s Convergence Report May 2010, p. 23. Paragraph 3.7.1 of Opinion

text: . 8 Proposed

text: Article 23(3)

text: (4) of the revised draft law. 9 Paragraph 4.2 of Opinion

text: Paragraphs 4.3.1 and 4.3.2 of Opinion

title: Opinion of the European Central Bank of 7 December 2011 on the revised amendments to Lietuvos bankas’ profit distribution rules (CON/2011/99)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 7 December 2011 on the revised amendments to Lietuvos bankas’ profit distribution rules (

text: ) Introduction and legal basis

text: On 30 November 2011, the European Central Bank (ECB) received a request from Lietuvos bankas for an opinion on a revised draft law amending and supplementing Article 23 of the Law on Lietuvos bankas as regards the rules on the distribution of Lietuvos bankas’ profit (hereinafter the ‘revised 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 the third indent of

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft law relates to Lietuvos bankas. 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 revised draft law

text: 1.1 Pursuant to Article 23(3) of the Law on Lietuvos bankas, the profit for a financial year is allocated in the following order: (a) first, to cover losses carried forward from previous financial years; (b) second, 70 % is distributed to the State budget, after deducting losses carried forward from the previous financial years; (c) third, any remaining profit is allocated equally between authorised and reserve capital, until the authorised capital reaches LTL 200 million; (d) fourth, any residual profit is allocated to reserve capital. 1.2 The revised draft law establishes a new framework for the distribution of Lietuvos bankas’ profits. 1.2.1 It provides for improved arrangements relating to the sequence in which the net distributable profit will be allocated. First, the net distributable profit will cover uncovered losses and will be allocated to authorised capital up to a determined amount. Second, it will be used to maintain an adequate reserve capital level; the Board of Lietuvos bankas will establish the adequate reserve capital level independently, based on its assessment of potential risks faced by Lietuvos bankas. The reserve capital may not be less than five times the amount of the authorised capital. Third, any excess will 1 OJ L 189, 3.7.1998, p. 42.

text: be contributed to the State budget; this contribution may not exceed the amount corresponding to 70 % of the calculated average of Lietuvos bankas’ profit (loss) of the last three financial years. 1.2.2 Furthermore, the revised draft law provides for the possibility to carry forward the part of the profit, which remains after the allocation of the net distributable profit according to the established sequence, and by doing so to create retained earnings. The net distributable profit for a given financial year therefore consists in the profit for the financial year and any undistributed profit carried over from the previous financial years. Similarly, the revised draft law provides that the loss for a given financial year and any undistributed profit carried over from the previous financial years will be attributed to the net distributable loss and that, furthermore, the net distributable loss will be covered by Lietuvos bankas’ reserve capital, and where this is insufficient, by the distributable profit of the succeeding financial years. 1.3 The revised draft law also sets out the conditions under which the part of Lietuvos bankas’ profit contribution to the State budget for the financial year 2011, which is to be calculated according to the rules currently in force, may be used to compensate Lietuvos bankas at market value for the transfer of some assets of Lietuvos bankas to the State authorities.

text: 2. General observations

text: 2.1 On 10 November 2011, the ECB adopted Opinion

text: on the amendments to Lietuvos bankas’ profit distribution rules in response to a request for an opinion on a previous version of the revised draft law (hereinafter the ‘draft law’). The draft law amended the reference period for calculating Lietuvos bankas’ profit to be distributed to the State budget: instead of basing the calculation on the preceding financial year, as provided for in the Law on Lietuvos bankas, it was to be based on the average profit of the preceding three financial years. Where the calculated amount, based on the average profit of the preceding three years, was to be greater than the profit of the preceding financial year, the remaining part of Lietuvos bankas’ distribution was to be paid to the State budget from Lietuvos bankas’ reserve capital. In addition, the following were to be deducted before distribution to the State budget: (a) 30 % of the market value of Lietuvos bankas’ real property transferred to the State Property Fund during the preceding financial year; and (b) if Lietuvos bankas’ reserve capital was lower than five times the authorised capital, an amount equal to this difference. 2.2 In Opinion

text: the ECB noted that several aspects of the draft law raised concerns regarding its compatibility with central bank financial independence and with the monetary financing prohibition. The ECB notes that its remarks were taken into account. 2.3 In any event, the proposed revised profit distribution scheme needs to comply with the requirement that any transfer of national central bank (NCB) resources to a Member State, either in the form of a profit distribution scheme or any equivalent form, complies with the limitations imposed in this respect by the Treaty, in particular with the principle of central bank independence pursuant to

text: 3. Specific observations

text: 3.1 Treatment of losses The revised draft law addresses the ECB concerns as regards the treatment of losses and stipulates that any uncovered loss carried forward from previous financial years has to be covered before allocating the net distributable profit . 3.2 Creation of financial provisions The ECB welcomes the provision of the revised draft law stipulating that the Board of Lietuvos bankas can take an independent decision to allocate necessary amounts to the reserve capital, taking into account the potential impact of risks faced by Lietuvos bankas ; this addresses the ECB’s comment that NCBs must be free to independently create financial provisions or buffers to 6 7 safeguard the real value of their capital and assets . In this context, the ECB reiterates that NCBs need to maintain adequate net equity to be covered against potential risks arising from the nature of their activities. 3.3 Three-years average rule 3.3.1 The revised draft law changes the concept of the three-years average rule, which is now considered as a calculation method and a cap for the Lietuvos bankas’ profit distribution to the State budget ; Lietuvos bankas’ net distributable profit includes the last financial year profit plus undistributed profit carried over from the previous financial years. These changes introduced in the revised draft law address the ECB’s concerns as regards the compliance with the monetary financing prohibition . 3.3.2 The ECB welcomes in particular that the revised draft law leaves unaffected Lietuvos bankas’ reserve capital and ensures that the actual contribution to the State budget cannot exceed the amount of the net distributable profit. The ECB understands that should the net distributable profit be insufficient to fully cover the calculated profit contribution according to the revised draft law, i.e. the amount corresponding to 70 % of the calculated average of Lietuvos bankas’ profit (loss) of the last three financial years, the part of the calculated profit contribution which cannot be paid to the State in the given financial year cannot result in a claim of the State for the allocation of profit in the future.

text: 3.4 Transfer of Lietuvos bankas’ real property 3.4.1 The revised draft law amends the compensation rule for the remuneration of transferred property. It addresses the ECB concern that in order to be compatible with the monetary financing prohibition, the transfer to the State of NCB assets, e.g. real property, must be remunerated at the market value of the real property transferred to it and the transfer of the real property to the State should occur at the same time as the remuneration . The ECB understands that if the compensation rule could not be applied due to an insufficient profit contribution by Lietuvos bankas to the State, as provided for in the revised draft law, the transfer of Lietuvos bankas’ real property would either not take place or an alternative appropriate means of remuneration would have to be agreed with the State authorities. 3.4.2 The ECB’s comment on the unclear legal status of Lietuvos bankas’ assets and its consequences remains valid , since the revised draft law treats the transfer of some real property of Lietuvos bankas as a one-off measure.

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

text: [signed]

text: The President of the ECB

text: Mario DRAGHI


text: The corresponding law was published in the Official Gazette of the Republic of Cyprus on 30 December 2011. 2 OJ L 189, 3.7.1998, p. 42.

text: See, for example, the ECB’s Convergence Report of May 2007, p. 20. 4 See Opinions

text: and

text: . All ECB opinions are published on the ECB’s website at www.ecb.europa.eu 5 See Opinion

text: , paragraph 3.2.1.

title: Opinion of the European Central Bank of 4 January 2012 on the salaries of civil servants (CON/2012/1)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 4 January 2012 on the salaries of civil servants (

text: ) Introduction and legal basis

text: On 15 December 2011, the European Central Bank (ECB) received a request from the Cypriot Ministry of Finance for an opinion on a draft law relating to the salaries of civil servants (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 third 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 relates to the Central Bank of Cyprus (CBC). 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 understands that the aim of the draft law is to freeze, for 2012-2013, the index-linked allowance to which all officers and civil servants, and persons employed in the wider public sector, local government and school inspectorates in Cyprus, are entitled. It will also freeze, for the same period, the salaries of those categories of employees, and the pensions paid to those retired from the public and wider public sector, local government and school inspectorates. The draft law is part of the Government’s reform efforts, aimed at redressing public finances by arresting wage costs, thereby arresting any further increase in the public deficit.

text: 2. General observations

text: While the draft law does not refer explicitly to the CBC, its officers or staff members, either in its substantive provisions or in its Annex, the ECB understands that the CBC’s officers and staff members would fall within the draft law’s scope of application. Consequently, the draft law would also apply to and directly affect the CBC’s decision-making bodies and its staff members. It follows that the draft law

text: should be examined from the perspective of central bank independence, in particular institutional and financial independence, as well as that of the personal independence of the members of the CBC’s

text: 3. Institutional and financial independence

text: 3.1 Article 130 of the Treaty prohibits third parties, including the governments of the Member States, from issuing instructions to the national central banks (NCBs). Also, the principle of central bank independence means that third parties may not exercise direct or indirect influence over an NCB, whether relating to the performance of its tasks or its financial ability to fulfil its mandate . As stated in the ECB’s convergence reports and in several of its opinions , Member States may not impair the autonomy of their NCBs in staff-related matters. Autonomy in such matters extends to issues relating to staff salaries and pensions . It is therefore essential that measures such as those contemplated in the draft law do not prevent the CBC or its staff members from performing independently the tasks conferred upon them by the Treaty, the Statute of the European System of Central Banks, the Constitution of the Republic of Cyprus or national law. 3.2 Currently, the CBC enjoys statutory autonomy in determining its staff policy (including staff remuneration), with the CBC’s officers and staff being subject to individual employment contracts and to collective bargaining agreements entered into between the CBC and the banking sector union. The measures contemplated in the draft law represent a departure from the current regime. 3.3 The ECB understands that the CBC would not object to the draft law. Moreover, in substantive terms, the impact of the measures contemplated is unlikely to prevent the officials or staff members of the CBC, or the CBC as a whole, from carrying out their tasks independently. In particular, the draft law is unlikely to limit the CBC’s ability to retain qualified staff, or otherwise to deprive its decision-making bodies of their powers of internal organisation and control over staff. The ECB also notes that the measures contemplated in the draft law, which are intended as measures of general applicability, are strictly limited to freezing increases in salaries with the objective of reducing public expenditure, and do not impose a decrease in salaries or interfere with the CBC’s staff policy (e.g. its ability to increase salaries due to promotions or to recruit new staff). While the CBC’s remuneration structure differs from that of the rest of the public sector, equivalent measures could also be adopted autonomously by the CBC and the ECB is satisfied that the measures contemplated in the draft law do not limit the CBC’s institutional and financial independence.

text: 4. Personal independence

text: Article 130 of the Treaty requires the governments of the Member States to respect the principle of central bank independence and not to seek to influence the members of the NCBs’ decision-making bodies in the performance of their tasks. The ECB understands that the draft law would not only affect the remuneration of the CBC’s staff members, but also that of the members of its decision-making bodies. It also understands that the measures contemplated in the draft law are intended not only to apply to the members of the CBC’s decision-making bodies but, more generally, to the management of public institutions in Cyprus. Their aim, as stated in the explanatory memorandum to the draft law, would not be to directly or indirectly influence the CBC’s decision-making bodies in the performance of their tasks but, rather, to contribute to sound public finances by arresting wage costs. In the light of the above, the ECB considers that the draft law does not limit the personal independence of the members of the CBC’s decision-making bodies.

text: Done at Frankfurt am Main, 4 January 2012.

text: [signed]

text: The President of the ECB

text: Mario DRAGHI


title: Opinion of the European Central Bank of 24 January 2012 on measures for the stabilisation of the financial market (CON/2012/2)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 24 January 2012 on measures for the stabilisation of the financial market (

text: ) Introduction and legal basis

text: On 23 December 2011, the European Central Bank (ECB) received a request from the German Federal Ministry of Finance for an opinion on a Second draft law implementing a package of measures for the stabilisation of the financial market (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 the sixth indent of

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft law 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 based on the Law of 17 October 2008 on financial market stabilisation and its extensions on, inter alia, nationalisation of credit institutions and bad banks schemes ; some of the provisions have subsequently been phased out. 1.2 The recent government debt crisis in several countries has impaired confidence in the financial markets and led to refinancing problems. Moreover, the high interconnectedness in the European Union financial system has led to a rapidly rising risk of significant contagion, potentially threatening the financial stability of the Union as a whole and adversely impacting the real economy in Europe and beyond . In the Communiqué of Finance Ministers and Central Bank Governors of the G-20 of 22 September 2011 , a commitment was expressed to take all necessary actions to preserve the stability of banking systems and financial markets and restore confidence.

text: 1 OJ L 189, 3.7.1998, p. 42.

text: 2 [2008] Bundesgesetzblatt I p. 1982, as amended.

text: 3 The ECB provided its opinion on the underlying legal act in Opinion

text: and on extensions in Opinions

text: and

text: . All ECB opinions are published on the ECB’s website at www.ecb.europa.eu.

text: 4 See also the European System Risk Board’s (ESRB) press release of 21 September 2011.

text: 5 Available on the G-20’s website at www.g20.org. The current legal framework enables banks under stress to be recovered in an orderly procedure or resolved. Furthermore, for the banking supervisor to transfer systemically relevant parts of a bank to another private bank or temporarily to a state owned bridge bank, there needs to be a threat to the existence of the bank affecting financial stability. 1.3 Pursuant to the draft law, several measures provided for under the Law on the financial market stabilisation fund may be temporarily reintroduced to counter a possible threat to the financial system in a timely and efficient manner, if private law solutions for strengthening the capital base fail. The draft law enables new applications for stabilisation measures, using the instruments which expired in late 2010, subject to State aid clearance. These measures will apply until 31 December 2012. The SPV model, i.e. the assumption of guarantees for securities outsourced to special purpose vehicles (SPVs), is extended to cover also securities other than structured securities. Under the draft law, €400 billion will be available for funding guarantees for liabilities with a maturity of up to five years (or seven for covered bonds), and €70 billion (plus € 10 billion subject to approval by the German Parliamentary Budget Committee) for credit empowerments. Furthermore, the conditions related to the use of stabilisation measures are improved. 1.4 The German Federal Financial Supervisory Authority (BaFin) may order an institution to increase its own funds in order to prevent an imminent threat to the orderly functioning of the financial markets or to avoid a threat to financial market stability. BaFin may do so, in particular, in case of an ESRB recommendation, related decisions or recommendations of the European Council or coordinated action by the European Supervisory Authorities, i.e. not only where there is a threat to an individual institution. This power is temporary and will expire on 31 December 2012. BaFin may also request an institution to submit a plan on how it intends to meet the increased capital requirements. If such plan touches upon the competence of the Financial Market Stabilisation Fund (hereinafter the ‘Fund’), BaFin will assess the plan in agreement with the Financial Market Stabilisation Authority’s steering committee. BaFin may ask for an improved version of the plan. In that context, the institution also needs to assess the possibility of applying for stabilisation measures if there are no alternative measures at hand. If the plan fails, BaFin can appoint a special representative to develop a capital measures plan and ensure its implementation. If necessary, BaFin may use its other instruments to ensure the institution's compliance with the capital requirements. 1.5 Additionally, the draft law inter alia: (a) clarifies the legal framework applying to the Fund, providing that governing committee members are appointed on the basis of a public law contract; (b) strengthens legal and expert supervision by the Ministry of Finance over the Financial Market Stabilisation Authority; and (c) amends certain provisions of the Law on financial market 6 7 stabilisation acceleration and the Financial Market Stabilisation Fund Order to facilitate their application.

text: 6 [2008] Bundesgesetzblatt I p. 1982, 1986, as amended.

text: 7 [2008] Bundesanzeiger No 123 p. 1, as amended.

text: 2. General observations

text: 2.1 In line with its previous opinions , the ECB emphasises that when adopting measures to deal with the financial crisis, Member States should act in a coordinated manner. In this respect, the ECB welcomes that the draft law proposes a requirement to observe, inter alia, decisions of the European Council and the Council of the European Union, recommendations of the European Banking Authority and requirements of the European Commission, in particular with regard to compatibility with Articles 107 and 108 of the Treaty . 2.2. Concerning Commission requirements in the context of Articles 107 and 108 of the Treaty, the ECB understands that the pricing terms and conditions for the stabilisation measures provided for 10 11 in the draft law will respect the guidelines and conditions set at Union level . In this respect, the ECB understands that in accordance with the Law on financial market stabilisation , all stabilisation measures, including recapitalisation measures will be subject to the Union framework, although this is not explicitly mentioned in the provision regarding recapitalisation in the Financial Market Stabilisation Fund Order .

text: 3. Increased capital requirements

text: 3.1 The ECB notes that the draft law allows BaFin to require an institution to meet increased capital requirements for a limited period of time, to avert an imminent disruption of the functioning of the financial market or a risk to financial market stability. 3.2 With respect to the capital requirements and in order to preserve financial stability within the Union, the ECB strongly supports the development of a single European rulebook for all financial institutions, as put forward by the Commission in its recent proposals . Nonetheless, the ECB also supports that national authorities adjust certain prudential requirements and impose stricter prudential requirements for macro-prudential purposes at national level to address financial stability concerns stemming from the structural features of a national financial system or systemic risks in a comprehensive and effective manner.

text: 8 Opinions

text: and

text: 11 See notably the ‘Communication from the Commission on the application, from 1 January 2012, of State aid rules to support measures in favour of banks in the context of the financial crisis’ (OJ C 356, 6.12.2011, p.7).

text: 13 See Section 3(2) of the Financial Market Stabilisation Fund Order, relating to recapitalisation, which unlike the amended Section 2(2) of the Financial Market Stabilisation Fund Order, relating to guarantees, does not contain an explicit reference to the Union framework.

text: 15 See, for example, the proposals of 20 July 2011 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) and for a Regulation on prudential requirements for credit institutions and investment firms(COM(2011) 452 final). 3.3 With a view to maintaining transparency and ensuring the consistency of measures adopted within the Union, the ECB recommends that the possible application of more stringent requirements by national authorities be subject to safeguards. In this respect, the ECB welcomes that the draft law acknowledges the importance of a coordinated procedure at Union level to strengthen confidence in the resilience of the European banking sector and avert an imminent risk to financial market stability in Europe. The ECB understands that this reference to coordination is meant to require ex ante coordination at Union level, which the ECB supports. Furthermore, the ECB appreciates that the draft law explicitly clarifies that BaFin will take into account the standards agreed upon by the competent European authorities, when it decides on the amount and the composition of the capital required.

text: 4. Qualifying holdings

text: In view of the general obligation imposed under Directive

text: for any natural or legal person to notify the competent authorities of a decision to acquire a qualifying holding, the ECB understands that this obligation would also apply to the Fund and would recommend amending the draft law accordingly .

text: Done at Frankfurt am Main, 24 January 2012.

text: [signed]

text: The President of the ECB

text: Mario DRAGHI

text: 16 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).

text: 17 See

text: Article 2

text: c of the Law on banking.


text: Capital securities are defined to include capital securities issued by joint-stock companies under Luxembourg law, including shares and stock, beneficiary shares, subscription rights and common placement fund shares. Debt securities are defined to include financial instruments in the form of bearer instruments and public debt instruments. However, for the application of the draft law, bills of exchange, securities redeemable by number-based lottery draws, as well as shares and stock issued by variable capital pension saving companies, are not considered as securities.

text: See Article 4 of the draft law.

text: See Article 20 of the draft law.

text: See Article 21 of the draft law.

text: See Article 22 of the draft law. 8 See in particular the European Commission’s consultation document ‘Legislation on Legal Certainty of Securities Holding and Dispositions’ of 5 November 2010, available on the Commission’s website at www.ec.europa.eu. 9 See Article 4(2) of the Law on the circulation of securities, as amended by Article 28 of the draft law. 10 See Title V of the Law of 10 November 2009 on payment services.

text: See Article 15 of the Law on the circulation of securities, as amended by Article 28 of the draft law. 12 See Article 16 of the Law on the circulation of securities, as amended by Article 28 of the draft law. 13 ESCB-Committee of European Securities Regulators (CESR) Recommendations for Securities Settlement Systems and Recommendations for Central Counterparties in the European Union, May 2009; particularly Recommendation No 6: ‘Securities should be immobilised or dematerialised and transferred by book-entry in CSDs to the greatest extent possible. To safeguard the integrity of securities issues and the interests of investors, the CSD should ensure that the issue, holding and transfer of securities are conducted in an adequate and proper manner’. 14 Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO), Principles for financial market infrastructures, consultative report, March 2011, paragraphs 3.1.2 and 3.27.

text: See Title V of the Law of 10 November 2009 on payment services. 16 OJ L 166, 11.6.1998, p. 45.

title: Opinion of the European Central Bank of 24 January 2012 on dematerialised securities (CON/2012/3)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 24 January 2012 on dematerialised securities (

text: ) Introduction and legal basis

text: On 21 November 2011, the European Central Bank (ECB) received a request from the Luxembourg Ministry of Finance for an opinion on a draft law on dematerialised securities and amending (a) the Law of 5 April 1993 on the financial sector, (b) the Law of 23 December 1998 creating a financial sector supervisory commission, (c) the Law of 10 August 1915 on commercial companies, (d) the Law of 3 September 1996 on the involuntary dispossession of bearer securities, (e) the Law of

text: 1 August 2001 on the circulation of securities and other fungible instruments, (f) the Law of 20 December 2002 on collective placement bodies, (g) the Law of 17 December 2010 on collective placement bodies, (h) the Law of 13 February 2007 on specialised investment funds and (i) the Law of 22 March 2004 on securitisation, (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 the fifth 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 contains provisions on settlement systems as well as 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 governs the dematerialisation of securities, to which Luxembourg law applies, whether capital or debt securities issued by companies incorporated under Luxembourg law or debt securities issued under Luxembourg law by companies incorporated under foreign law. The dematerialisation of securities is designed as an additional option, in addition to the possible issuance of such stock and debt securities in bearer or registered form under the Law of 10 August 1915 on commercial companies. From the date of entry into force of the draft law, the 1 OJ L 189, 3.7.1998, p. 42.

text: dematerialisation process is available to convert existing bearer or registered securities and to issue new securities in dematerialised form, provided the entire issue is registered with a single liquidation body or central account keeper. 1.2 Issues listed on regulated markets may only be dematerialised by liquidation bodies . Securities settlement systems operated in Luxembourg and subject to the Banque centrale du Luxembourg’s oversight, governed by the Law of 10 November 2009 on payment services (hereinafter the ‘Law on payment services’), are considered as such liquidation bodies . Non-listed issues may also be dematerialised within central account keepers specifically approved by the Financial Sector Supervisory Commission (hereinafter the ‘CSSF’) , unless they are already recognised as liquidation bodies . Securities that have been dematerialised within a liquidation body or a central account keeper may circulate freely, including within the accounts maintained by account keepers; account keepers are defined as any person authorised under Luxembourg law to maintain securities accounts, including national or international bodies of a public nature established in Luxembourg and operating in the financial sector. To ensure the integrity of all issues, the CSSF may establish the accounting rules for dematerialised securities maintained by liquidation bodies, central account keepers and account keepers . 1.3 The draft law also modernises the framework in the Law of 1 August 2001 on the circulation of securities and other fungible instruments (hereinafter the ‘Law on circulation of securities’) that governs the holding and circulation of securities, regardless of their form and place of issuance in accounts located in Luxembourg. The draft law aligns the Law on circulation of securities with the Unidroit Convention on substantive rules for intermediated securities of 9 October 2009, and with the expected Union harmonisation of securities law . Moreover, the draft law introduces three additional provisions to strengthen the protection of the security holders’ rights. First, it provides that, on bringing liquidation proceedings against an account keeper, the affected holders of the securities accounts immediately acquire the rights to the securities that have been credited to the securities account of the account keeper, without having to wait for the crediting of such securities to their own securities accounts . Second, without prejudice to the separately regulated irrevocability and finality rules , failure by one party to deliver or settle vis-à-vis its counterparty, confirmed on the date and under the terms and conditions applicable in the relevant market or fixed by an agreement between the parties or the rules of a securities settlement system, discharges the affected counterparty of its corresponding delivery or payment

text: obligations, without prejudice to the liability of the defaulting party . Third, if the relevant account keeper proceeds to deliver the securities or to pay the price in place of the defaulting account holder, such an account keeper acquires ownership by way of guarantee of the securities or funds received from the counterparty as consideration .

text: 2. Dematerialisation of securities

text: The ECB welcomes the possibility for dematerialising securities in Luxembourg, as this will contribute to the elimination of the operational complexities and risks related to handling physical securities, and to the reduction of settlement and custody costs, as recommended in the ESCB-CESR 13 14 Recommendations for securities settlement systems and the prospective CPSS-IOSCO principles . At the same time, the ECB recommends that the Luxembourg authorities monitor Union legislative developments as regards the on-going harmonisation of Union securities law, including the possible introduction of mandatory book entry form for transferable securities.

text: 3. Modernisation of the Law on circulation of securities

text: 3.1 The ECB welcomes the amendments to the Law on circulation of securities, which strengthen the protection and enforcement of rights of the securities holders who maintain securities in a securities settlement system, a liquidation body, a central account keeper or an account keeper in Luxembourg. 3.2 The ECB welcomes in particular the amendment to Article 16 of the Law on circulation of securities, under which the relevant account keeper acquires ownership by way of guarantee of the securities or funds received from the counterparty as a consideration for the securities or the funds that it has itself delivered. This is one of the available solutions to mitigate the credit risk taken by the financial intermediary financing the acquisition of securities by its customers. It has particular relevance to the TARGET2-Securities (T2S), the Eurosystem’s future settlement platform, as the legal protection introduced by the draft law will cover, inter alia, the credit institutions providing liquidity to their customers in their capacity as settlement banks and refinancing the costs of this activity with the intraday credit received from their Eurosystem central bank. If the customer of the settlement bank is not able to reimburse the liquidity provision at the end of the day, the ownership of this customer’s collateral will pass to the

text: settlement bank, hence facilitating the unwinding of the settlement bank’s refinancing transaction with the central bank, without increasing the settlement banks’ credit exposures. 3.3 The amendment to Article 15 of Law on circulation of securities provides that if securities are delivered against cash payment, failure to deliver or settle confirmed on the date and under the terms and conditions applicable in the relevant market, or fixed by an agreement between the parties or the rules of a securities settlement system, discharges the parties from their delivery or payment obligations without prejudice to the liability of the defaulting party. The ECB understands that this provision is proposed to address specific situations encountered in the present financial crisis where transfer orders duly entered into a system, in respect of a counterparty against which insolvency proceedings were subsequently brought, remained unsettled and suspended in the said system, as the insolvent counterparty could not discharge its obligations and the parties could not immediately agree on the bilateral cancellation of such transfer order. The proposed amendment reflects a policy proposal according to which the failure to deliver or settle the underlying securities transaction will automatically discharge the parties from carrying out the corresponding transfer order within the system. The abovementioned provision is ‘without prejudice to the separately regulated irrevocability and finality rules’ , as derived from

text: Article 3(1)

text: and

text: Article 5 of Directive 98/26/EC

text: of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems . In this respect, the ECB understands that the proposed provisions aim to mitigate the effects of the strictly applied principle of irrevocability in a manner which decreases the risks related to unsettled transfer orders. The ECB recommends clarifying the scope and the relationship of the newly introduced provision with regard to the settlement irrevocability safeguarded by Directive

text: . In addition, to avoid uncertainties that may be associated with the implementation of this proposed amendment, proper coordination should be ensured between the parties to the securities transaction that may agree on the date and conditions of settlement in their bilateral agreements and the securities settlement system that may provide similar provisions in its rules, and also the T2S operator that may provide the technical settlement platform on which the transfer order will be processed. If such coordination is not in place, the parties may agree that they are discharged from their obligations on date S, but the securities settlement system and, as a consequence, also the T2S operator may have no knowledge of this agreement. In such situations, the securities settlement system, and consequently T2S, may continue to attempt to settle the transaction after date S which may produce legal uncertainty as to the status of such transaction. The ECB recommends that the draft law elaborates how the proposed statutory discharge of obligations can be aligned with the rules of the operator of a securities settlement system.

text: This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 24 January 2012. [signed]

text: The President of the ECB

text: Mario DRAGHI


title: Opinion of the European Central Bank of 24 January 2012 on a guarantee scheme for the liabilities of Italian banks and on the exchange of lira banknotes (CON/2012/4)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 24 January 2012 on a guarantee scheme for the liabilities of Italian banks and on the exchange of lira banknotes (

text: ) Introduction and legal basis

text: On 15 December 2011, the ECB received a request from the Italian Ministry of Economic Affairs and Finance (the ‘Ministry’) for an opinion on Article 8 of Decree-Law No 201 of 6 December 2011 on equity, growth and fiscal consolidation (hereinafter the ‘Decree-Law’). This Opinion also considers Article 26 of the Decree-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 the first, third and sixth indents of

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the Decree-Law concerns currency matters, the Banca d’Italia and 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 Decree-Law

text: 1.1 Article 8 of the Decree-Law establishes a guarantee scheme for the liabilities of Italian banks until 30 June 2012 , in accordance with the Communication from the Commission on the application, from 1 January 2012, of State aid rules to support measures in favour of banks in the context of the 5 6 7 financial crisis (the ‘2011 Communication’) . The Ministry will provide (i) a guarantee for the liabilities of Italian banks , provided they fulfill a number of requirements, including in particular

text: 1 Gazzetta Ufficiale No 284, 6.12.2011.

text: 2 OJ L 189, 3.7.1998, p. 42.

text: 4 Such date may be further extended by means of decrees of the President of the Council of Ministers, on a proposal of the Minister for Economic Affairs and Finance, and in accordance with Union law. See Article 8(1) of the Decree-Law.

text: 5 OJ C 356, 6.12.2011, p. 7.

text: 6 Up to EUR 200 million per year from 2012 to 2016. Such amounts are deposited in an account to cover any activation of the guarantees. Additional financial needs will be addressed by the funds allocated to the Ministry. See

text: Article 8(4)

text: 8 In accordance with the 2011 Communication, instruments that qualify as regulatory capital under Banca d’Italia Circular No 263 of 27 December 2006, Title I, Chapter 1, Section 2 are excluded from the scope of the guarantee. See Article 8(12) of the Decree-Law. that they have been issued by banks after the entry into force of the Decree-Law and have a residual maturity (a) between three months and five years; or (b) up to seven years from 1 January 2012, if they are covered bonds issued by Italian banks; and (ii) a guarantee for emergency liquidity assistance operations conducted by the Banca d’Italia . 1.2 A guarantee may be provided on the basis of an assessment conducted by the Banca d'Italia on the relevant bank, concerning (i) capital adequacy; and; (ii) capacity to discharge the obligations assumed . According to the Decree Law, the Banca d’Italia is closely involved in the management of the guarantee scheme, and is entrusted with several functions, including biannual monitoring of the operations conducted and their effect on the economy . The Banca d’Italia is also closely involved in the management of the beneficiary institutions' compliance with the conditions set out 13 14 in the Decree Law , has an advisory function in view of possible changes to the framework , and 15 16 a responsibility for handling banks' applications for admission and recourse to the scheme, as well as guarantee payments . 1.3 Banknotes and coins denominated in lire lapse within 10 years from the date on which they ceased to be legal tender , and a deadline is imposed for the exchange of such banknotes and coins at all branches of the Banca d’Italia . Article 26 of the Decree-Law brings forward the deadline to the date of entry into force of the Decree-Law and specifies that the countervalue of unexchanged banknotes and coins, to be allocated to the Italian Treasury, is to be subsequently credited to the Italian Government Bonds Sinking Fund.

text: 2. General observations

text: 2.1 The ECB welcomes the Decree-Law as a crucial step in enhancing financial stability in Italy. At the same time, the ECB wishes to make the following comments on several technical aspects of the Decree-Law.

text: 9 Pursuant to

text: Article 7

text: bis of Law No 130 of 30 April 1999 (Gazzetta Ufficiale No 111, 14.5.1999).

text: 17 See Article 8(27) of the Decree-Law. In addition, according to

text: Article 8(30)

text: , operations conducted by the Banca d’Italia to address liquidity needs against the provision of a pledge or a loan disposal benefit until 31 December 2012 from a special regime, more favourable than the regime under Law No 170 of 21 May 2004 (Gazzetta Ufficiale No 164, 15.7.2004), implementing Directive

text: of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements (OJ L 168, 27.6.2002, p. 43).

text: 18 See Article 3 of Law No 96 of 7.4.1996 (Gazzetta Ufficiale No 85, 12.4.1997) and

text: Article 52

text: -ter of Legislative Decree No 213 of 24.6.1998 (Gazzetta Ufficiale No 157, 8.7.1998), respectively. This legislation was amended by Article 87 of Law No 289 of 27 December 2002 (Gazzetta Ufficiale No 305 of 31.12.2002), i.e. the ‘2003 Budget Law’, which was the subject of Opinion

text: . All ECB opinions are published on the ECB’s website at www.ecb.europa.eu.

text: 19 Article 87 of the 2003 Budget Law also introduced an obligation for the Banca d’Italia to pay to the Government the value of the banknotes not submitted for exchange by that date. Pursuant to the amended provisions, the Banca d’Italia and the Ministry also estimated the amount of banknotes which would have not been submitted for exchange, and on that basis the Banca d’Italia carried out in two instalments an interim payment of 90% of the estimated amount. 2.2 Proper timing to consult the ECB The ECB received the consultation request only on 15 December 2011 although the Decree-Law entered into force on 6 December 2011. As specified in the consultation request, the Decree-Law was presented to Parliament for conversion into law within 60 days. The consulting authority requested the ECB to consider the consultation as a matter of urgency, without however setting a time limit. As underlined in several ECB opinions,

text: Article 3 of Decision 98/415/EC

text: provides that the consulting authorities may set a time limit for the submission of an ECB opinion, but it may not be less than one month, unless a shorter time limit is justified with reasons for the extreme urgency . Hence, the Ministry has not consulted the ECB in accordance with Decision

text: . The ECB would therefore like to remind the consulting authority of the importance of consulting the ECB at an appropriate point in time ‘enabling the authority initiating the draft legislative provision to take into consideration the ECB’s opinion before taking its decision on the substance’ . 2.3 Compliance with the Union legal framework, temporary nature of the scheme and pricing of guarantees National legislative provisions need to fully comply with 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, in order 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 European Commission’s communications on the application of State aid rules to support measures in favour of banks and government guarantee schemes for bank debt, including with regard to the temporary nature of the acceptability of such aid measures and the need for credit institutions receiving State support to submit to the Commission restructuring plans. Against this background, the ECB understands that the pricing terms and conditions for the State guarantees under the Decree-Law are aligned with the conditions established by the Commission for the relevant reference periods and expects that such pricing terms will be applied to financial institutions benefiting from the granted State guarantees.

text: 20 On 26 October 2011 the ECB wrote to the Ministry, together with consulting authorities in other Member States, encouraging them to take the measures necessary to ensure effective compliance with

text: Article 4 of Decision 98/415/EC

text: , by duly consulting the ECB on draft legislative provisions falling within its field of competence, including provisions which are not subject to parliamentary approval, at an appropriate stage of the legislative process. In that context they should put in place appropriate internal procedures to ensure that consultation of the ECB takes place at an appropriate stage, which enables the consulting and/or adopting authority to take into consideration the ECB’s opinion before the legislative provision in question is adopted.

text: 21 See

text: Article 4 of Decision 98/415/EC

text: 22 See ‘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) and the 2011 Communication.

text: 23 See Opinion

text: , paragraph 3.1, Opinion

text: , paragraph 2.5.2, Opinion

text: , paragraph 3.2, Opinion

text: , paragraph 4 and Opinion

text: , paragraph 4.

text: 24 For the period ending on 31 December 2011, see the DG Competition Staff Working Document of 30 April 2010 ‘The application of State aid rules to government guarantee schemes covering bank debt to be issued after 30 June 2010’, which referred to the ‘Recommendations of the Governing Council of the European Central Bank on government guarantees for bank debt’ of 20 October 2008; for the period starting on 1 January 2012 see the 2011 Communication. The ECB understands that implementing rules will expand on the provisions of the Decree-Law and expects to be consulted on any proposed implementing legislation to be adopted on matters within its competence .

text: 3. Interaction of the Decree-Law with the monetary policy of the euro area

text: 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 regard, 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 . The ECB welcomes that the Decree-Law does not allow government guarantees for bank debt with a maturity of less than three months . Moreover, 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 a 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, thereby impairing the implementation of the single monetary policy, which is an exclusive competence of the Eurosystem under Article 127(2) of the Treaty . The extension of a State guarantee to cover interbank deposits 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 a State guarantee, on the one hand, and those not benefiting from a State guarantee, on the other hand.

text: 26 See the definition of ‘draft legislative provisions’ in

text: Article 1(1)

text: , and also the sixth indent of

text: Article 2(1) of Decision 98/415/EC

text: . 27 See Opinion

text: , paragraph 3.3, Opinion

text: , paragraph 3.9 and Opinion

text: , paragraph 3.1. 28 See Opinion

text: , paragraph 3.2, Opinion

text: , paragraph 3.1, Opinion

text: , paragraph 3.5, Opinion

text: , paragraph 3 and Opinion

text: , paragraph 3. 29 See Opinion

text: , paragraph 3.1 and Opinion

text: , paragraph 3.5. 30 See Opinion

text: , paragraph 3.2, Opinion

text: , paragraph 3.3.2, Opinion

text: , paragraph 3.9 and Opinion

text: , paragraph 3.1. 31 See Opinion

text: , paragraph 3.7, Opinion

text: , paragraph 3.3.2, Opinion

text: , paragraph 3.9 and Opinion

text: , paragraph 3.1. 32 See Opinion

text: , paragraph 3.3.2, Opinion

text: , paragraph 3.9 and Opinion

text: , paragraph 3.1.

text: 4. The role of the Banca d’Italia in managing the scheme and the prohibition on monetary financing

text: 4.1 Under the Decree-Law, the Banca d’Italia is closely involved in managing the scheme. First, it will assess the eligibility of the beneficiary institutions with particular regard to their capital adequacy and ability to discharge the obligations assumed . Second, it will support the Ministry in ensuring the compliance of the beneficiary institutions with the general conditions for the provision of the 34 35 guarantees . In line with its previous opinions , the ECB reiterates that the functions to be performed by the Banca d’Italia in managing the guarantee scheme need to comply with the monetary financing prohibition as regards the remuneration of the Banca d’Italia for its involvement. Such functions must be conducted in a manner fully compatible with the Banca d’Italia’s institutional and financial independence under the Treaty and the Statute of the European System of Central Banks and of the European Central Bank. 4.2 The involvement of the Banca d’Italia must not go beyond the traditional task of a fiscal agent and all the guarantees must be financed from the State’s budget . The role of the Banca d’Italia must comply with the monetary financing prohibition in Article 123 of the Treaty, which prohibits overdraft facilities or any other type of credit facility with an NCB in favour of the public sector, including ‘any financing of the public sector’s obligations vis-à-vis third parties’ . This means in particular that no bridge financing may be provided by an ESCB central bank to enable a Member State to honour its obligations in respect of State guarantees of bank liabilities. Under the Decree- Law, payments of State guarantees are carried out by the Banca d’Italia in its capacity as fiscal agent for the Italian Government. If the normal procedure cannot be followed, Article 8(27) of the Decree-Law provides that the Banca d’Italia will make payments to creditors, to be recorded on a suspense account and settled in the following 90 days. The ECB understands that pursuant to Article 5(4) of the Consolidated Law on the public debt , any payment by the Banca d’Italia in its capacity as government fiscal agent is recorded daily in the Treasury account held by the Government with the Banca d’Italia. According to Article 5(1) of the Consolidated Law, such Treasury account may not have a negative balance, and in general, Article 5(1) of the Consolidated

text: 33 The Banca d’Italia will assess against the following benchmarks: (i) the capital ratios at the date of the last supervisory reporting should not be below minimum requirements; and (ii) income producing capacity should be adequate to meet the guaranteed liabilities. See Article 8(23) of the Decree-Law. In this respect, the Banca d’Italia will benefit from its role as supervisory authority of the banking sector: see Title III, and in particular Article 51 of Legislative Decree No 385 of 1 September 1993 (Gazzetta Ufficiale No 230, 30.9.1993). 34 See Article 8(8) of the Decree-Law. 35 See, in particular, Opinion

text: , paragraph 3.2 and Opinion

text: , paragraph 3.1. 36 See, e.g. Opinion

text: , paragraph 4.2, Opinion

text: , paragraph 3.2 and Opinion

text: , paragraph 3.1. See also the ECB Annual Report 2010, p.120, and the ECB Convergence Report, May 2010, p. 25. 37 See

text: Article 1(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). 38 See Article 8(27) of the Decree-Law. 39 Decree of the President of the Republic No 398 of 30 December 2003 (Gazzetta Ufficiale No 57, 9.3.2004, S.O. No 37). Law prohibits the Banca d’Italia from granting any kind of overdraft facility to the Government . However, the ECB notes that the provisions regarding the suspense account lack some clarity. Thus, for the sake of legal certainty, the ECB recommends regulating more transparently the suspense account, as well as any other sub account of the Treasury account.

text: 5. Emergency liquidity assistance operations collateralised by a State guarantee and the prohibition on monetary financing

text: The Decree-Law provides for the possibility for the Ministry to provide a State guarantee on discretional loans made by the Banca d’Italia to Italian banks and to Italian branches of foreign banks in severe liquidity crises (emergency liquidity assistance) . The ECB notes that emergency liquidity assistance, granted by the national central bank (NCB) independently and at its full discretion to a solvent credit institution on the basis of a collateral security in the form of a State guarantee, is in principle possible, provided that a number of conditions are met in order to ensure the NCB’s compliance with the monetary financing prohibition under Article 123 of the Treaty. As noted in previous opinions, the relevant criteria are the following: (i) it must be ensured that the credit provided by the NCB is as short term as possible; (ii) there must be systemic stability aspects at stake; (iii) there must be no doubts as to the legal validity and enforceability of the State guarantee under applicable national law; and (iv) there must be no doubts as to the economic adequacy of the State guarantee, which should cover both principal and interest on the loans, thus fully preserving the NCB’s financial independence .

text: 6. Payment by the Banca d’Italia to the Government of the value of unexchanged lira banknotes

text: The 2003 Budget Law introduced a regime for the treatment of lira banknotes which have not been exchanged by 28 February 2012. The Ministry and the Banca d’Italia estimated the value of such banknotes and the Banca d’Italia had to pay such estimated amount to the Government in three instalments, amounting to 65% by 28 February 2003, 25% by 31 January 2008 and the residual amount by 31 March 2012. The ECB issued Opinion

text: on this matter. The Decree-Law provides that all lira notes still in circulation will be withdrawn in favour of the Treasury with immediate effect and their value allocated to State revenue, thereby bringing forward the withdrawal by three months.

text: 40 The ECB understands that the suspense account is an accounting unit used to record payments carried out by the Banca d’Italia with funds withdrawn from the Treasury account, before these amounts are debited to the relevant part of the public administration; i.e. in this case, the Ministry. As a consequence, the ECB also understands that recording a payment in the suspense account is only possible insofar as the payment has been financed with the funds held in the Treasury account and this operation has been duly recorded under this account, and that this does not constitute the provision of a temporary overdraft facility to the Treasury. 41 One of the specific tools available to central banks in a crisis situation is the provision of emergency liquidity assistance to individual banks. This provision of liquidity assistance consists in giving support in exceptional circumstances and on a case-by-case basis to temporarily illiquid but solvent credit institutions. The extension of emergency liquidity assistance falls within the Banca d’Italia’s task of contributing to the stability of the financial system. See the ECB’s Financial Stability Review, December 2006, pp.171-172, and the ECB Annual Report 1999, p. 98; see also in particular Opinion

text: , paragraph 4.10, Opinion

text: , paragraph 3.1 and Opinion

text: , in particular paragraph 4.1. 42 See Opinion

text: , paragraph 4.11, Opinion

text: , paragraph 3.9 and footnote 34 and Opinion

text: , paragraph 4.3 and in particular footnote 20 referring to Opinion

text: , paragraph 4.3. In light of the ECB’s refinement of the principle of financial independence and the monetary financing prohibition in its opinions and Convergence Report, the ECB notes that the provisions according to which the value of legacy banknotes that have not been exchanged into euro is allocated to State revenue raise concerns for the following reasons. Given that the banknotes denominated in the legacy currency are recorded as a liability on an NCB’s balance sheet, the revenue should be determined via the relevant NCB’s profit and loss account to safeguard its financial independence. Directly allocating to the State the value of unexchanged banknotes denominated in the legacy currency, outside the calculation of profits, and prior to establishing whether the NCB accumulated any losses that have to be covered, constitutes an intra-year payment in advance of the profit distribution breaching the principle of financial independence . Moreover, given that the distribution of central bank profits which have not been fully realised, accounted for and audited does not comply with the monetary financing prohibition , a payment to the State by the NCB of the proceeds from the withdrawal of the banknotes, denominated in the legacy currency in advance of the distribution of the NCB’s annual profits, raises concerns with regard to the monetary financing prohibition. Against this background, proper safeguards should be in place to ensure that the revenue from the withdrawal of unexchanged banknotes denominated in the legacy currency is only transferred to the State after any potential losses have been covered. This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 24 January 2012. [signed] The President of the ECB Mario DRAGHI

text: 43 See ECB Convergence Report, May 2010, p. 23. 44 See ECB Convergence Report, May 2010, p. 25.