title: Opinion of the European Central Bank of 15 December 2023 on judicial relief granted to former holders of qualified bank credit (CON/2023/44)

text: EN ECB-RESTRICTED

text: OPINION OF THE EUROPEAN CENTRAL BANK of 15 December 2023 on judicial relief granted to former holders of qualified bank credit (

text: ) Introduction and legal basis

text: On 19 October 2023 the European Central Bank (ECB) received a request from the Slovenian Ministry of Finance for an opinion on a draft law on judicial relief granted to former holders of qualified bank credit (hereinafter the ‘draft law’). On 1 December 2023, the ECB received from the Ministry of Finance an updated version of 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

text: as the draft law relates to Banka Slovenije. 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 main objective of the draft law is to remedy the unconstitutionality of certain provisions of Slovenian law, as declared by the Slovenian Constitutional Court (hereinafter the ‘Constitutional Court’) in Decision No U-I-295/13-260 of 19 October 2016 (hereinafter the ‘2016 Decision’) and Decision No U-I-420 of 13 February 2023 (hereinafter the ‘2023 Decision’) . 1.2 In the 2016 Decision, the Constitutional Court held that certain provisions of the Law on banking governing Banka Slovenije’s liability for damages with respect to extraordinary measures imposed by Banka Slovenije were unconstitutional. The provisions assessed by the Constitutional Court authorised Banka Slovenije to adopt extraordinary measures to write-down or convert qualified liabilities during the reorganisation of a bank that had failed, or was likely to fail, to meet minimum

text: 2 Odločba o ugotovitvi, da je bil 350.a člen Zakona o bančništvu v neskladju z Ustavo, Odločba o ugotovitvi, da je bil 265. člen Zakona o reševanju in prisilnem prenehanju bank v neskladju z Ustavo, Odločba o ugotovitvi, da členi 253, 253a, 253b, 261a, 261b, 261c, 261d, 261e, drugi odstavek 262.b člena, ter členi 346, 347 in 350 Zakona o bančništvu nisi bili v neskladju z Ustavo, Odločba o ugotovitvi, da 41. člen Zakona o spremembah in dopolnitvah Zakona o bančništvu ni bil v neskladju z Ustavo, Uradni list Republike Slovenije št.71/16.

text: 3 Odločba o razveljavitvi Zakona o postopku sodnega in izvensodnega varstva nekdanjih imetnikov kvalificiranih obveznosti bank (Uradni list RS, št. 29/23).

text: 4 Zakon o bančništvu, Uradni list Republike Slovenije št. 131/06.

text: 5 Articles

text: .a, 253.b, 260.a, 260.b, 261.b, 261.c, 261.d, 261.e, 262.a, 262.b(2), 346, 347, 350 and 350.a of the Law on banking. requirements for capital and liquidity, to an extent that could result in the withdrawal of their banking authorisation . 1.3 With the aim of remedying the unconstitutionality declared in the 2016 Decision, the earlier versions of the draft law established specific procedural rules to enable former holders of cancelled financial instruments to seek judicial redress and access documents and information that Banka Slovenije considered or should have considered when imposing an emergency measure. On 10 January 2020, Banka Slovenije submitted an application for review of the constitutionality of an earlier version of the draft law providing judicial relief granted to former holders of qualified bank credit. The Constitutional Court decided to stay the ensuing proceedings and submit a request to the Court of Justice of the European Union for a preliminary ruling under Article 267 of the Treaty concerning the interpretation of several provisions of Union law. On 13 September 2022, the Court rendered its judgment in

text: Case C-45/21

text: (hereinafter the ‘judgment in

text: Case C-45/21

text: ’). In the 2023 decision, the Constitutional Court focused on reviewing certain provisions of the 2019 version of the draft law, which governed the payment of flat-rate compensation and indemnities, and decided to annul the draft law in its entirety. 1.4 In addition to taking into account the recent decisions of the Constitutional Court, as well as the judgment in

text: Case C-45/21

text: , the draft law is based on the following principles: (1) the principle of access to all information needed to decide the case; (2) the principle of independent judicial review as regards the review of the correct treatment of eligible liabilities; (3) the principle of compliance with Union State aid rules and banking supervision standards as laid down by the ECB, the European Commission and the European Banking Authority; (4) the principle of taking into account the facts at the time when the Banka Slovenije decision was issued; and (5) the principle of an economically efficient use of court resources. 1.5 In pursuit of these principles, the draft law governs four key aspects of judicial relief granted under the draft law . First, the draft law provides the legal basis for the compensation of damages, the jurisdiction of the courts and the specific rules of procedure to provide effective judicial protection to former shareholders or creditors of a bank whose rights have been affected by a decision of Banka Slovenije to impose an emergency measure for the termination of the bank’s eligible liabilities . Second, the draft law governs access to documents and information that Banka Slovenije has considered or should have considered when imposing the emergency measure. Third, the draft law governs the publication of decisions of Banka Slovenije to impose an emergency measure and the manner in which documents and information relating to the emergency measure are to be provided. Fourth, the draft law governs the impact of the draft law on the relevant proceedings initiated prior to the entry into force of the draft law. 1.6 The draft law lays down special procedural rules on judicial redress for the former holders of qualified bank credit that deviate from the general rules and, inter alia, enable legal proceedings affecting

text: 6 See paragraph 1.1 of Opinion

text: . All ECB opinions are available on EUR-Lex.

text: 7 Zakon o postopku sodnega in izvensodnega varstva nekdanjih imetnikov kvalificiranih obveznosti bank (Uradni list RS, št. 72/19 in 29/23 – odl. US).

text: 8 Judgment of 13 September 2022, Banka Slovenije,

text: , EU:C:2022:670.

text: 9 See Article 1 of the draft law.

text: 10 See

text: Article 261

text: a of the Law on banking. similarly placed litigants to be joined together to achieve a joint and uniform assessment of claims regarding a specific bank that was subject to Banka Slovenije’s extraordinary measures. This includes the possibility for former holders of qualified bank credit to seek damages under the draft law by virtue of a collective redress action under the provisions of the law on collective actions , provided that the claims originate from the same Banka Slovenije decision. An action for collective redress is a novel addition to the draft law that seeks to address the issue of a large number of actions overloading the judicial system, given that there are more than 100 000 former holders of eligible liabilities. 1.7 The draft law provides that compensation is to be paid to those former holders who, as a result of the effect of the emergency measure, have suffered a loss greater than that which they would have suffered if the emergency measure had not been imposed . An action for compensation may be brought no later than six months after the publication in the Official Journal of the Republic of Slovenia of a notice of the establishment of a virtual data room. 1.8 Before the expiration of the time limit to bring an action, the competent district court (hereinafter the ‘competent court’) may, on the basis of a proposal from qualified applicants , appoint an expert panel composed of independent experts tasked with preparing a preliminary opinion on whether and to what extent former holders would have received a payment in respect of their holding of an eligible instrument in the absence of an emergency measure. This expert panel is to consist of seven members, of whom the competent court is to appoint: (1) two members nominated by the Government; (2) one member nominated by Banka Slovenije; (3) three members nominated by the representative association representing the interests of former holders; and (4) the chairperson. Members of the expert panel must have expertise in financial and banking law, accounting, finance, auditing and asset valuation, with experience in asset quality review procedures for the prudential supervision of banks and corporate winding-up procedures within the Union. The competent court may appoint further experts if it concludes that other expertise is needed . The Minister for Finance must set out in detail how the cost of the expert panel’s work, including its members’ emoluments, should be calculated . 1.9 The expert panel must prepare a draft preliminary opinion within six months and send it to the competent court, which must in turn forward it to the applicants for comment. The competent court must also post the draft preliminary opinion in the virtual data room and former holders with access to the room are to have 30 days to also provide their comments. Within three months of the expiration of the time limit for comments, the expert panel is to draw up a preliminary opinion, which must

text: 11 Zakon o kolektivnih tožbah (Uradni list RS, št. 55/17).

text: 12 See Article 4 of the draft law.

text: 13 See also paragraph 1.11 of this Opinion.

text: 14 As set out in Article 6 of the draft law, the District Court of Maribor is to have exclusive jurisdiction in proceedings under the draft law.

text: 18 The applicants encompassing all those applicants eligible to propose the appointment of the expert panel pursuant to Article 23(1) of the draft law. include the panel’s assessment of the comments received on the draft preliminary opinion . The competent court must post the preliminary opinion in the virtual data room and publish a summary of the opinion on its own website. The content of the summary of the preliminary opinion is to be drafted by the expert panel. 1.10 Where, in the light of a preliminary opinion, it is established that all or some of the former holders have suffered loss as a result of the effect of the emergency measure that is greater than the loss they would have suffered had the emergency measure not been imposed, the Government must, by way of a regulation, put in place compensatory arrangements and determine the method of payment. Under such compensatory arrangements, an individual holder is to be entitled to no more than 60 % of the value of the loss suffered as a result of the emergency measure to write-down the bank’s eligible liabilities. 1.11 The draft law provides that in the court proceedings that follow the preliminary opinion stage, actions seeking relief under the draft law are to be brought against Banka Slovenije. The burden of proof will lie with Banka Slovenije, which will have to prove (1) the fulfilment of the conditions necessary for imposing extraordinary measures and (2) that the imposition of an extraordinary measure did not lead to the person seeking relief suffering greater losses than that person would have suffered if the bank had been declared insolvent, in accordance with the ‘no-creditor-worse-off-than-in-insolvency’ principle . 1.12 The Republic of Slovenia is to act as an intervener for Banka Slovenije in all proceedings provided for in the draft law . The competent court will serve upon Banka Slovenije at once all proceedings in which the claimants seek redress under the draft law, and which relate to the same Banka Slovenije decision . Banka Slovenije will then have six months to respond to any proceedings lodged under the draft law and the same time limit will also apply to collective actions. . 1.13 Whilst actions seeking relief under the draft law, and claims to make good the loss suffered, may be brought against Banka Slovenije , the funds for the payment of all damages under the draft law, including the funds for the payment of the sums towards any compensatory arrangements , will be provided by the Republic of Slovenia . However, the Republic of Slovenia will be entitled to claim from Banka Slovenije in separate proceedings reimbursement of that part of the sums paid out and other costs constituting payment in respect of the loss caused by Banka Slovenije and anyone acting under its authority, while being instructed by Banka Slovenije, through their conduct if they have

text: 19 See Article 23(9) of the draft law. 20 As laid down in

text: Article 253

text: .a of the Law on banking. The conditions laid down in

text: Article 253

text: .a of the Banking Law are as follows: i) an increase in risk is prevailing in relation to the bank; ii) there are no circumstances indicated showing that the reasons for this increased risk are likely to be eliminated within a suitable time period, iii) it is not likely that Banka Slovenije could take other measures on the basis of this act for the bank to achieve short-term and long-term capital adequacy or to achieve a suitable liquidity position within a suitable time; and iv) extraordinary measures are in the public interest to prevent a threat to the stability of the financial system. 21 See the fifth paragraph of

text: Article 261

text: .a of the Law on banking. 22 See Article 33 of the draft law. 23 See Article 30 of the draft law. 24 See Article 31 of the draft law. 25 See Article 27 of the draft law. 26 See Article 26(5) of the draft law. See also paragraph 1.11 of this Opinion. 27 See Article 42 of the draft law. seriously breached their duty of care . The method and timing for the payment of the sums stemming from such claims to the Republic of Slovenia is to be governed by a special agreement between the Government of Slovenia and Banka Slovenije, which is to set out the rate and pace of payment in such a way as to ensure that the value of Banka Slovenije’s general reserves never falls below 1 % of its balance sheet total . 1.14 As regards provisions on the confidentiality regime and disclosure of documents envisaged under the draft law, the draft law maintains the approach introduced in earlier versions of the draft law . In order to ensure the effectiveness of the protection of documents and data in a data room, the draft law establishes fines for violations . 1.15 The draft law regulates those proceedings that were already pending or will be pending in which the former holders of qualified bank credit seek judicial protection under civil law . 1.16 The draft law provides for one exception from the mandatory application of the draft law, in situations where a criminal offence has been declared to have been committed in relation to a decision of Banka Slovenije on an extraordinary measure by a final judgment of a criminal court. In such cases, the general rules for the recovery of damages and the general procedure will apply, instead of the special provisions of the draft law .

text: 2. General observations

text: 2.1 The ECB has delivered four opinions on earlier versions of the draft law , all prior to the judgment in

text: Case C-45/21

text: , which clarified the interpretation of

text: Article 123(1)

text: and Article 130 of the Treaty in the context of a national central bank (NCB) performing tasks other than the tasks of the European System of Central Banks (ESCB). The Court also ruled on the interpretation of certain provisions of secondary Union law regarding the disclosure of confidential information , clarifying that those provisions did not apply in the context of extraordinary measures adopted by Banka Slovenije in 2013 and 2014. 2.2 The current version of the draft law differs from its earlier versions in providing that funds for the payment of damages under the draft law, including funds for the payment of sums towards any 36 37 compensatory arrangements , will be provided by the Republic of Slovenia . The Republic of

text: 28 See

text: Article 223

text: .a of the Law on banking, which provided that Banka Slovenije and all of the persons acting on its behalf should act with the diligence of a good expert when exercising their supervisory functions. 29 See Article 43(2) of the draft law. 30 See paragraph 1.9 of Opinion

text: and paragraph 1.13 of Opinion

text: . 31 See Article 45 of the draft law. 32 Based on

text: Article 350

text: .a of the Law on banking. See also Article 48 of the draft law. 33 See Article 3(2) of the draft law. 34 See Opinions

text: and CON 2019/20. 35

text: Article 33 of Directive 2001/24/EC

text: of the European Parliament and of the Council of 4 April 2001 on the reorganisation and winding up of credit institutions (OJ L 125, 5.5.2001, p. 15),

text: Articles 44

text: to 52 of 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) and

text: Articles 53

text: to 62 of Directive

text: of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive

text: and repealing Directives

text: and

text: (OJ L 176, 27.6.2013, p. 33). 36 Such as those envisaged under Article 26 of the draft law. See also paragraph 1.10 of this Opinion. 37 See Article 43 of the draft law. Slovenia is to claim from Banka Slovenije in separate proceedings reimbursement of that part of the sums paid out and other costs constituting payment in respect of the loss caused by Banka Slovenije and anyone acting under its authority through their conduct if they have seriously breached their duty of care under the Law on banking . 2.3 In accordance with Article 14.4 of the Statute of the European System of Central Banks and of the European Central Bank, the NCBs may perform functions other than those specified in that Statute, unless the Governing Council finds that those functions interfere with the objectives and tasks of the ESCB. Where a Member State assigns such a function to its NCB, that NCB is responsible and liable for the performance of that function. Nevertheless, when defining the responsibility and liability of an NCB in relation to that function, Member States are required to comply with their obligations deriving from Union law and, in particular,

text: Article 123(1)

text: and Article 130 of the Treaty .

text: 3. Specific observations

text: 3.1 Prohibition of monetary financing 3.1.1 Article 123(1) of the Treaty prohibits the NCBs from granting overdraft facilities or any other type of credit facility to public authorities and bodies of the Member States.

text: Article 1(1)

text: , point (b), of

text: Council Regulation (EC) No 3603/93

text: defines the term ‘other type of credit facility’ for the purposes of Article 123 of the Treaty as, inter alia, any financing of the public sector’s obligations vis-à-vis third parties. Accordingly, the NCB concerned must not assume obligations vis-a vis third parties that could potentially be incumbent on the public sector. Consequently, the NCB concerned must not finance pre-existing obligations vis-à-vis third parties that are incumbent on other public authorities or bodies and the effective financing of the obligations vis-à-vis third parties by the NCB concerned must not result directly from the measures adopted, or from the policy choices made, by other public authorities or bodies . 3.1.2 As clarified in the judgment in

text: Case C-45/21

text: , a regime under which an NCB incurs liability where that NCB or the persons it has authorised to act on its behalf have not complied with the duty to exercise due care imposed on them by national law, in the exercise of a function conferred on that NCB by that law, cannot, in principle, be regarded as involving financing of public sector obligations vis-à-vis third parties. Nevertheless, in view of the high degree of complexity and urgency characterising the implementation of reorganisation measures within the meaning of Directive

text: , such a liability regime cannot be applied to damage resulting from the implementation of those measures by a NCB, without requiring that the infringement of the duty to exercise due care alleged against the NCB is of a serious nature. Otherwise, that would have the effect, in reality, of imposing on that NCB most of the financial uncertainties inherent in that implementation. The NCB would therefore be required, in breach of the prohibition on monetary financing, to be responsible, in place of the other

text: 38 As previously noted,

text: Article 223

text: .a of the Law on banking states that Banka Slovenije and all of the persons acting on its behalf should act with the diligence of a good expert when exercising their supervisory functions. 39 See judgment in

text: Case C-45/21

text: , paragraphs 53, 54, 57 and 97. 40

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). 41 See judgment in

text: Case C-45/21

text: , paragraphs 67 to 75 and 84. public authorities of the Member State concerned, for the effective financing of obligations vis-à-vis third parties that might result from the economic policy choices made by those public authorities . 3.1.3 The draft law appears to comply with the above limitations stemming from the monetary financing prohibition laid down in Article 123(1) of the Treaty. In this respect, the ECB considers it important that under the draft law it is the Republic of Slovenia that is primarily liable for paying damages to former holders for the loss they suffered. Banka Slovenije is liable for reimbursing the damages paid by the Republic of Slovenia only if Banka Slovenije and anyone acting under its authority, and while being instructed by Banka Slovenije, have seriously breached their duty of care under the Law on banking . The fact that the burden of proof relating to compliance with the duty to exercise due care falls on Banka Slovenije is not decisive, for the purposes of Article 123(1) of the Treaty, insofar as that distribution of the burden of proof preserves, in any event, the possibility for Banka Slovenije to release itself from its liability by proving that it did not infringe that duty in a serious manner . As clarified in the judgment in

text: Case C-45/21

text: , Article 123(1) of the Treaty must be interpreted as not precluding national legislation which provides that an NCB belonging to the ESCB is liable, from its own funds, for damage suffered by former holders of financial instruments cancelled by it pursuant to reorganisation measures, within the meaning of Directive

text: , ordered by that NCB, where it appears, during subsequent court proceedings, that either that cancellation was not necessary in order to ensure the stability of the financial system or former holders of financial instruments suffered greater losses as a result of that cancellation than they would have suffered in the event of the insolvency of the financial institution concerned, to the extent that the NCB in question is held liable only where it or the persons which it authorised to act on its behalf acted in serious breach of their duty to exercise due care . The ECB understands that the preliminary opinion has been introduced in the draft law with a view to achieving expedited proceedings by way of facilitating the possibility for the government to settle certain claims in applicable cases . In other cases, the adoption of the preliminary opinion is an important step towards the final judgment on the merits as the competent court may rely on the preliminary opinion in the main proceedings envisaged under the draft law . The ECB understands that the preliminary opinion would not be applicable in the separate reimbursement proceedings between the Republic of Slovenia and Banka Slovenije envisaged under the draft law . In the light of the above considerations, the ECB understands that the preliminary opinion would be used to serve the abovementioned purposes and would not impede the ability of Banka Slovenije to prove that it did not infringe its duty to exercise due care. 3.2 Financial independence of Banka Slovenije

text: 42 See judgment in

text: Case C-45/21

text: , paragraph 75. 43

text: Article 223

text: .a of the Law on banking provided that Banka Slovenije and all of the persons acting on its behalf should act with the diligence of a good expert when exercising their supervisory functions. 44 See judgment in

text: Case C-45/21

text: , paragraph 76. 45 See judgment in

text: Case C-45/21

text: , paragraph 79. 46 See Article 26 of the draft law. 47 See Article 38(1) of the draft law. 48 See Article 43(1) of the draft law. 3.2.1 Article 130 of the Treaty prohibits Member States from placing their NCBs in a situation which in any way undermines their ability to carry out independently a task falling within the scope of the ESCB . This would be the case if, for example, an NCB were precluded from building up adequate financial resources in the form of reserves or buffers to offset losses, particularly those resulting from monetary policy operations, and the Member State concerned did not ensure in advance that the NCB had the necessary funds to bear the financial burden resulting from exercising a function outside the scope of the ESCB (such as the funds necessary to be able to pay the compensation resulting from the liability regime for that function), while retaining its ability to carry out its ESCB tasks effectively and independently . An NCB constrained in its ability to create and/or restore its reserves or buffers may need to seek the consent of political authorities to obtain funding or recapitalisation. This places the NCB in a situation of dependence on those political authorities . As noted by the Court in the judgment in

text: Case C-45/21

text: , the authors of the Treaty intended to ensure that the ESCB should be in a position to carry out independently the tasks conferred upon it . Article 130 of the Treaty purports to shield the ESCB from all political pressure in order to enable it to pursue the objectives ascribed to its tasks effectively, through the independent exercise of the specific powers conferred on it for that purpose by primary law. In this respect, the Court noted that the establishment of reserves by the NCBs is essential, in particular in order to be able to offset any losses resulting from monetary policy operations . Accordingly, legislation such as that envisaged under the earlier version of the draft law, which affected the ability of the NCB to establish reserves (due to the imposition of a levy in these reserves) or to restore them (because the NCB’s profits could be systematically used for purposes other than restoring the level of these reserves), was considered incompatible with Article 130 of the Treaty as it could expose the NCB to political pressures. 3.2.2 Under the draft law, Banka Slovenije could still bear liability for part of the damages paid out by the Republic of Slovenia under the draft law under a reimbursement procedure for the recovery by the Republic of Slovenia of the amount of damages stemming from loss caused by Banka Slovenije and anyone acting under its authority through their conduct if they have seriously breached their duty of care under the Law on banking . To this end, the ECB notes that, in contrast to the earlier version of the law, the draft law guarantees that Banka Slovenije’s general reserves will not fall below 1 % of its balance sheet total, allowing for part of the current general reserves of Banka Slovenije to be eventually used to offset losses . The ECB also notes that if the levels of Banka Slovenije’s general reserves were to fall below 1 % (whether for reasons related or unrelated to these potential reimbursements) the reimbursement to the Republic of Slovenije would need to be deferred. The ECB would welcome further clarification on whether the special agreement between the Government of the Republic of Slovenia and Banka Slovenije referred to in the draft law would, nevertheless, be subject to an overall time limit in terms of a maximum duration in years during which Banka Slovenije

text: 49 See judgment in

text: Case C-45/21

text: , paragraph 97. 50 See judgment in

text: Case C-45/21

text: , paragraph 105. 51 See judgment in

text: Case C-45/21

text: , paragraphs 100 to 102. 52 See judgment in

text: Case C-45/21

text: , paragraph 93. 53 See judgment in

text: Case C-45/21

text: , paragraph 100. 54

text: Article 223

text: a of the Law on banking. 55 For the year 2022, the level of Banka Slovenije’s general reserves is 3.75 % of Banka Slovenije’s balance sheet total. would be obliged to allocate part of its funds towards the payment of the sums stipulated in that special agreement. This opinion will be published on EUR-Lex. Done at Frankfurt am Main, 15 December 2023. [signed] The President of the ECB Christine LAGARDE


text: See Opinion

text: . All ECB opinions are published on EUR-Lex. 2 See Opinion

text: . 3 See Opinion

text: See Opinion

text: See paragraph 2.1 of Opinion

text: See paragraph 2.2 of Opinion

text: and paragraph 2.2 of Opinion

text: See paragraph 3.4 of Opinion

text: and paragraph 3.4 of Opinion

text: See paragraph 3.5 of Opinion

text: See Opinions

text: and

text: See paragraph 3.2.1 of Opinion

text: , paragraph 2.1 of Opinion

text: , paragraph 3.1 of Opinion

text: , paragraph 3.1 of Opinion

text: and paragraph 4.1 of Opinion

text: See paragraph 3.3 of Opinion

text: See paragraph 3.2 of Opinion

text: and paragraph 4.3 of Opinion

text: See the letter and in particular attachment 1 sent to the parliament on 11 November 2021 by the Dutch Ministry of Finance, available on the website of the Government of the Netherlands at www.government.nl. See also Financial Stability Board (2021), ‘Evaluation of the Effects of Too-Big-To-Fail Reforms’, available on the Financial Stability Board’s website at www.fsb.org.

text: See paragraph 3.4 of Opinion

text: , paragraph 3.7 of Opinion

text: and paragraph 4.6 of Opinion

text: In the meaning of Article 6(4), third paragraph, of

text: Council Regulation (EU) No 1024/2013 of 15 October 2013

text: conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63).

text: Available on the ECB’s banking supervision website at www.bankingsupervision.europa.eu.

publisher: Europeiska centralbanken

sprak: en

title: Opinion of the European Central Bank of 15 December 2023 on the imposition of a tax on credit institutions (CON/2023/45)

serie: con

text: OPINION OF THE EUROPEAN CENTRAL BANK of 15 December 2023 on the imposition of a tax on credit institutions (

text: ) Introduction and legal basis

type: rubrik

text: On 6 November 2023 the European Central Bank (ECB) received a request from the Dutch Ministry of Finance for an opinion on a proposal of the Dutch House of Representatives to amend certain provisions of the Law on bank tax (hereinafter the ‘draft proposal’). The ECB’s competence to deliver an opinion is based on Article 127(4), second paragraph, and Article 282(5) of the Treaty on the Functioning of the European Union, as the draft proposal relates to the European System of Central Banks’ task to contribute to the smooth conduct of policies relating to the stability of the financial system pursuant to Article 127(5) of the Treaty and the ECB’s tasks concerning the prudential supervision of credit institutions pursuant to Article 127(6) of the Treaty. 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 proposal

text: 1.1 The draft proposal proposes to amend the Law on bank tax, which was introduced in 2012 and imposed a tax applicable to credit institutions with activities in the Netherlands. According to the explanatory memorandum to the Law on bank tax, the tax was imposed after the financial crisis in order to put a price tag on the implicit State guarantee that the Dutch government provides to credit institutions in the Netherlands. To a lesser extent, by taxing certain parts of a credit institution’s balance sheet, the original aim of the Law on bank tax was to discourage credit institutions from financing activities using unsecured debts. Finally, the Law on bank tax was intended to counteract perverse incentives within a board’s remuneration policies. 1.2 Under the Law on bank tax, the tax is levied on the balance sheet total resulting from the credit institution’s commercial annual accounts. However, certain elements of that balance sheet total are exempt from the taxable amount. Regulatory capital, deposits covered by the national deposit guarantee scheme (DGS) and liabilities related to the business of insurer are not counted. The remaining debts on the balance sheet are only taxed to the extent that they exceed a minimum threshold of EUR 23.5 billion (the ‘efficiency exemption’). 1.3 Under the Law on bank tax, the amount of the tax comprises the sum of: (1) 0.044 % of the part of the taxable amount (balance sheet total after the deductions of regulatory capital, DGS covered deposits, insurance business liabilities and the efficiency exemption) obtained by multiplying the

text: taxable amount by A/B, where A is the total amount of the debts on the balance sheet or consolidated balance sheet to be taken into account that have a term of less than one year and B is the total amount of all debts on that balance sheet or consolidated balance sheet, and (2) 0.022 % on the remaining part of the taxable amount. 1.4 Under the draft proposal the amount of the tax would be raised from 0.044 % to 0.058 % of the taxable amount set out under point (1) in paragraph 1.3 of this opinion and from 0.022 % to 0.029 % of the remaining taxable amount under point (2) in paragraph 1.3 of this opinion. 1.5 According to the Ministry of Finance, the Law on bank tax in its existing form raises approximately EUR 470 million per year. Under the draft proposal, the tax would be increased by EUR 150 million in aggregate per year. 1.6 As noted in the draft proposal, the amendment aims to structurally cover part of the costs of raising the social minimum of households, for instance by increasing the minimum wage.

text: 2. General observations

text: 2.1 The ECB recently adopted opinions on a draft Slovenian law on the imposition of a temporary tax on 1 2 credit institutions , a draft Italian law on the imposition of an extraordinary tax on credit institutions , a draft Lithuanian law establishing a temporary solidarity contribution applicable to credit institutions and a draft Spanish law on the imposition of temporary levies on operators in the energy sector, credit institutions and financial credit establishments . In these opinions, the ECB considered legislative initiatives introducing temporary levies and taxes from the monetary policy, financial stability and prudential supervision perspectives. 2.2 The ECB was not consulted on the adoption of the Law on bank tax. Therefore, this opinion considers the draft proposal in conjunction with the Law on bank tax.

text: 3. Monetary policy context

text: 3.1 The euro area inflation rate reached record levels over the course of 2022 and posed significant challenges for the conduct of monetary policy. Guided by its primary objective of maintaining price stability , the ECB has taken determined action to ensure a timely return of inflation to its mediumterm 2 % target. Key ECB policy rates have been raised by a cumulative 450 basis points between July 2022 and September 2023, with the intention of decreasing demand and guarding against the risk of a persistent upward shift in inflation expectations. In parallel, net purchases of assets have ended, the asset purchase programme’s portfolio is declining at a measured and predictable pace, and the ECB stands ready to adjust all instruments within its mandate to ensure that inflation returns

text: to the ECB’s medium-term target and to preserve the smooth functioning of monetary policy transmission . 3.2 As key ECB interest rates will remain at sufficiently restrictive levels for as long as is necessary to achieve a timely return of inflation to the 2 % medium-term target, it is important to keep in mind that monetary policy decisions always have some distributional implications. In particular, they have effects on incomes and the profitability of credit institutions. From a monetary policy perspective, credit institutions play a special role in ensuring the smooth transmission of monetary policy measures to the wider economy. In this context maintaining an adequate capital position helps credit institutions to avoid abrupt adjustments to their lending to the real economy . 3.3 Evidence shows that net interest income typically expands on impact as policy rates increase. This effect is faster the greater the weight of short-term or variable interest rate loans on the asset side of banks’ balance sheets. However, as the tightening cycle proceeds, this positive income effect can be offset by lower lending volumes, a higher cost of funding, losses recorded in the securities portfolio and an increase in provisions resulting from potential deterioration of the quality of the credit portfolio. The realisation of downside risks in the current environment may significantly reduce the repayment capacity of debtors and translate into lower bank profitability. The net effect of tighter monetary policy on bank profitability when measured across the policy cycle may therefore be less positive, or even negative, over an extended horizon . 3.4 More generally, caution must be taken to ensure that the tax does not impact the ability of individual credit institutions to build strong capital bases, adequately provide for increased impairments and deterioration in credit quality. While the ECB notes that regulatory capital is exempt from this tax, curtailing the ability of credit institutions to maintain adequate capital positions or to prudently build provisions against the backdrop of a possible downturn in credit quality could endanger a smooth bank-based transmission of monetary policy measures to the wider economy. 3.5 The ECB also takes note of the fact that the tax is levied on the total bank balance sheet less some specific deductions. Caution must be taken so that such a tax base does not incentivise credit institutions to contract their balance sheet by reducing their lending activity beyond what would be warranted from a monetary policy perspective . Moreover, the incentive scheme embedded in the tax risks reducing the remuneration of shorter-term deposits that are not covered by the DGS as these are subject to a higher tax rate. This distorts the competitive pressures that are an integral part of the impact of the transmission of the tightened monetary policy on composite deposit rates and broader financing conditions.

text: 4. Financial stability context

text: 4.1 The ECB has previously opined on draft legislation introducing taxes applicable to credit institutions in several Member States . It has, in this respect, underscored in general that imposing a special

text: tax on the banking sector could make it more difficult for credit institutions to build up additional capital buffers, as their retained earnings will be reduced, making them less resilient to economic shocks. In effect, such taxes could have negative economic effects by limiting credit institutions’ ability to provide credit, contributing to less favourable terms for customers when providing loans and other services. It is essential that credit institutions have a sound capital base for them to fulfil their role as credit intermediaries within the economy. Higher costs and reduced credit supply, or higher costs of other banking services, can adversely affect real economic growth . 4.2 Higher net interest income of credit institutions can initially ensue as interest rates increase. But increasing interest rates can also contribute to a higher cost of funding and eventual losses on outstanding bank securities portfolios. Moreover, in a long-term perspective, higher interest rates may negatively impact borrowers’ financial situations, thereby increasing credit risk and reducing bank profitability. As the tax is calculated on certain parts of the balance sheet total and not on net profits, it also applies to credit institutions that are recording net losses, further damaging their resilience . In that regard, the tax may put additional pressure on banks’ capacity to maintain a solid capital position or to rebuild buffers in an environment in which profits are lower and (credit) losses occur. These different factors should be properly evaluated in order to ensure that credit institutions remain well positioned to absorb potential future losses . 4.3 The tax may lead to fragmentation in the European financial system because of the heterogeneous nature of such taxes for the banking sector. The risk of double taxation for credit institutions in other jurisdictions where a special bank tax is also levied may be a further source of such fragmentation. 4.4 A structural increase of the tax is at odds with the developments since it was originally imposed. As noted in paragraph 1.1, the tax was originally imposed to put a price tag on the implicit State guarantee that the Dutch government provides to credit institutions in the Netherlands. Although this implicit guarantee might still exist, as demonstrated by the evaluation of the tax that took place in 2021, its scope has been limited by, inter alia, the establishment of the resolution scheme, the creation of the Single Resolution Fund, and the phase-in of buffers for systemically important institutions . 4.5 In the light of the above, the ECB recommends that, in order to assess whether its application poses risks to financial stability, and in particular whether it has the potential to impair the banking sector’s resilience and cause market distortion, the draft proposal should be accompanied by a thorough analysis of potential negative consequences for the banking sector . This analysis should set out in detail, the specific impact of the tax on credit institutions’ longer-term profitability and capital base,

text: access to funding and the provision of new lending and competition conditions in the market, and its potential impact on liquidity.

text: 5. Considerations relating to the prudential supervision of credit institutions

text: 5.1 The ECB understands that the higher tax percentage envisaged by the draft proposal will in practice, as is the case for the Law on bank tax in its existing form, currently apply only to significant institutions directly supervised by the ECB given the impact of the efficiency exemption on the calculation of the tax. 5.2 The basis on which the tax would be established does not take into consideration the full business cycle and does not include, inter alia, operational expenses and the cost of credit risk, as stated above. As a result, the amount of the tax might not be commensurate with the longer-term profitability of a credit institution and its capital generation capacity. As a result of the general application of the tax, credit institutions that have lower solvency positions or have challenging capital projections could become less able to absorb the potential downside risks of an economic downturn. As noted in the ECB’s press release of 28 July 2023 on the 2023 stress test , improved capital position was a key factor in helping banks stay resilient amidst highly adverse conditions.

text: This opinion will be published on EUR-Lex.

text: Done at Frankfurt am Main, 15 December 2023.

text: [signed]

text: The President of the ECB

text: Christine LAGARDE

type: vagledning

utgivare: ecb


text: The ECB understands that on 5 December 2023 the second draft law was withdrawn from the Parliament by the group of parliamentarians who submitted it. However, the Marshal of the Polish Parliament has not withdrawn the consultation request of the ECB, so this opinion will cover the second draft law.

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

text: Ustawa z dnia 7 lipca 2022 r. o finansowaniu społecznościowym dla przedsięwzięć gospodarczych i pomocy kredytobiorcom (consolidated text: Dziennik Ustaw z 2023 r., poz. 414).

text: Ustawa z dnia 9 października 2015 r. o wsparciu kredytobiorców, którzy zaciągnęli kredyt mieszkaniowy i znajdują się w trudnej sytuacji finansowej (consolidated text: Dziennik Ustaw z 2022 r., poz. 2452). 5 See Opinion

text: . All ECB opinions are published on EUR-Lex.

text: See Opinion

text: . 7 Ustawa z dnia 9 października 2015 r. o wsparciu kredytobiorców, którzy zaciągnęli kredyt mieszkaniowy i znajdują się w trudnej sytuacji finansowej (consolidated text: Dz. U. of 2022, item 2452). 8 See

text: Article 3(1)

text: , point (3), of the Law on support to home loan borrowers in a difficult financial situation in connection with Article 8(1) of the Law on social assistance (Ustawa z dnia 12 marca 2004 r. o pomocy społecznej, consolidated text: Dz. U. of 2023, item 901).

text: See also the opinion of Narodowy Bank Polski regarding the legislative procedure of the first draft law, published on the Polish Parliament’s website at www.sejm.gov.pl. 10 See paragraph 3.2 of Opinion

text: . 11 See, for example, paragraph 3.1 of Opinion

text: , paragraph 3.3 of Opinion

text: , paragraph 3.2 of Opinion

text: , paragraph 3.1.1 of Opinion

text: , paragraph 3.1.1 of Opinion

text: and paragraph 3.5 of Opinion

text: See paragraph 3.3 of Opinion

text: . 13 See paragraph 3.3 of Opinion

text: . 14 See paragraph 2.4 of Opinion

text: , paragraph 2.4 of Opinion

text: , paragraphs 2.1.1 and 2.2.3 of Opinion

text: , and paragraphs 2.3 and 3.1.4 of Opinion

text: . 15 See paragraph 3.11 of Opinion

title: Opinion of the European Central Bank of 19 December 2023 on mortgage holidays (CON/2023/46)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 19 December 2023 on mortgage holidays (

text: ) Introduction and legal basis

text: On 28 November 2023 the European Central Bank (ECB) received a request from the Marshal of the Polish Parliament for an opinion on a draft law amending the Law on crowdfunding for business ventures and assistance to borrowers as it relates to mortgage holidays (hereinafter the ‘first draft law’). On 1 December 2023 the ECB received a second request from the Marshal of the Polish Parliament for an opinion on a second draft law amending the Law on crowdfunding for business ventures and assistance to borrowers, again as it relates to mortgage holidays (hereinafter the ‘second draft law’ and, together with the first draft law, the ‘draft laws’). 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: Article 2(1) of Council Decision 98/415/EC

text: , as the draft laws relate to rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets, and the ECB’s tasks concerning the prudential supervision of credit institutions pursuant to Article 127(6) of the Treaty. 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: 1.1 The Law on crowdfunding for business ventures and assistance to borrowers (hereinafter the ‘Law’) introduced in Polish law the concept of ‘mortgage holidays’ to alleviate the burden on borrowers with outstanding mortgage loans following several increases in interest rates by Narodowy Bank Polski. The Law gives consumers with outstanding mortgage loans in Polish zloty (PLN) the right to suspend mortgage payments resulting from one loan agreement, concluded before 1 July 2022, for eight months in 2022 and 2023, comprising four months in 2022 and one month during each quarter in 2023. The only eligibility criteria specified in the Law are that the loan must be denominated in PLN and satisfy the borrower’s housing needs. To exercise this right, borrowers must simply submit a request notice to their lender, which has no discretion to decline to grant the requested suspension.

text: The loan period is extended by the repayment suspension period. During the repayment suspension period, borrowers are not required to pay principal and interest instalments, although they are required to pay insurance charges linked to their respective contracts. The borrowers’ right to suspend the payment of loan instalments expires on 31 December 2023. 1.2 The draft laws amend the Law by extending the borrower’s right to benefit from a mortgage holiday also in 2024. Under the draft laws borrowers may suspend loan repayments for one month in each quarter in the period from 1 January to 31 December 2024. 1.3 The first draft law also lays down eligibility criteria to limit the scope of borrowers entitled to request a mortgage holiday, under which this right is available to any borrower the total amount of whose loan did not exceed PLN 400 000 at the time the loan was granted. According to the explanatory memorandum accompanying the first draft law, this amount was assessed, based on data from the Polish Financial Supervision Authority, to correspond to the average amount of a mortgage loan granted for the purchase of a flat, subject to suspension under the Law. 1.4 In addition, under the first draft law, if the principal amount of the mortgage loan was higher than PLN 400 000 at the time the loan was granted, but not higher than PLN 800 000, suspension of the loan repayment will also be possible for a borrower for whom the ratio between expenses related to servicing the monthly instalment of principal and interest on the loan and average monthly household income exceeds 50 %. As clarified in the explanatory memorandum accompanying the first draft law, this solution reflects one of the conditions enabling the borrower to benefit from the assistance of the Borrower Support Fund, which is regulated under the Law on support to home loan borrowers in a difficult financial situation , with the difference that the borrower’s income taken into account will be their average income over the period of three months preceding the submission of the application for a mortgage holiday, and not their income for the last month. In this respect, the first draft law introduces the requirement for the borrower, when applying for a mortgage holiday, to submit an appropriate declaration of household income and the number of members of the household contributing to the fulfilment of this condition. 1.5 The second draft law also lays down eligibility criteria to limit the scope of borrowers entitled to request a mortgage holiday, under which this right is available to all borrowers for whom the ratio between expenses related to servicing the monthly principal and interest instalment of the loan and average monthly household income in the last three months preceding the submission of the application exceeds 40 %.

text: 2. General observations

text: 2.1 In March 2023 the ECB issued an own-initiative opinion on the Law . This opinion focused on the impact of the Law on the banking system and financial stability in the euro area, and did not address its impact on Poland’s financial stability, banking system or economy.

text: 2.2 However, since the present opinion is issued in response to a request from the Marshal of the Polish Parliament for an opinion on the draft laws, it is not similarly restricted in scope.

text: 3. Borrower Support Fund

text: 3.1 In November 2017 the ECB issued an opinion on a draft law amending the Law on support to home loan borrowers in a difficult financial situation and amending the law on corporate income tax . 3.2 The Law on support to home loan borrowers in a difficult financial situation specifies the rules for the granting of, and the conditions of use of, repayable financial aid to natural persons in financial difficulties with a home loan (hereinafter ‘financial aid’). Financial aid is provided through a Stateowned bank, Bank Gospodarstwa Krajowego, from a special Borrower Support Fund funded by credit institutions. The Law on support to home loan borrowers in a difficult financial situation covers any home loans that are secured by a mortgage arrangement, regardless of the currency in which they were granted. 3.3 Under the Law on support to home loan borrowers in a difficult financial situation, financial aid may be granted if: (1) when applying for financial aid at least one of the borrowers is an unemployed person; or (2) the proportion of the borrower’s expenses allocated to paying monthly instalments of principal and interest on a home loan exceeds 50 % of the borrower’s household income; or (3) the monthly household income minus any monthly costs related to the home loan is lower than PLN 1552 for a single-person household or PLN 1200 per person for a multi-person household (these amounts are subject to adjustment every three years) . 3.4 The duration of financial aid is 36 months, and the maximum amount of financial aid is equal to PLN 2 000 per month, up to a maximum of PLN 72 000 over three years. Persons receiving financial aid must start to repay the funds received, at the latest, in the month following the month that marks two years since the last tranche of financial aid was paid out. The funds are to be repaid in 144 equal and interest-free monthly instalments. However, if the borrower repays 100 instalments without any delay the remaining 44 instalments will be cancelled. 3.5 The ECB therefore understands that a special financial support mechanism for borrowers experiencing temporary problems in repaying their mortgage loans has existed since 2015, as these borrowers can benefit from financial aid from the Borrower Support Fund. Additionally, the funding of this support mechanism was increased in 2022 in the Law that introduced mortgage holidays. 3.6 The ECB suggests that before introducing new solutions that may raise financial stability concerns, it may be advisable to first make use of the instruments that are already available. Therefore, due to the existence of mechanisms under the Law on support to home loan borrowers in a difficult financial situation to support borrowers experiencing temporary difficulties in settling their liabilities arising from housing loans, the ECB encourages the Polish authorities to carry out a thorough analysis to

text: consider the active use of the Borrower Support Fund. This may be more advisable than extending mortgage holidays, which limits de facto the usage of the Borrowers Support Fund and imposes additional costs on credit institutions, which have already funded the Borrower Support Fund.

text: 4. Eligibility criteria

text: 4.1 Granting concessions, such as payment holidays, to borrowers facing financial difficulties can support financial stability under certain circumstances by, for example, allowing such borrowers to recover from temporary liquidity shortages, while enabling lenders to maintain client relationships and avoid selling collateral at depressed prices . 4.2 In this respect both draft laws lay down specific eligibility criteria to limit the scope of borrowers entitled to request a mortgage holiday. These criteria relate to the amount of the mortgage loan taken out (under the first draft law) or to the ratio between the borrower’s loan repayment burden and their average income in the last three months preceding the application for the mortgage holiday (this ratio is 50 % for certain borrowers under the first draft law and 40 % under the second draft law). 4.3 However, the first draft law does not lay down any specific eligibility criteria for mortgage loans whose value does not exceed PLN 400 000 in order to limit the scope of borrowers entitled to request a mortgage holiday, other than that the loan must be denominated in PLN and satisfy the borrower’s housing needs. As previously noted by the ECB, the application of certain targeted eligibility criteria, such as linking the right to restructure a loan to the borrower’s actual income position, may be more appropriate . Additionally, governments are equipped with better tools to support the economy other than the mandatory restructuring of loans within the banking system, such as directly supporting distressed borrowers (e.g. through the Borrower Support Fund) or compensating banks for losses caused by a moratorium in the public interest.

text: 5. Impact of the draft laws on the banking system and on financial stability

text: 5.1 Widespread payment holidays give rise to financial stability concerns. On the one hand, where borrowers face debt sustainability problems, payment holidays may delay the recognition and resolution of non-performing debt, which increases its economic cost. On the other hand, if borrowers who are able to make payments benefit from a payment holiday, the negative financial impact will unduly reduce bank profitability and increase uncertainty. The impact of payment holidays on banks’ profitability is further exacerbated by a scheme under which the repayment period is extended in accordance with the number of deferred instalments. Under these circumstances, the value of the loan decreases due to the non-payment of instalments on it during the repayment suspension period. 5.2 Reduced bank profitability means in turn that banks have reduced capacity to retain earnings and thus to increase the capital needed to absorb losses and back future loan origination. This, together

text: with increased uncertainty, ultimately limits prospective borrowers’ access to credit, including mortgage loans, and could therefore lead to adverse feedback loops between the banking sector and the real economy. In addition, large losses resulting from payment holidays may threaten banks’ solvency , particularly if the loan portfolio subject to payment holidays constitutes a large proportion of their assets or if their profitability is already low. 5.3 In such circumstances, uncertainties arising from the impact of the draft laws on credit institutions may potentially decrease their franchise value. Consequently credit institutions may face increased difficulty in attracting investors in respect of the potential raising of equity or issuance of bonds to meet capital requirements and minimum requirements for own funds and eligible liabilities. Had banks known in advance that such a change to the legislation affecting their contractual agreements with borrowers would be made, they could (and most likely would) have protected themselves by charging higher mortgage interest rates or, in the last resort, not lending at all. This means that the draft laws not only allow mortgage borrowers a payment holiday, but that borrowers may in fact receive a financial transfer from their lenders . 5.4 Additionally, the ECB has pointed out in several opinions that the ability of financial institutions to effectively manage credit risk depends on a reliable, predictable and stable legal framework that adequately balances the interests of both the creditor and the debtor . Widespread payment holidays that disregard the actual financial position of the relevant debtors may contribute to increasing moral hazard among debtors, who may assume that such holidays will be extended and adjust their behaviour accordingly. 5.5 The Polish authorities are therefore invited to consider more targeted eligibility criteria for the application of future mortgage holidays to limit uncertainty and risks to financial stability, particularly under the first draft law. In addition, as indicated above, the ECB suggests that, before introducing new solutions, it may be advisable to first make use of the instruments that are already available, such as the Borrowers Support Fund. 5.6 Several systemically important euro area banks hold significant Polish mortgage loan exposures. Therefore, extended mortgage holidays as provided for in the draft laws may have negative consequences for financial stability in the euro area, as well as in Poland .

text: Done at Frankfurt am Main, 19 December 2023. [signed]

text: The President of the ECB

text: Christine LAGARDE


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

text: See

text: Article 32(4)

text: , point (d), of Directive

text: of the European Parliament and of the Council of 15 July 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending

text: Council Directive 82/891/EEC

text: , and Directives

text: and

text: , and Regulations

text: (EU) No 1093/2010

text: and

text: (EU) No 648/2012

text: , of the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 190).

text: See

text: Article 18(4)

text: , point (d), of

text: Regulation (EU) No 806/2014

text: of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending

text: Regulation (EU) No 1093/2010

text: (OJ L 255, 30.7.2014, p. 1).

text: See

text: Article 32

text: C(2), point (d), of the Law on the business of credit institutions.

text: See Article 13 of the draft law on extraordinary public financial support.

text: See Article 12 of the draft law on extraordinary public financial support. 11 See Article 12 of the draft law on extraordinary public financial support.

text: See Communication from the Commission on the application, from 1 August 2013, of State aid rules to support measures in favour of banks in the context of the financial crisis (‘Banking Communication’) (OJ C 216, 30.7.2013, p. 1), in particular paragraphs 59 and 60. 13 See definition of ‘competent authority’ in Article 2 of the draft law on extraordinary public financial support referring to the competent authority as defined in

text: Article 4(1)

text: , point (40), of

text: Regulation (EU) No 575/2013

text: and/or the European Central Bank for the purpose of carrying out the tasks conferred on it in accordance with

text: Council Regulation (EU) No 1024/2013 of 15 October 2013

text: conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63) (hereinafter the ‘SSM Regulation’). 14 See Article 7 of the draft law on extraordinary public financial support. 15 See definition of term ‘national designated authority’ in Article 2 of the draft law on extraordinary public financial support.

text: As provided in

text: Article 32

text: C(2), point (d)(iii), of the Law on the business of credit institutions.

text: See Article 31 of the Law on the resolution of credit institutions and investment firms. 23 See Article 16(2) of the draft law on extraordinary public financial support.

text: See Article 16(4) of the draft law on extraordinary public financial support. The definition of the term ‘competent authority’ is contained in Article 1 of the draft law on extraordinary public financial support. 35 See

text: Article 32 of Regulation (EU) No 1093/2010

text: of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No

text: and repealing

text: Commission Decision 2009/78/EC

text: (OJ L 331, 15.12.2010, p. 1). 36 See Article 18(4) of the SRM Regulation. 37 See Article 18(4) of the SRM Regulation.

text: See Article 17(1) of the draft law on extraordinary public financial support. 39 See Article 19 of the draft law on extraordinary public financial support. 40 See paragraph 47 of the 2013 Banking Communication. 41

text: Regulation (EU) No 575/2013

text: of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending

text: Regulation (EU) No 648/2012

text: (OJ L 176, 27.6.2013, p. 1). 43 See paragraph 35 of the 2013 Banking Communication. 44 See Article 26(3) of the CRR.

text: See Articles 77 and 78 of the CRR. 46 Commission Delegated

text: Regulation (EU) No 241/2014 of 7 January 2014

text: supplementing

text: Regulation (EU) No 575/2013

text: of the European Parliament and of the Council with regard to regulatory technical standards for Own Funds requirements for institutions (OJ L 74, 14.3.2014, p. 8). 47 See European Banking Authority, EBA Report on the monitoring of CET1 instruments issued by EU institutions of 8 December 2021 (EBA/REP/2021/36) and EBA Report on the monitoring of additional Tier 1 (AT1) and TLAC/MREL eligible liabilities instruments of European Union (EU) institutions – update (EBA/Rep/2023/23), available on the EBA’s website at www.eba.europa.eu. 48 Available on the ECB’s Banking Supervision website at www.bankingsupervision.europa.eu.

title: Opinion of the European Central Bank of 29 December 2023 on a legislative package on crisis management in the banking sector (CON/2023/47)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 29 December 2023 on a legislative package on crisis management in the banking sector (

text: ) Introduction and legal basis

text: On 23 October 2023 the European Central Bank (ECB) received a request from the Ministry of Finance of the Republic of Cyprus (hereinafter the ‘Ministry’) for an opinion on three draft laws. The first draft law relates to extraordinary public financial support (hereinafter the ‘draft law on extraordinary public financial support’). The second draft law relates to amendments to the Law on the resolution of credit institutions and investment firms (hereinafter the ‘draft law on the resolution of credit institutions’). The third draft law relates to amendments to the Law on the business of credit institutions (hereinafter the ‘draft law on the business of credit institutions’, and together with the draft law on extraordinary public financial support and the draft law on the resolution of credit institutions hereinafter collectively referred to as the ‘draft laws’). 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, Article 25.1 of the Statute of the European System of Central Banks and of the European Central Bank and the third and sixth indents of

text: , as the draft laws relate to (1) the implementation of Union legislation relating to the prudential supervision of credit institutions and to the stability of the financial system, (2) the Central Bank of Cyprus (CBC), (3) rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets and (4) the specific tasks conferred upon the ECB pursuant to Article 127(6) of the Treaty concerning policies relating to the prudential supervision of credit institutions. 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: 1.1 The purpose of the draft laws is to provide for coordination procedures between the various authorities involved in the application of certain provisions of Directive 2014/59/ΕU of the European Parliament and of the Council (hereinafter the ‘BRRD’), Regulation (ΕU) No 806/2014 of the

text: European Parliament and of the Council (hereinafter the ‘SRM Regulation’), and the Law on the business of credit institutions . In particular, the draft laws are intended to apply to cases in which extraordinary public financial support is required in order to prevent or remedy a serious disturbance in the economy and to preserve financial stability in the Republic of Cyprus (hereinafter the ’Republic’). 1.2 The draft law on extraordinary public financial support lays down rules and procedures for the provision of emergency public financial support to solvent authorised credit institutions (ACIs) without triggering deposit guarantee schemes. Financial support is to be provided for the purpose of addressing a capital shortfall and/or supporting liquidity, in order to prevent or remedy a serious disturbance in the economy and to preserve financial stability in the Republic. This draft law provides for three categories of extraordinary public intervention, which reflect the three forms envisaged in the relevant provisions of the SRM Regulation and the BRRD : (1) a State guarantee to back liquidity facilities provided by the CBC subject to the conditions laid down by the CBC; (2) a State guarantee of newly issued liabilities; and (3) a precautionary recapitalisation, whereby there is an injection of own funds or purchase of capital instruments by the State. The draft law on extraordinary public financial support also provides that the liquidity support includes emergency liquidity assistance. 1.3 Liquidity support measures and State guarantee of newly issued liabilities 1.3.1 The draft law on extraordinary public financial support provides for the conditions and procedures for a solvent ACI to apply to the Ministry for temporary and precautionary support in the form of State guarantees to back liquidity facilities provided by the CBC and/or in order to issue new debt instruments. The draft law on extraordinary public financial support also sets the preconditions for the provision of State guarantees to back liquidity facilities to an ACI and such preconditions apply mutatis mutandis in the case of State guarantees for newly issued debt instruments . The amount of any such guarantee is to be limited to what is strictly necessary to restore the ACI’s medium-term funding capacity and must not exceed the ACI’s own funds for supervisory purposes other than in duly substantiated cases . A State guarantee to support the liquidity of an ACI may be provided for debt instruments issued by the ACI which are not debt securities that may be classified as own funds , and which present the features defined in the draft law on extraordinary public financial support . The criteria and limitations set out in the draft law on extraordinary public financial support are derived, where available, from the Communication from the Commission on the application, from

text: 1 August 2013, of State aid rules to support measures in favour of banks in the context of the financial crisis (hereinafter the ‘2013 Banking Communication’) of the European Commission. 1.3.2 The provision of any State guarantee to an ACI must receive prior authorisation from the Commission and must relate to an ACI whose solvency is confirmed by the competent authority . The competent authority is the CBC or the ECB depending on the significance of the requesting credit institution for the purposes of the SSM Regulation. The CBC, in its capacity as the national designated authority , assesses whether the support is necessary in order to prevent or remedy a serious disturbance in the economy of the Republic and to preserve financial stability in the Republic . The CBC, again in its capacity as the national designated authority, then submits to the Minister for Finance (hereinafter the ‘Minister’) a recommendation based on its conclusions . The draft law on extraordinary public financial support provides for several procedural steps after the receipt of a positive recommendation from the CBC, up to the notification of the proposed State guarantees to the Commission for its approval. Following the completion of certain procedural steps by the ACI and CBC, the Minister must, within two months of receiving the Commission’s approval, submit a final draft restructuring plan to the Commission confirming the profitability and financial capacity of the ACI in the long term without support from the Republic where the ACI is to be provided with a State guarantee for new liabilities or renewed liabilities for which, at the time of the granting of the new State guarantee, the total outstanding guaranteed liabilities (including guarantees provided before the date of receipt of the Commission’s approval) exceed both the proportion of 5 % of the total liabilities and the total amount of EUR 500 million . The submission of a final restructuring plan is also required whenever the Ministry receives a request for the activation of the State guarantees, and in such situations this plan must be submitted by the Minister to the Commission within two months from the submission of the activation request . 1.4 Precautionary recapitalisation 1.4.1 Under the draft law on extraordinary public financial support, a precautionary recapitalisation may be provided in the form of an injection of own funds or the purchase of capital instruments , and may only be requested by an ACI that needs recapitalisation, based on any stress test scenario at the level of the Republic, the Union or the Single Supervisory Mechanism (SSM), or in the context of an asset quality review or an equivalent review carried out by the competent authority . Precautionary

text: recapitalisation may be provided only if the ACI is not deemed insolvent and is unlikely to become insolvent and the preconditions for the write-down or conversion of capital instruments under the 22 23 relevant provisions of Cypriot law or of the SRM Regulation are not fulfilled . The ACI is deemed solvent based on confirmation by the competent authority . 1.4.2 Before the submission of a request for precautionary recapitalisation to the Ministry, the ACI must submit a recapitalisation plan to the competent authority, meaning the ECB in the case of significant institutions and the CBC in the case of less significant institutions. If the recapitalisation plan is deemed unsatisfactory by the competent authority, the ACI may immediately request recapitalisation . If the measures taken by the ACI to achieve the objectives of the recapitalisation plan, even before fully completed, are deemed insufficient by the competent authority, the ACI may make a request for a precautionary recapitalisation . If the recapitalisation plan is deemed satisfactory by the competent authority, the ACI implements this plan and informs the competent authority of the results of the measures adopted in implementing the plan. 1.4.3 The request for State intervention must be submitted to the Ministry and notified to the competent authority, meaning the ECB in the case of significant credit institutions and the CBC in its capacity as national designated authority and competent authority in the case of less significant institutions. It must include, inter alia: (1) a list of the ACI’s instruments and loans that will be subject to burdensharing measures, indicating their financial value; (2) an estimate of the real value of the ACI’s assets and liabilities, for the purposes of assessing whether the creditors would be worse off were the ACI to become insolvent; and (3) a restructuring plan prepared in accordance with Union State aid rules . The CBC, being the national designated authority, must, within 60 days from receipt of the request for precautionary recapitalisation, assess the request and prepare and submit a report and recommendation to the Minister on the need for a precautionary recapitalisation of the ACI. 1.4.4 The maximum amount of precautionary recapitalisation is to consist of the difference between the losses resulting from the extreme and baseline scenarios under a stress test at the level of the Republic, the Union or the SSM, or in the context of an asset quality review or an equivalent review conducted by the competent authority . 1.4.5 The precautionary recapitalisation is subject to the Commission’s approval of the restructuring plan pursuant to the Union’s State aid framework . 1.5 State guarantee for emergency liquidity assistance 1.5.1 The draft law on extraordinary public financial support provides that the Minister may issue a State guarantee concerning the collateral assets or the realisation value of such assets that were provided by the ACI as collateral for emergency liquidity assistance conducted by the CBC in compliance with

text: the systems established by the ECB . An ACI benefiting from such guarantee for the provision of emergency liquidity assistance is required to submit a restructuring plan confirming its profitability and long-term funding capacity without the support of the Republic, in order, in particular, to limit reliance on the temporary liquidity assistance provided by the CBC . 1.5.2 The draft law on the resolution of credit institutions aims to implement the exercise of the discretion set out in certain provisions of the BRRD to enable the resolution authority, in the very exceptional case of a systemic crisis, to intervene directly to avoid the liquidation of an ACI or to achieve resolution objectives using public financial stabilisation tools (public equity support tool and temporary public ownership tool) subject to certain conditions. Public financial stabilisation tools are used as a last resort, after other resolution tools have been assessed and used to the greatest extent possible. 1.5.3 The draft law on the business of credit institutions aims to better transpose certain provisions of the BRRD .

text: 2. General observations

text: 2.1 Compliance with the Union’s legal framework National legislative provisions that aim at providing public support to the banking sector must fully comply with Union law, including the criteria governing the provision of extraordinary public financial support to credit institutions under the SRM Regulation and the BRRD, and must also take into account related Commission communications on the application of State aid rules to support measures for banks. Nonetheless, the ECB stresses that while the draft laws go beyond a simple transposition of Union law requirements, insofar as the draft laws transpose certain Union law requirements, the ECB opines neither on whether the draft laws effectively transpose

text: Article 32(4)

text: , point (d), of the BRRD into Cypriot law, nor on the effectiveness of the application of the SRM Regulation in the Cypriot legal sphere. Instead, the ECB’s focus is on those provisions that may impact on the role and the specific tasks conferred on the ECB by the SSM Regulation concerning the prudential supervision of credit institutions. 2.2 The role of the ECB as competent supervisory authority The draft law on extraordinary public financial support envisages a role for the ECB, as the competent supervisory authority for significant institutions within the SSM, in the procedures leading to the provision of public support. The ECB emphasises that its role in this respect is derived from Union rather than national law, in particular the SSM Regulation. In principle, national law cannot on its own, in the absence of a firm basis in Union law, transfer responsibilities to a Union institution such as the ECB. In this respect, the attribution of the role envisaged for the ECB under the draft law on extraordinary public financial support can be considered to be overall in line with the specific prudential supervisory tasks conferred on the ECB under the Union legal framework, insofar as the

text: relevant provisions of the draft law on extraordinary public financial support are interpreted in the light of and within the limits of the prudential supervisory tasks assigned to the ECB under Union law. The ECB stresses the importance of ensuring cooperation and the exchange of information between the national authorities and the competent supervisory authority, in accordance with this framework.

text: 3. Specific observations

text: 3.1 Stress and basic scenario-based losses 3.1.1 The draft law on extraordinary public financial support provides that specified precautionary recapitalisation is to be capped at the difference between stress and basic scenario-based losses established under Republic, Union or SSM-wide stress tests or asset quality reviews or equivalent exercises conducted by the competent authority . 3.1.2 Under

text: Regulation (EU) No 1093/2010

text: of the European Parliament and of the Council the European Banking Authority (EBA) may also perform such tests, and this is also explicitly mentioned in the SRM Regulation and the BRRD . In view of this, it may also be appropriate to make reference to the EBA and to clarify that under the SRM Regulation the capital shortfall resulting from such tests must be confirmed by the competent authority . 3.2 Extent of consultation with the ECB prior to the provision of precautionary recapitalisation 3.2.1 Article 17(7) of the draft law on extraordinary public financial support provides that the report and the recommendation prepared by the national designated authority and submitted to the Minister on the need for precautionary recapitalisation, following consultation with the competent authority, must include at the very least the following: (a) the supervisory measures already taken by the competent authority; (b) the efficacy of the proposed support in favour of the ACI at the minimal possible cost to taxpayers; (c) whether, in the opinion of the national designated authority, the ACI was unable to raise sufficient capital from its existing shareholders or from the market or in any other manner; (d) the assessment of the long-term viability of the applicant ACI, given that the proposed precautionary recapitalisation is to be provided in the form of a capital injection or a purchase of capital instruments; (e) whether the relevant preconditions are fulfilled in relation to the proposed precautionary recapitalisation; (f) the restructuring plan submitted by the ACI to the competent authority; and (g) the opinion of the competent authority as to whether it considers the recapitalisation plan to be satisfactory. 3.2.2 The ECB understands that, where the ECB is to be consulted, such consultation will be limited to matters within its fields of competence under Union law. 3.2.3 Further, the ECB notes that a clarification of

text: Article 17(7)

text: , point (f), of the draft law on extraordinary public financial support may be required. Under the draft law on extraordinary public financial

text: support, the application for precautionary recapitalisation by the ACI is to be submitted to the Ministry and the restructuring plan is to be approved by the Commission . The application is only notified to the competent authority. The reference under

text: Article 17(7)

text: , point (f), to the restructuring plan being submitted by the ACI to the competent authority may not be fully in line with these provisions as the restructuring plan would need to be submitted to the Ministry of Finance together with the application for precautionary recapitalisation and notified to the competent authority and national designated authority. 3.3 Role of the competent authority in respect of the measures provided for under Article 19(1) of the

text: 3.3.1 The draft law on extraordinary public financial support provides that an ACI must take all measures necessary to retain its funds from the time when it knows or should have known of the capital needs and lists various actions which cannot be performed by the ACI without the prior consent of the Commission. 3.3.2 The ECB understands that this provision aims at implementing the restrictions listed under the 2013 Banking Communication and is without prejudice to the general rules provided in

text: Regulation (EU) No 575/2013

text: of the European Parliament and of the Council (hereinafter the ‘CRR’) which assign to the competent authorities the power to approve some of those actions (e.g. share or hybrid capital instrument buy-backs) when certain specific conditions are met. 3.4 Assent of the competent authority for conversion of capital instruments 3.4.1 The draft law on extraordinary public financial support provides that an ACI with a capital shortfall which, if not addressed in a timely manner, may lead to the provision of precautionary recapitalisation must, having obtained the assent of the competent authority, the national designated authority and the Council of Ministers, and having taken all appropriate and reasonable measures in the circumstances to remedy the capital shortfall, initiate a procedure for the variation of the terms of issue of its capital instruments by their holders, with a view to strengthening its basic own funds, including its share capital . 3.4.2 The ECB understands that this provision aims at supporting the implementation of other measures to reduce capital needs as per the 2013 Banking Communication and that the competent authority’s role referred to in the draft law is therefore aligned with the reference in the 2013 Banking Communication. This role must be without prejudice to the application of the CRR provisions related to the Common Equity Tier 1 instruments classification and the reduction of own funds and eligible

text: liabilities , as specified in Commission Delegated

text: Regulation (EU) No 241/2014

text: and the related

text: EBA Reports on the monitoring of Common Equity Tier 1, Additional Tier 1, Tier 2 and TLAC/MREL

text: eligible liabilities instruments as well as associated supervisory guidance, such as the ECB Guide

text: on options and discretions available in Union law .

text: This opinion will be published on EUR-Lex.

text: Done at Frankfurt am Main, 29 December 2023.

text: [signed]

text: The President of the ECB

text: Christine LAGARDE