EN ECB-PUBLIC  
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 19 October 2011  
on early intervention measures and on amendmen ts to the resolution and winding-up regime for 
credit and financial institutions subject to  supervision by the Banco de Portugal 
(CON/2011/83) 
 
Introduction and legal basis  
On 4 October 2011, the European Central Bank (ECB) received a request from the Portuguese Ministry of 
Finance for an opinion on a draft Government decree -law (hereinafter the ‘draft decree-law’) amending 
(i) the Legal Framework for Cr edit and Financial Institutions1, (ii) Decree-Law No 345/98 of 9 November 
regulating the Mutual Agricultural Credit Guarantee Fund, (iii) Decree-Law No 199/2006 of 25 October 
on the winding up of credit and financial institutions , a nd (iv) the Organic Law of the Banco de Portugal.  
The Portuguese Constitution requires prior Parliament ary approval of the scope and terms of such 
delegated legislation by means of an enabling la w on which the ECB is not being consulted.  
The ECB’s competence to deliver an  opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
functioning of the European Union and on the thir d and sixth indents of Article 2(1) of Council 
Decision 98/415/EC of 29 June 1998 on the consu ltation of the European Central Bank by national 
authorities regarding draft legislative provisions2, as the draft decree-law relates to the Banco de Portugal 
and to the rules applicable to financial institutions insofar as they materially influence the stability of 
financial institutions and markets. In accordance with  the first sentence of Article 17.5 of the Rules of 
Procedure of the European Central Bank, th e Governing Council has adopted this opinion. 
 1. Purpose and contents of the draft decree-law  
The purpose of the draft decree-law is to amend several laws to, inter alia : (i) reinforce the supervisory 
powers of the Banco de Portugal by empowering it to act  in case of financial distress of an institution 
under its supervision, namely through a set of reinfo rced and expanded preventive and early intervention 
measures and also through specific resolution measures;  (ii) establish a resolution fund to finance the 
application of the resolution measures provided for in the draft decree-law;  (iii) adapt the rules applicable 
to the deposit guarantee schemes (DGSs); and (iv) am end the winding-up regime for supervised credit 
and financial institutions to cover reorganisation aspects.  
 
                                                 
1  Approved by Decree-Law No 298/92 of 31 December. 
2  OJ L 189, 3.7.1998, p. 42.  
ECB-PUBLIC  
2 1.1 Preventative and early intervention measures  
The supervisory powers of the Banco de Portugal are reinforced through an amendment to its 
Organic Law and several amendments and additi ons to the Legal Framework for Credit and 
Financial Institutions regarding ba nk reorganisation and resolution.  
The proposed early intervention measures are intended to prevent the aggravation of developing 
signs of financial distress and must be implemented as soon as a cr edit institution fails to meet, or 
is at risk of not meeting, any of the legal or regulatory requirements governing its activity.  
In particular, the draft decree-law empowers the Banco de Portugal to require all authorised 
institutions to draw up and submit for its approva l contingency plans for recovery and resolution 
scenarios, under the conditions and within the deadli nes specified by the Banco de Portugal. Such 
plans should aim at restoring in a timely manner the financial situation of a credit institution showing signs of distress (recovery) and, if necessar y, at ensuring the orderly winding-up of the 
credit institution before entering into liquidation (resolution).  
At the early intervention stage, the Banco de Portugal may adopt the following measures with 
regard to an  institution: (i) to appoint, early on, own representatives and/or interim members of the 
management board, whose performance will be subj ect to its guidelines; (ii) to appoint new 
auditors; (iii) to impose restrictions on the granti ng of credit and the investment of funds by the 
credit institution, especially in the context of in tra-group or offshore transactions; (iv) to impose 
additional reporting requirements; (v) to require the submission of a debt restructuring plan to be 
negotiated with the creditors; (vi) to require an i ndependent general or partial audit of the business 
of the authorised institution, at the latter’s expen se; and/or (vii) to call a general meeting of the 
shareholders of the authorised ins titution and to submit proposals to it. 
1.2 Resolution measures   
Currently only the judicial liquidation of alrea dy insolvent credit institutions is regulated in 
Portugal. The Legal Framework for Credit and Fi nancial Institutions is now being amended to 
introduce resolution mechanisms for the orderly winding-down of a credit institution in serious 
financial distress as a going concern under official  control, to promote financial stability, prevent 
systemic risk and protect public funds and depositors . Therefore, the draft decree-law provides that 
whenever remedial actions do not achieve the financ ial recovery of the credit institution, or if a 
credit institution does not comply with an approved rec overy plan and fails to meet, or is at risk of 
not meeting, its licensing requirements, the Banc o de Portugal may: (i) withdraw the banking 
license, which will automatically lead to judici al liquidation; or (ii) appoint a new interim 
administration whose members will have additional powers and duties, without prejudice to its right to order the transfer of the business (total or partial sale of assets and liabilities, off-balance 
sheet commitments and assets under management) to other duly authorised credit institutions or to 
one or more bridge banks (fully held by the Resolution Fund and authorised by the Banco de 
Portugal) independently of, or in addition to, imposing any other corrective measure.  
ECB-PUBLIC  
3 1.3 Establishment of a resolution fund within the B anco de Portugal to finance the resolution measures  
The draft decree-law establishes a resolution fund as an  independent public institution with its head 
office at the premises of the Banco de Portugal, to provide financial assistance for the application 
of the resolution measures adopted by the Banco de  Portugal. The draft decree-law regulates the 
composition, administration and funding regime of  the Resolution Fund, specifying that financial 
resources may not be granted by the Banco de Portugal.  
1.4 Further amendments to the Legal Framew ork for Credit and Financial Institutions:  
The draft decree-law sets out early reporting obligat ions, and penalties for failure to contribute to 
the Deposit Guarantee Fund or to the Resoluti on Fund and for non-compliance with reporting 
requirements, corrective action or resolution me asures imposed by the Banco de Portugal.  
1.5  Deposit Guarantee Funds  
The roles of the DGSs (Deposit Guarantee Fund and Guarantee Fund for Mutual Agricultural 
Credit Institutions) are enhanced, the protection of guaranteed depositors is strengthened, and the 
rules applicable to both schemes are harmonised. On  request by the Banco de Portugal and under 
certain conditions, the funds may be involved in th e resolution of distressed credit institutions, in 
particular by cooperating with the Resolution Fund in  the sale of insured deposits or in the transfer 
of insured deposits to a bridge bank. Guaranteed depositors and/or the funds (directly or through 
subrogation) are granted priority ranking over unsecured creditors in the credit institution’s 
insolvent estate. 
1.6 Amendment to the Organic Law of the Banco de Portugal  
Article 17 of the Organic Law of the Banco de Po rtugal is amended to reinforce its supervisory 
powers by authorising it to apply preventiv e, corrective and resolution measures.  
 2. General observations  2.1 The draft decree-law is a structural benchmar k under the EU/IMF support programme to Portugal, 
in particular with regard to strengthening the framework for early intervention, resolution and 
deposit insurance
3. 
2.2 The ECB welcomes the introduction of a comp rehensive bank resolution framework, aiming at 
safeguarding the financial soundness of credit institu tions, the interest of guaranteed depositors and 
the stability of the financial system. This Opin ion proposes technical improvements to the overall 
good quality of the draft decree law.     
2.3 The ECB understands that the enactment of a le gal framework on bank rec overy and resolution is 
somewhat complicated due to the absence of a st able legislative proposal at Union level, and 
invites the consulting authority to review the c ontent of the law in light of the future Union 
regulatory framework on bank recovery and resolution, in particular with regard to resolution tools 
                                                 
3  See the Economic Adjustment Programme fo r Portugal – First review, available at 
http://ec.europa.eu/economy_finance/publications/occas ional_paper/2011/pdf/ocp83_en.pdf, and in particular 
paragraph 22 of the Memorandum of Economic and Financial Policies.  
ECB-PUBLIC  
4 and powers of resolution authorities, and of the forthcoming recast Directive on deposit guarantee 
schemes.  
2.4 The ECB also notes that while the Legal Framewor k for Credit and Financial Institutions applies to 
credit and financial institutions, the extent to wh ich each measure of the draft decree-law would 
apply to both types of supervised entities depends on the concrete provision relating to the measure 
concerned.  
2.5 While the ECB takes note of the Portuguese authoriti es’ wish to address the legal matters related to 
bank recapitalisation by a separate law, it notes with some concern that Law No 63-A/2008 of 24 November establishing the legal framework for ma ndatory recapitalisation of credit institutions is 
in force only until 31 December 2011. The ECB expe cts the Portuguese authorities to take urgent 
steps to adopt the new legal framework before the end of the year, after having consulted the ECB. 
This would, inter alia , facilitate Portugal’s recourse to the Bank Solvency Support Facility in line 
with the Memorandum of Econom ic and Financial Policies. 
2.6 The ECB notes that, for legality and consistency reasons, the contents of the enabling law, on 
which it is not being consulted, may need to be amended in the light of this opinion.  
 3. Preventative and early interven tion (corrective action) measures 
The draft decree-law requires deposit-taking credit in stitutions to prepare and submit recovery and 
resolution plans to the Banco de Portugal. Howe ver, as regards the resolution plans, the ECB 
understands that such plans will be thoroughly reviewed by the Banco de Portugal, as the resolution 
authority, based on the information provided a nd regularly updated by the credit institution
4. 
 4. Resolution measures 4.1 According to proposed Article 145-D(1), the app lication of a resolution measure by the Banco de 
Portugal automatically leads to the suspension of the members of the management and supervisory 
boards, and possibly also the auditors, of the cred it institution. The Banco de Portugal is invited to 
consider whether in certain cases the retention of key members of the management may at least temporarily be helpful to the resolution process and to ensuring continuity of banking services.    
4.2 The ECB welcomes that pursuant to proposed Article 153-C, resolution measures are financed by 
the Resolution Fund. Along these lines,  the ECB understands that the reference in proposed Article 
145-F(7) to the fact that the Banco de Portuga l ‘may invite’ the Deposit Guarantee Fund or the 
Guarantee Fund for Mutual Agricultural Credit Ins titutions, as the case may be, to cooperate in the 
sale of insured deposits, is to be  interpreted as conferring a lim ited role for the Deposit Guarantee 
Fund. In particular, it is understood that this possibility can be activated only (i) on the basis of a thorough evaluation by the Banco de Portugal, (ii) following an autonomous decision by the 
relevant fund’s management committee, (iii) taking into account the limits on the amount of 
                                                 
4  European Commission’s public consultation on the technical details of a possible EU framework for bank recovery and 
resolution  - ESCB Contribution, May 2011. 
ECB-PUBLIC  
5 permissible financing by the Deposit Guarantee Fund set forth in proposed Article 167-A, and (iv) 
provided that the participation of the Deposit Guarantee Fund in the financing of resolution 
measures does not jeopardise its original mission.  
4.3 The ECB draws the attention of the consulting au thority to the possibility of improving the wording 
of proposed Article 145-G, by expressly providing that , as regards the disposal of the shares of the 
bridge bank which are fully owned by the Resolution Fund, the Resolution Fund should abide by the instructions of the Banco de Portugal.   
4.4 Concerning the sale of the portfolio of the bridge bank, the ECB notes that pursuant to proposed 
Article 145-I(6), if it is not possible to sell the bus iness transferred to the bridge bank, the Banco de 
Portugal may decide to put the bridge bank into vo luntary winding up. If the Banco de Portugal - as 
the resolution authority - considers that there ar e serious public interest grounds, such as financial 
stability, for the bridge bank to continue in exis tence, it should not be obliged to liquidate the 
bridge bank.  
 5.  Broad temporary waiver  
Among the other measures which the Banco de Portuga l may take under proposed Article 145-J, support 
resolution measures, is ‘temporary waiving of complia nce with prudential rules’. The ECB considers that 
such a broad temporary waiver is inappropriate a nd is not mandated by either Directive 2006/48/EC of 
the European Parliament and of the Council of 14 J une 2006 relating to the taking up and pursuit of the 
business of credit institutions
5 or the Commission’s proposed legislative package to strengthen regulation 
in the banking sector6. Although the measures in proposed Article 145-J are not in themselves resolution 
measures, they are strictly linked with the adoption of resolution measures, subject to the restrictive conditions laid down in Article 145- A and Article 145-C(1) and (2), and therefore must satisfy the 
objectives and pre-conditions for resolution measures, su ch as public interest. Thus, when applying any 
waiver of compliance with prudential rules, the Banc o de Portugal is under a legal obligation to comply 
with mandatory Union law requirements. Furthermor e, the draft decree law should clarify that any 
temporary waiver of compliance with prudential rules mu st be limited not only in time, but also in scope. 
That is, such waiver must clearly indicate which sp ecific prudential rules are being waived and to what 
extent. 
 6.  Deposit Guarantee Fund and Resolution Fund  6.1 The ECB acknowledges that proposed Article 166-A of the draft decree law provides for 
preferential ranking of claims in respect of depos its covered by the Deposit Guarantee Fund. Such 
                                                 
5  OJ L 177, 30.6.2006. 
6  Proposal for a regulation of the European Parliament and of the Council on prudential requirements for credit institutions 
and investment firms, COM(2011) 452 final and proposal for a directive of the European Parliament and of the Council 
on the access to the activity of credit institutions and the pruden tial supervision of credit institutions and investment firms  
amending Directive 2002/87/EC 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. 
ECB-PUBLIC  
6 claims will rank above other preferential rights, but be low those related to judicial costs, claims of 
the financial institution’s employees arising from em ployment contracts and the tax claims of the 
State, local authorities and social  security entities. This provision is  in line with the requirements 
set out in the economic adjustment programme for Portugal. Proposed Article 166-A furthermore provides for preferential ranking of claims of the Deposit Guarantee Fund and of the Resolution 
Fund arising from the financial support provide d for application of resolution measures. 
6.2 Directive 94/19/EC of the European Parliament  and of the Council of 13 May 1994 on deposit-
guarantee schemes
7 does not provide for any harmonisati on of matters related to ranking of 
depositor claims and/or DGSs. The only harmonisation in this context is contained in Article 11 of 
Directive 94/19/EC – schemes which make payments under guarantee have the right of subrogation 
to the rights of depositors in liquidation proceedi ngs for an amount equal to their payment. The 
latest available proposal for a recast directive on deposit guarantee schemes8 does not provide for 
any further harmonisation regarding the ranking of claims. The proposed recast Directive, however, 
considerably strengthens and harmonises the f unding requirements applicab le to DGSs: (i) DGS 
members will be required to pay extraordinary contri butions up to 0,5% of eligible deposits; (ii) a 
mutual borrowing scheme between DGSs may be  activated, provided such arrangements are 
established on a voluntary basis and that the borrowed funds are only used for payment of depositors claims
9; and (iii) Member States will ensure that  DGS have in place adequate alternative 
funding arrangements to enable them to obtain s hort-term funding where necessary to meet claims 
against those DGSs. The above provisions, once transposed by the Member States, will significantly improve the ability of the DGS to always meet their obligations vis-à-vis the 
guaranteed depositors. Such ex ante  funding arrangements for DGSs strengthen their capacity to 
ensure that depositor claims are adequately covere d. From this perspective, the introduction of 
depositor preferences may be seen as aligned w ith the objectives of the recast Directive. 
6.3 Currently, four Member States – Bulgaria
10, Latvia11, Romania12 and recently also Greece13 – have 
granted priority ranking to claims that the DGS has acquired by subrogation after having paid out 
the amounts corresponding to covered deposits, thus further contributing to ensuring that sufficient 
funding is always available to the DGS.  
6.4 Views on the impact of granting preferential ranki ng are highly divergent, as it is believed that 
preferential ranking of depositors may have an impact on the funding costs available to banks and 
that greater efforts will be made by other creditors  to secure their claims.  On the other hand, this 
would be somewhat mitigated to the extent that priority claims extend to guaranteed deposits only. 
                                                 
7 OJ L 135, 31.5.1994, p. 5. 
8 COM(2010) 369 final; SEC(2010)834; SEC(2010)835 final available at 
http://ec.europa.eu/internal_market/b ank/docs/guarantee/20100712_proposal_en.pdf. 
9  CON/2011/12, paragraph. 9.2. 
10  See Article 94 of the Law on bank bankruptcy. 
11  See Article 192 of the Law on credit institutions. 
12  See Article 38 of Government Ordinance No 10/2004 on the proceedings of judicial reorganisation and bankruptcy of 
credit institutions. 
13  See Article 4(16) of Law No 3746/2009. 
ECB-PUBLIC  
7 Furthermore, a legal regime that establishes pr iority ranking of guaranteed depositors should 
facilitate the use of resolution measures provide d for in proposed Article 145-C of the Legal 
Framework for Credit and Financia l Institutions (total or partial sale of business to another 
authorised credit institution or to a bridge bank). Fr om a financial stability perspective, the priority 
claim in respect of the covered deposits is also supported as it reduces the risks of bank runs, potential losses of the insured depositors in a liq uidation phase as well as the excessive depletion of 
the DGS. 
 7. Protection for whistleblowers 
According to proposed Article 116-F, there is a duty to communicate information to the Banco de 
Portugal about the financial distress of an institution or  the risk thereof and abou t other situations and any 
serious irregularities within the management of the cr edit institution. According to the draft decree-law, 
the persons to whom this duty applies are protected from disciplinary sanctions by the credit institutions, 
but this protection may not be sufficient. To fac ilitate the communication of necessary information and 
the reporting of breaches, it would be necessary to pr ovide appropriate protection for all persons within 
the credit institution who denounce breach es committed within the institution
14. For example, the 
conditions under which this communication will not gi ve rise to any sanctions or liability could be 
clarified. Furthermore, the extent to which it is appropriate to impose sanc tions on persons who do not 
have any high level managerial responsibilities, where th ere is failure to report promptly to the Banco de 
Portugal, should be examined. 
 8. Independence of the Banco de Portugal  8.1 The draft decree-law specifies in proposed Ar ticle 92 that powers conf erred to the Banco de 
Portugal by the draft decree-law will not affect its independence in the performance of functions as a central bank and as a member of the European  System of Central Banks (ESCB). Although the 
proposed Article 92 does not expressly refer to the Treaty principle of central bank independence, 
or provide that it prevails over any incompatib le decree-law provision, the ECB understands that 
Article 92 confirms the obligations  arising under the Treaties, including the protection of central 
bank independence.  
8.2 Further, and more specifically, the requirement in proposed Article 153-P that the Banco de 
Portugal provides technical and administrative servi ces for the regular operation of the Resolution 
Fund should not affect the Banco de Portugal’s ab ility to carry out its ESCB-related tasks from an 
operational and financial point of view. The involvement of the Banco de Portugal in the operation 
of the Resolution Fund must be compatible with the institutional and financial independence of the 
                                                 
14  See Article 70(2)(b) of the Commission’s proposal for a direc tive 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 2002/87/EC of the European Parliament and of the Council on the supplementary supervision of 
credit institutions, insurance undertakings and investment firms in a financial conglomerate COM(2011) 453 final, which 
mandates appropriate protection for employees of instituti ons who denounce breaches comm itted within the institution. 
ECB-PUBLIC  
8 Banco de Portugal, and to this end it is reco mmended that the Banco de Portugal be ensured 
adequate financial and human resources. The ECB has consistently underscored that an NCB must 
have sufficient means not only to perform its ES CB-related tasks, but also its national tasks15. 
Additional tasks under national law need to be ac companied by the allocation of adequate human 
and financial resources allowing for such tasks to be carried out in a manner which will not affect 
the Banco de Portugal’s operational and financia l capacity to carry out its ESCB-related tasks16.  
The ECB understands that Article 153-P will be im plemented with due respect of the Banco de 
Portugal’s financial and institutional independence.    
8.3 Proposed Article 153-E provides that the members of the management committee of the Resolution 
Fund will remain in office for a renewable term of  three years.  One member of the Board of 
Directors of the Banco de Portugal is a member of the management committee. Moreover, the term 
of office as a member of the Board of Directors of  the Banco de Portugal is five years, renewable 
once. The ECB notes that because of the inconsistenc y in the terms of office, in practice the same 
member of the Board of Directors of the Banco de Portugal could not, ge nerally, have a renewed 
term of office of three years as a member of the management committee of the Resolution Fund. The draft-decree law should be clarified as regards the application of Article 153-E to  the members 
of the Board of Directors of the Banco de Portugal .  
 9. Prohibition on monetary financing  9.1  It is important to safeguard compliance with  the monetary financing prohibition under Article 123 
of the Treaty. This prohibition is designed to  prevent central banks from providing overdraft 
facilities or any other type of credit facility to th e public sector, which includes any financing of the 
public sector’s obligations vis-à-vis third parti es. The only compatible forms of central bank 
financing of DGSs are: (a) intraday credit in line with the general rules on provision of such credit 
by the central bank, and (b) short-term emerge ncy liquidity financing under strict conditions 
established in the ECB’s Convergence Reports, i.e. if  such funding is short term, addresses urgent 
situations, systemic stability aspects are at st ake and decisions are at the NCB’s discretion
17. These 
conditions need to be listed in national law18 in the cases where emergency liquidity financing of 
the DGS is foreseen by the national legal system. 
9.2  Proposed Article 162(8) of the Legal Framewor k for Credit and Financial Institutions approved by 
Decree-Law No 298/92 of 31 December) and Artic le 10(7) of the draft decree-law (amending 
Decree-Law No 345/98 of 9 November) list conditions for loans from the Banco de Portugal to the 
Fund. It is understood that these conditions are in tended to ensure compliance with the monetary 
financing prohibition. In this resp ect, the condition that loans are granted at the full discretion of the 
                                                 
15  See the ECB’s Convergence Report, May 2010, p. 21. Al l ECB documents are availabl e on the ECB’s website at 
www.ecb.europa.eu. 
16  See for instance paragraph 3.3 of ECB Opinion CON/2011/76. 
17  See ECB’s Convergence Report, May 2010, p. 25.  
18  See paragraphs 2.2 to 2.8 of ECB Opinion CON/2008/5.  
ECB-PUBLIC  
9 Banco de Portugal would need to be included in the draft decree-law. When exercising its 
discretion to grant a loan, the Banco de Portug al has to ensure that by doing so it is de facto  not 
taking over a State task. 
 This opinion will be published on the ECB’s website.    Done at Frankfurt am Main, 19 October 2011. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET