EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 2 April 2009  
at the request of the Lithuanian Ministry of Finance 
on a draft law on financial sustainability 
(CON/2009/32) 
 
Introduction and legal basis  
On 25 March 2009 the European Central Bank (ECB) recei ved a request from the Lithuanian Ministry of 
Finance for an opinion on a draft law on financial sustainability (hereinafter the ‘draft law’). 
The ECB’s competence to deliver an  opinion is based on Article 105(4) of the Treaty establishing the 
European Community and the sixth indent of Article 2(1) of Council Decision 98/415/EC of 
29 June 1998 on the consultation of the European Ce ntral Bank by national authorities regarding draft 
legislative provisions1, as the draft law relates to rules applicable  to financial institutions insofar as they 
materially influence the stability of financial ins titutions and markets. In accordance with the first 
sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council 
has adopted this opinion. 
 1.  Purpose of the draft law 
1.1 The aim of the draft law is to enable the Lithuanian State to protect essential public interests and to 
take measures to strengthen financial stabilit y and the credibility of the banking system. 
1.2 The draft law provides for four categories of measures to strengthen financial stability: (a) State 
guarantees; (b) redemption of bank assets; (c) State involvement in a bank’s capital; and (d) taking 
shares in a bank in the public interest. The draft law is intended to apply to banks and branches of 
foreign banks established in Lithuania. 
1.3 The draft law provides for a general legal frame work allowing the Government or an institution 
authorised by it to apply one or several of the new measures when th e conditions for their 
application are met. Detailed rules for the implementation of the four categories of measures are to be adopted by the Government. 
1.4  The draft law is of a permanent natu re – its validity is not limited in time. 
 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2 2. General observations  
2.1 The ECB has issued a number of opinions at the request of the competent Member States’ 
authorities on national measures adopted in  response to the global financial crisis2. The ECB 
therefore invites the Ministry of Finance to take into account the relevant observations made in its 
recent opinions on similar draft legislative provisions in other Member States, some of which are repeated again below. 
2.2 The ECB also draws attention to the guidan ce provided by the Ecofin Council to the Member 
States in the conclusions of its Meeting of 7 October 2008
3 as well as the Declaration issued by the 
Heads of State of the euro area on 12 Oc tober 2008 (hereinafter the ‘Declaration’)4. In particular, 
the ECB stresses that any initiatives put in place by  the competent national authorities to restore 
confidence in the financial markets should be coordinated and should aim to implement the 
common principles in question, in a spirit of clo se cooperation with other Member States and the 
Community institutions5. The principles contained in the Declaration as well as the conclusions 
raised by the Ecofin Council were endorsed by the European Council of 15 to 16 October 20086. 
2.3 As the draft law provides for a general legal fra mework and the detailed rules of its implementation 
will be laid down by the Government, the ECB exp ects to be consulted on any new draft legislative 
provisions should they materially influence the stability of financial institutions and markets. 
2.4 With these general observations in mind, and against the background of the guidance previously 
given by the ECB and the Community institutions  in this regard, the ECB has the following 
observations to make on the draft law. 
 3. Specific comments  3.1 Entities eligible for the app lication of the new measures  
3.1.1 As regards the entities to wh ich the measures to strengthen financial stability provided for in the 
draft law could be applied, the ECB understands that subsidiaries  are also covered under ‘banks 
                                                 
2  All ECB opinions are available on th e ECB’s website at www.ecb.europa.eu. 
3  See ‘Immediate Responses to Financia l Turmoil’, Ecofin Council Conclusions of  7 October 2008, available on the former 
French Presidency’s website at www. ue2008.fr. The Ecofin Council recommended that: (i) interventions should be 
timely and the support should in pr inciple be temporary; (ii) the interests of taxpayers should be protected; (iii) existing 
shareholders should bear the due conseque nces of the intervention; (iv) the Gove rnment should be in a position to bring 
about a change of management; (v) management should not retain undue be nefits; (vi) governments may have, inter alia , 
the power to intervene in remuneration; (vii) legitimate intere sts of competitors must be protected, in particular through 
the State aid rules; and (viii) negative spill-over effects should be avoided.  
4  The text of the Declarati on is available on the fo rmer French Presidency’s website at www.ue2008.fr. The Member States 
agreed to: (i) ensure appropriate liquid ity conditions for financial institutions: (ii) facilitate the funding of banks; 
(iii) provide financial institutions with additional capital resources to continue to ensure the proper financing of the 
economy; (iv) allow for an efficient recapitalisation of distressed banks, (v) ensure sufficient flexibility in the 
implementation of accounting rules; and (vi) enhance cooperation procedures am ong European countries. 
5  See ECB Opinion CON/2009/12 of 9 February 2009 at the reque st of the Cypriot Ministry of Finance on a draft law 
amending the Laws of 2002 and 2004 on the management of revenues and expenditure and on the accounting system of 
the Republic and other related matters. 
6   See Brussels European Council of 15 to 16 October 2008, paragraph 3 of the Presidency Conclusions. 
3 and branches of foreign banks established in Lithuania’7. The ECB emphasises that any distortion 
in the level playing-field as regards the treatment of  domestic financial ins titutions and subsidiaries 
of foreign institutions should be avoided8. 
3.2 Involvement of Lietuvos bankas 
3.2.1 The ECB understands that the draft law will be  implemented and the new measures will be applied 
by the Government or another executive institution authorised by it. Lietuvos bankas’s role in 
relation to the new measures will only be limite d to a consultative one, i.e. advising the 
Government or the institution authorised by it in respect of specific measures and/or providing its 
findings on the situation of a particular bank. 
3.2.2 The ECB appreciates that these provisions rec ognise Lietuvos bankas’s expertise in the fields 
relevant to the stability of the financial market. In this respect, the ECB notes that any involvement 
of Lietuvos bankas in application of the measu res to strengthen financial stability must be 
compatible with the Treaty provisions9. First, the ECB expects that functions to be performed by 
Lietuvos bankas in the context of implementation of the new measures will be conducted in manner 
that is fully compatible with Lietuvos ba nkas’s institutional and financial independence10 to 
safeguard the proper performance of its existing tasks under the Treaty and the Statute of the European System of Central Banks and of the European Central Bank. Second, the ECB also 
expects that Lietuvos bankas’s invo lvement in the procedure provided for in the draft law will not 
go beyond an advisory function and that it will in  other respects comply fully with the prohibition 
on monetary financing laid down in  Article 101(1) of the Treaty, read in conjunction with Council 
Regulation (EC) No 3603/93 of 13 December 1993 speci fying definitions for the application of the 
prohibitions referred to in Articles 104 and 104b( 1) [now Articles 101 and 103(1)] of the Treaty
11. 
In this respect, the ECB understands that the me asures to strengthen financial stability will be 
exclusively financed from budgetary and similar State resources12. In the same vein, this 
observation also concerns Article 3(1)(1) of the draft law, referring to th e measures that Lietuvos 
bankas may apply to resolve problems relating to a bank ’s liquidity or solvency. In this respect, it is 
noted that any possible measures undertaken by Lietuvos bankas should only relate to liquidity 
                                                 
7  Article 1(2) of the draft law. 
8  See paragraph 3.1 of ECB Opinion C ON/2008/55 of 20 October 2008 at the request of  the Austrian Ministry of Finance 
on draft legal measures to ensure the stability of the Austrian financial market. 
9  In this context also see paragraph 3.7 of ECB Opinion CON/2008/68 of 13 November 2008 at the request of the Finnish 
Ministry of Finance on a draft government proposal for laws amending the Law on the Government Guarantee Fund and 
the Law on credit institutions. 
10  For more information on Lietuvos bankas’ institutio nal and financial independence see recent ECB Opinion 
CON/2009/26 of 24 March 2009 at the request of Lietuvos bankas on behalf of the Ministry of Finance of Lithuania on a 
draft law amending the Law on Lietuvos banka s as regards the rules on the distributi on of the profits of Lietuvos bankas. 
11  OJ L 332, 31.12.1993, p. 1. See also pa ragraph 3.2 of ECB Opinion CON/2008/52 of 17 October 2008 at the request of 
the Spanish State Secretary fo r Economic Affairs on a Royal Decree-Law crea ting a Fund for the acquisition of financial 
assets and on a Royal Decree-Law adopting urgent financia l and economic measures in relation to the concerted 
European action plan of the euro area countries and paragraph 3.7 of ECB Opinion CON/2008/68. 
12  Articles 10 and 11 of the draft law. 
4 support provided to solvent institutions in orde r to comply with the prohibition on monetary 
financing. 
3.3 Circumstances under which the new measures could be applied 
3.3.1 The draft law provides that the measures to  strengthen financial stability could be applied  when the 
bank concerned ‘faces liquidity problems or is insolven t, or there is a real threat that it will have 
liquidity problems or will become insolvent, and that the measures, which may possibly be applied 
by Lietuvos bankas pursuant to legal acts are insu fficient to resolve the problems related to the 
bank’s liquidity or solvency’13. In this context, the ECB would welcome clarification, as, according 
to the guidance previously given by the ECB and the Community institutions in this regard, only 
one measure could be applied to insolvent banks, namely taking shares in a bank in the public 
interest. 
3.3.2 The ECB also recommends that the consulting authority clarifies the coverage of the proposed 
measures under the draft law. Indeed, in line with previous opinions14, attention should be drawn to 
the importance of putting a transparent, predictable framework in place, by defining the terms and conditions for financial institutions  to have recourse to it and the parameters of and limitations to 
the exercise by the Lithuanian authorities of thei r powers when deciding whether to activate the 
support measures contained in the draft law. 
3.4  Relationship of the draft law with monetary policy 
3.4.1 The ECB reminds the consulting authority that, in line with the Declaration, Member States have to 
act in a coordinated manner to avoid that signi ficant differences in national implementation could 
have a counter-productive effect, creating distortio ns in global banking markets. Against this 
background, the ECB has the following remarks. 
3.4.2 First, the ECB understands that State guarantees ma y be issued to cover all types of liabilities of 
domestic financial institutions a nd national guarantee schemes. However, the ECB notes that the 
draft law does expressly exclude interbank deposits from its material scope of application. The 
ECB welcomes this provision as such guarantees could entail a substantial distortion in the various segments of the money market by potentially increasing short-term debt issuance activity across Member States, thus impairing the implementation of the single monetary policy of Lietuvos bankas, and possibly altering the transmission of monetary policy decisions. 
3.4.3 Second, the ECB understands that, by extension,  State guarantees may be given for loans taken out 
by banks. In this respect, the ECB notes that such arrangements for the granting of government 
guarantees on bank debt should, in their practi cal implementation, aim at: (a) addressing the 
funding problems of liquidity-constrained solven t banks by improving the functioning of the 
market for bank debt of longer term maturity; (b ) preserving the level playing-field among financial 
                                                 
13  Article 3(1)(1) of the draft law. 
14  See paragraph 3.1.2 of ECB Opinion C ON/2009/18 of 9 March 2009 at the request of Riigikogu on a draft law on 
stabilising measures for the Estonian financial system. 
5 institutions and avoiding market distortions; and (c ) ensuring consistency with the management of 
liquidity by Lietuvos bankas. In line with the D eclaration, the ECB also notes that the governments 
should make available a Government guarantee of ne w medium term (up to five years) bank senior 
debt issuance and that guarantees must be limited in time. In this respect, the ECB reminds the consulting authority that the draft law should lay down not only the maximum maturity of a bank’s 
liabilities that are guaranteed by the State, but al so the minimum maturity, currently recommended 
to be three months. 
3.4.4 Third, as regards the pricing of the State guara ntees, the ECB notes that it also appears crucial to 
ensure the harmonisation of the price determination of such guarantees within the euro area and the 
European Union where a level playing-field is of essence. In this respect, th e ECB’s contribution to 
the harmonisation and coordination across the EU of  the price determination of State guarantees
15 
is helpful . In particular, it is important to ensure that  the price of the State guarantee is risk-based 
and market-oriented and determined on the basis of the costs of a corresponding guarantee in the 
market. In this respect, the ECB notes that Article 4(3) of the draft law introduces a direct reference 
to the ECB’s recommendations on government gua rantees on bank debt. While appreciating that 
the draft law includes such provisions, for reasons  of legal certainty, the ECB recommends deleting 
the specific reference to its recommendations on government guarant ees on bank debt, which do 
not constitute a legal act and which may be subject to revision16. 
3.4.5 Fourth, the ECB also reminds the Lithuanian au thorities that it is important to ensure that the 
beneficiary financial institutions may not profit fro m undue use of their guaranteed status to engage 
in a heightened level of activities which distort the market and facilitate abnormal balance sheet 
growth. In this regard, the ECB reiterates the importance of establishing appropriate safeguards 
such as limits on the marketing of financial produc ts or on expansion of activities on the basis of 
State guarantees. 
3.4.6 Finally, the draft law provides that the measures to strengthen financial stability must be applied for 
a ‘limited’ time and that, once applied, they w ill have to be reviewed under the procedure and 
terms prescribed by legislation regulating State aid17. The ECB reminds the consulting authority 
that open-ended schemes are not line with the Decl aration. In particular, the Declaration clearly 
draws attention to the need for any domestic suppo rt schemes, and for the framework that provides 
for them, to be temporary in nature, ev en if these can be extended or renewed18. Accordingly, the 
ECB recommends that more specific provisions on the time limits of the support measures are 
                                                 
15  The reference is to the Recommendations of the Govern ing Council of the European Central Bank on the government 
guarantees for bank debt of 20 November 2008, avai lable on the ECB’s website  at www.ecb.europa.eu. 
16  See also paragraph 3.2 of ECB Opinion CON/2008/67 of 13 November 2008 at the request of the Spanish Ministry for 
Economic Affairs and Finance on a draft order implementin g Royal Decree-Law 7/2008 aut horising State guarantees. 
17  Article 3(2)(4) of the draft law. 
18  ‘… In all cases, these actions will be  designed in order to avoid any distortion in the level playing field and possible abus e 
at the expense of non beneficiaries of these arrangements.  As a consequence the scheme will be limited in amount, 
temporary  (emphasis is ours) and will be applied under close scrutiny of fina ncial authorities …’ taken from the 
Declaration. 
6 inserted in the draft law, as well as provisions  establishing means aimed at redeeming the new 
measures. 
3.5  Conditions for State capital investments 
3.5.1 In line with the Declaration,  the ECB reiterates that uncoordina ted decisions among Member States 
should be avoided as they may have a negative im pact on the integrity of financial markets and 
lead to significant differences in the treatment of  financial institutions between Member States. 
This remark also applies to the measur es related to State capital investments. 
3.5.2 The ECB thus takes the opportunity here to reite rate the points made in its previous opinions. In 
this respect the ECB notes that the recapitalisa tion measures considered in Member States are 
aimed at strengthening the capital position of fundame ntally sound financial institutions in order to 
improve the functioning and stability of the banking system and to ensure the proper financing of 
the economy. Against this background, the ECB has the following observations. 
3.5.3 First, a consistent approach should be used in defining the conditions for recapitalisations and the 
pricing of the instruments intended to provide Tier 1 capital to financial institutions. The ECB 
underlines the importance of appropr iate pricing for recapitalisations in terms of the goals of 
enhancing the stability of the financial system, fac ilitating a return to normal market conditions and 
ensuring the proper financing of the economy. Against this background, the ECB published 
recommendations of the Governing Council of the ECB on the pricing of recapitalisations 
(hereinafter the ‘Recommendations on recapitalisations’)19. The ECB highlights that the pricing 
conditions for capital support should be  risk-based and market-oriented,  determined by taking into 
consideration the specific risk of both the specifi c instrument chosen for injecting capital and the 
institution concerned. Specific features of the inst ruments for capital injections (such as preference 
shares) should be appropriately chosen so that, wh ile encouraging an early end to the State’s capital 
support of banks, they should not result in an excessive increase in the cost of capital. 
3.5.4 Second, as far as the redemption of bank assets is concerned, the ECB reiterates that this measure 
should not be applied to the insolvent banks. The ECB also draws attention to the fact that a 
mechanism for fixing a fair price for the asset s should be established for this measure, in 
accordance with the guidance provi ded by the European Commission20 and by the ECB21. 
3.5.5 Third, as regards taking shares in a bank in th e public interest, the ECB understands that no limits 
are set with reference to the amount of shares that  the Government may take and, therefore, that 
such a measure could also result in the takeover of  a credit institution. Furthermore, the ECB also 
notes that the adoption of such a measure is provided for ‘solely in exceptional cases’22. In line 
                                                 
19  See the Recommendations of the Govern ing Council of the European Central Ba nk on the pricing of recapitalisations 
issued on 20 November 2008, available on the ECB’s website at www.ecb.europa.eu. 
20  See the Communication from the Commission ‘On the Treatment of Impaired Assets in the Community Banking Sector’, 
available on the Commission’s website at www.ec.europa.eu. 
21  See the ECB’s ‘Guiding principles for bank asset support schemes’, available on the ECB’s website at 
www.ecb.europa.eu. 
22  Article 8(1) of the draft law. 
7 with previous opinions23, the ECB stresses that due to their far reaching effects on market 
participants, it should be ensured that such me asures are only used as a last resort, that the 
disturbances to the level playing-field are minimise d and that the State’s role is limited in time. 
 The ECB also draws particular attention to  the appropriate pricing of the shares.  
 Moreover, in respect of an exit strategy, pursuan t to Article 9 of the draft law, expropriation is 
meant to be temporary. The ECB notes that the c onditions for re-privatisation provided in this 
article are unclear. As mentioned in previous ECB opinions, it is important to ensure that the 
State’s involvement is limited in time and that companies are reprivatised without undue delay as 
soon as they are stabilised and their operations are sustainable. 
3.5.6 Fourth, in line with the Declaration, the ECB also emphasises that harmonisation regarding the 
expiry of national financial support schemes across the EU and in particular within the euro area is 
of crucial importance, including for State capital investments in financial institutions. In this 
context, it is stressed that cap ital investments under the draft law must expressly provide for the 
temporary nature of the Lithuanian  State’s intervention. More generally, concerning the issue of the 
application of State aid rules to measures taken by  the Member States in connection with financial 
institutions in the context of the ongoing financ ial crisis, the ECB also draws the consulting 
authority’s attention to the importance of ensuri ng that the proposed arrangements comply with the 
relevant Community law provisions and with the cr iteria recently laid down by the Commission in 
its guidance on compliance by financial sector  support schemes with EU State aid rules24 and to the 
need to ensure that the State’ s role as shareholder resulting from a possible recapitalisation under 
the draft law is limited in time. In this resp ect, and in accordance with the Recommendations on 
recapitalisations, consideration should be give n to setting out terms for the redemption or 
conversion of the instruments, either on the basis of a period of time or development of market 
conditions, in order to retain th e temporary nature of State involvement and discourage financial 
institutions from maintaining such involve ment for an extensive period of time. 
3.6 Provisions on confidentiality  
3.6.1 Article 12 of the draft law, providing for the pr otection of the confidential information provided by 
the banks, does not expressly establish a list of subjec ts to which such an obligation to maintain the 
confidentiality of information is applied. The ECB notes that for the sake of clarity this obligation 
should also apply to Lietuvos bankas, without pr ejudice to supervisory information and to the 
extent what is required under the Memorandum of Understanding on cooperation between the financial supervisory authorities, central banks and finance ministries of the European Union on cross-border financial stability of 1 June 2008
25. 
                                                 
23  See e.g. paragraph 3.2.2 of ECB Opinion CON/2009/24 of 17 March 2009 at the request of the German Ministry of 
Finance on a draft law on the further stabilisation of the financial market. 
24   See e.g. paragraph 3.8 of ECB Opinion CON/2008/68 of 13 November 2008 at the request of the Finnish Ministry of 
Finance on a draft government proposal for laws amending the Law on the Government Guarantee Fund and the Law on 
credit institutions. 
25  The text of the Memora ndum of Understanding is available on the ECB’s webs ite at www.ecb. europa.eu. 
8 3.7 Implementation of ‘EU legal acts’ 
3.7.1 As laid down in its Article 1(4), the draft la w is meant to provide for the implementation of two 
‘EU legal acts’, namely26 the Communication from the Commission on ‘The application of State 
aid rules to measures taken in relation to financia l institutions in the context of the current global 
financial crisis’ of 13 October 2008 and th e Communication from the Commission on ‘The 
recapitalisation of financial institutions in the cu rrent financial crisis: limitation of aid to the 
minimum necessary and safeguards agains t undue distortions of competition’. 
The ECB notes that from a legal point of view, the term ‘implementation’ does not seem 
appropriate in respect of the abovementioned Communications from the Commission, since they cannot be properly defined as ‘legal acts’ and ar e not a source of Community law. However, the 
ECB understands that the intention is to follow and r espect these documents in the draft law. In this 
context, the ECB draws again attention to th e new Communication from the Commission ‘On the 
Treatment of Impaired Assets in the Comm unity Banking Sector’, which applies from 
25 February 2009 and which also shoul d be taken into consideration. 
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 2 April 2009. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET 
                                                 
26  See the Annex to the draft law.