EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
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 
(CON/2008/68) 
 
Introduction and legal basis  
On 31 October 2008 the European Central Bank (ECB)  received a request from the Finnish Ministry of 
Finance for an opinion on draft government propo sal for laws amending the Law on the Government 
Guarantee Fund and the Law on credit institutions  (hereinafter the ‘draft legislation’). 
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.  Background and purpose of the draft legislation 
1.1 The draft legislation concerns the Law on the Government Guarantee Fund
2, which was originally 
enacted in the context of the banking crisis of ea rly 1990s, with a view to ensuring the stability of 
the Finnish banking system. At that time, the major part of the State’s support and crisis 
management measures were implem ented through the Government Guarantee Fund (hereinafter the 
‘Fund’), which was given authorit y to grant support loans and guarantees to deposit banks’ own 
guarantee funds3, to support banks directly by subscribing for their shares and to provide other 
forms of support. The Law on the Government Guarantee Fund therefore lays down a general framework for bank support, regulating, inter alia , applicable instruments, conditions, procedures, 
funding and management. The Fund is managed by the Ministry of Finance. The Parliament 
decides on the allocation of funds from the State Budget to the Fund, and the authority to decide on 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2 Law No 379/1992 as amended. 
3  A bank’s own guarantee funds are provided for in Section 113 of  the Law on credit institutions. Membership of such fund 
is nowadays voluntary for deposit banks. The statutory deposit-gu arantee scheme is distinct from these funds, which have 
become less important since the introduc tion of the deposit-guarantee scheme. 
support measures is assigned to the Council of Stat e. Suomen Pankki and the Financial Supervisory 
Authority are consulted on the Council of St ate’s decisions concerning support measures. 
1.2 The draft legislation is part of measures taken by the Finnish Government to preserve the stability 
of the financial markets in the context of the gl obal financial crisis, with a view to implementing 
the Declaration on a concerted European action pl an of the euro area countries of 12 October 20084 
(hereinafter the ‘Declaration’). In addition to the draft legislation, on 22 October 2008 the Finnish Government requested Parliament’s consent to State guarantees on debt instruments issued by 
banks in accordance with the Government’s plan  for stabilisation of the financial markets in 
Finland
5. 
1.3 The explanatory memorandum to the draft legi slation states that the Law on the Government 
Guarantee Fund currently provides for a wide le gal framework allowing for various kinds of 
support measures to be put in place and that the general conditions applicab le to support measures 
are adequate. However, the Law on the Governme nt Guarantee Fund does not allow the authorities 
to take the initiative at an early stage to solve solvency problems entailing a systemic risk or to 
intervene in certain situations where the conditions  for stable operations are compromised due to 
external factors. 
1.4 The draft legislation would give the Government the power to oblige distressed banks to apply for 
support if: (a) the solvency of a bank has decreased or  is expected to decrea se in such a way that 
the bank does not fulfil the conditions to continue  its operations in accordance with its licence; 
(b) an acceptable level of solvency cannot be ach ieved without the State’s financial support; and 
(c) the liquidation or insolvency of the bank coul d lead to serious disturbances in the financial 
markets. If the bank does not apply for support, the Council of State may decide to purchase its shares and capital loans or its business, depending on the corporate form of the bank concerned. 
Moreover, a bank’s holding company could be s ubject to such support measures, but funds could 
no longer be channelled via the bank’s own guarantee fund. In addition, the Government would be 
authorised to restrict, for a maximum period of  six months, the operations of deposit banks and 
other financial market participants and to decide on restrictions of procedures to be followed in 
securities trading. The Council of State may decide on such restrictions provided that it is necessary 
due to disturbances in the international financia l markets or due to measures taken by foreign 
authorities. 
 
                                                 
4  The Declaration is available on the French Presidency’s website at www.ue2008.fr. 
5  Government proposal HE 181/2008 vp. Under Section 82(2) of  the Finnish Constitution, a State security and a State 
guarantee may be given on the basis of the consent of the Parliament. Such guarantees ar e further based on the Law on 
State lending and State guarantees (449/1988) and Section 3 of the Government Decree on fees payable for State 
guarantees (20/2003, as amended by Decree 109/2008). On the subjec t of stabilisation of the fi nancial markets in Finland, 
see also the Press Releases 164/2008 and 168/2008 of the Minist ry of Finance, available on the Ministry’s website at 
www.vm.fi. 
2. General observations 
2.1 In the wake of the global financial crisis, the E CB has issued several opinions in the field of State 
rescue measures6, emphasising the importance of a common approach aimed at restoring 
confidence in the financial markets and compliance with the Declaration. The ECB therefore draws 
the consulting authority’s attention to its recent opinions issued at the request of other Member 
States in which it has commented on legislative prop osals sharing some of the features of the draft 
legislation. It is the ECB’s intention to fac ilitate coordination of the various national efforts 
addressing the current financial situation, inter alia  through the timely adoption and publication of 
ECB opinions on such draft national legislation. 
2.2 In line with its past opinions, the ECB notes that it should be ensured that beneficiary institution(s) 
are not unfairly advantaged by making undue use of their guaranteed status. In this respect, the ECB notes that financial support arrangements whic h may be considered as providing preferential 
treatment to specific credit institutions should be a voided. The ECB notes that in this case, the draft 
legislation extends the applicability of support me asures beyond Finnish depos it banks to holding 
companies of deposit banks. Moreover, purchase meas ures can be applied irrespective of a bank’s 
corporate form. This aspect should be further clarif ied in the draft legislation. Therefore, the ECB 
also underlines the importance of ensuring that the proposed arrangements under the draft legislation, including any implementation measures,  should comply with the relevant Community 
law provisions and with the criteria set out in the Commission’s Communication entitled ‘The 
application of State aid rules to measures taken in relation to financial institu tions in the context of 
                                                 
6  See ECB Opinion CON/2008/44 of 3 October 2008 at the requ est of the Irish Minister for Finance on a draft Credit 
Institutions (Financial Support) Bill 2008; ECB Opinion CON/2008/46 of 8 Octobe r 2008 at the request of the Belgian 
Ministry of Finance on a preliminary draft law on measures promoting financial stability a nd in particular establishing a 
State guarantee for the provision of credit in the co ntext of financial stability; ECB Opinion CON/2008/48 of 
15 October 2008 at the request of the Irish Minister for Finance on a draft Credit Institutions (Financial Support) 
Scheme 2008; ECB Opinion CON/2008/50 of 17 October 2008 at the request of the Belgian Ministry of Finance on a 
draft royal decree adopted under Article 117bis of the Law of 2 August 2002 on the supervision of the financial sector 
and on financial services; ECB Opinion CON/2008/52 of 17 October 2008 at the request of the Spanish State Secretary 
for Economic Affairs on a Royal Decree-L aw creating a Fund for the acquisition of financial assets and on a Royal 
Decree-Law adopting urgent financial and economic measures in  relation to the concerted European action plan of the 
euro area countries; ECB Opinion CON/2008/54 of 17 October 2008 at the request of the Danish Ministry of Economic 
and Business Affairs on a proposed Law on financial stability; ECB Opinion CON/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; ECB Opinion CON/2008/56 of 21 October 2008 at the request of the Banque de France on a draft amending 
finance law for the financing of the economy; ECB Opin ion CON/2008/57 of 21 October 2008 at the request of the 
German Ministry of Finance on a Law on the implementation of a package of measures to stabilise the financial market 
and an order on its implementation; ECB Opinion CON/2008/58 of  23 October 2008 at the request of the Banca d’Italia 
on behalf of the Italian Ministry for Economic Affairs and Finance on two Decr ee-Laws containing urgent measures to 
guarantee the stability of the banking system and the continuity of the provision of credit; ECB Opinion CON/2008/59 of 
24 October 2008 at the request of the Swedish Ministry of Finance on a draft proposal on st abilising measures for the 
Swedish financial system; ECB Opinion CON/2008/60 of 27 October 2008 at the request of the Spanish State Secretary 
for Economic Affairs on a draft Order implementing Royal Decree-Law 6/2008 creating the Fund for the acquisition of 
financial assets and on a draft Basic Agreement of the Fund’s Execu tive Council; ECB Opinion CON/2008/61 of 
28 October 2008 at the request of the Belgian Minister fo r Finance on a draft royal decree implementing the Law of 
15 October 2008 on measures promoting fina ncial stability and in particular establishing a State guarantee for the 
provision of credit in the context of financial stability, in  relation to the protection of deposits and life insurance and 
amending the Law of 2 August 2002 on the supervision of the financial sector and on fina ncial services; ECB Opinion 
CON/2008/62 of 29 October 2008 at the request of the Swedis h Ministry of Finance on a draft ordinance on State 
guarantees for banks etc. All ECB opinions  are available on the ECB website at 
www.ecb.europa.eu/ecb/legal/o pinions/html/index.en.html. 
the current global financial crisis’ (hereinafter the ‘Commission Communication’)7. For these 
reasons, the ECB expects to be consulted on an y implementation measur es relating to matters 
within its competence. 
 3. Specific observations 
The draft legislation and euro area monetary policy 
3.1 The ECB notes that, in line with the Declaration,  Member States must act in a coordinated manner 
to avoid significant differences in national implementation of support measures from having a 
counter-productive effect and creating distorti ons in global banking markets. The Declaration 
acknowledges the need to work in cooperation w ith the ECB to ensure consistency with the 
Eurosystem’s management of liquidity and comp atibility with its operational framework. Against 
this background, the ECB notes that Member States should avoid taking decisions in an uncoordinated way, as this may lead to a fragmen tation of the euro area money market. In this 
respect, the ECB makes the following observations , which are important from a monetary policy 
perspective, as regards the measures laid down in the draft legislation. 
3.2 As regards the conditions applicable to support measures, the ECB notes that the draft legislation 
does not further specify the detailed terms or compensation payable by the supported entity. The ECB understands that under Section 14 of the La w on the Government Guarantee Fund, the terms 
for support measures may be laid down separately by the Parliament when deciding on allocation 
of funds and/or by the Council of State when deciding on support measures in each case. The 
ECB’s specific observations are as follows. 
3.3 First, the ECB notes that the draft legislation does not provide for a time limit as regards the 
implementation of the support measures. Such an ‘open-ended’ scheme does not appear to be in 
line with the Declaration which emphasises the temporary feature of such schemes. 
3.4 Second, in case that the Fund would provide Stat e guarantees as part of measures to implement the 
Declaration, the ECB understands that such guara ntees would apply to all liabilities, without limit 
regarding the maturity. In this respect, the ECB w ould remind the Finnish authorities of Article 8 of 
the Declaration which states, inter alia , that the euro area governments will make available a 
Government guarantee of new medium term (up to five years) bank senior debt issuance. The ECB 
also considers that practically, arrangements fo r granting a State guarantee on bank debt should aim 
at: (a) addressing the funding problems of liqui dity-constrained solvent banks by improving the 
functioning of the market for bank debt of longe r term maturity; (b) preserving the level-playing 
field among financial institutions and avoiding market distortions ; and (c) ensuring consistency 
with the management of liquidity by the Eurosyst em. By contrast, it is the ECB’s view that the 
extension of a State guarantee to cover interba nk deposits should be avoi ded. It could entail a 
substantial distortion in the various national segment s of the euro area money market by potentially 
increasing short-term debt issuance activity acr oss Member States and thereby impairing the 
                                                 
7  2008/C 270/02. 
implementation of the single monetary policy, whic h is an exclusive compet ence of the Eurosystem 
under Article 105(2) of the Treaty8. 
3.5 Third, as regards the price of the State guarant ees to be applied, the ECB notes that the draft 
legislation does not specify detailed conditions , which could be determined on a case-by-case 
basis9. In this context, the ECB would remind the Finn ish authorities that it is of crucial importance 
to ensure harmonisation of the price determinati on of such guarantee w ithin the euro area and 
within the EU, as a level-playing-field is also of ess ence in this respect. It is also important that the 
price for the guarantee should be risk-based and mark et-oriented, determined on the basis of the 
costs of a corresponding guarantee in the market. 
3.6 Fourth, under Section 1 of the draft legisla tion, the Fund may acquire shares and holdings from 
financial institutions. Although such measures s hould restore confidence in the Finnish banking 
system, it is also important for the price applied by  the Fund to its transactions to be determined in 
a coordinated manner within the euro area and the EU  and for the pricing of the purchased assets to 
be determined by the market. The ECB notes the im portance of price determination of transactions 
conducted by the Fund and their potential implicati ons for the transmission of the single monetary 
policy decisions within the euro area. In this respect, the ECB emphasises that uncoordinated price 
determination between all euro area Member States  could lead to segmentation of the euro area 
money market. Moreover, the transactions conducte d by the Fund should not interfere with the 
transmission of the single monetary policy. The ECB should be involved in such concertation and 
coordination, and would welcome explicit provision to this effect in subsequent legislation. 
Suomen Pankki’s role  
3.7 The ECB understands that the Government Guarantee Fund will be managed by the Ministry of 
Finance, and that Suomen Pankki’s role in relation to the Fund will be only be limited to providing 
advice through consultation on support measures. The ECB appreciates that these provisions 
recognise Suomen Pankki’s expertise in the fields rele vant to the Fund’s operation. In this respect, 
the ECB notes that any involvement of Suomen Pank ki with the Fund must be compatible with the 
Treaty provisions. The ECB expects that functions to be performed by Suomen Pankki for the benefit of the Fund will be conduc ted in manner that is fully co mpatible with Suomen Pankki’s 
institutional and financial indepe ndence to safeguard the proper pe rformance 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 understands that the Fund’s resources will be exclusively 
financed from budgetary resources
10. It is therefore expected that the involvement of Suomen 
Pankki will not go beyond an advisory function and, in particular, that it will fully comply with the 
                                                 
8  See ECB Opinion CON/2008/52. 
9  With regard to the support measures provided for in the Law on the Government Guarantee Fund, the Council of State  
determines, under authorisati ons granted in the State budget, the considera tion payable, determin ed according to the 
liability incurred by the State from the principal of various  guarantees, securities and comm itments and its contractual 
obligation. Guarantee pa yments as referred to in the Law on State lending and State guarantees (449/1988), will not be 
collected for these guarantees or obligations. 
10  See Section 2 of the Law on the Government Guarantee Fund. 
prohibition on monetary financing laid down in the Treaty11. If Suomen Pankki were to perform 
certain activities for the Fund at th e request of the State, such activ ities would also need to comply 
with the abovementioned prohibition as regards their remuneration. 
Community rules on State aid and financial services  
3.8 Finally, it should be ensured that any beneficiar y institution(s) will not be unfairly advantaged by 
making undue use of their guaranteed status12. In this context, the ECB notes that the explanatory 
memorandum to the draft legislation13 refers to the recently adopted Commission Communication 
regarding compliance with EU State aid rules by financial sector support schemes which include in the specific context of the provision of State gua rantees detailed rules on setting eligibility criteria 
for the beneficiary institutions
14. In line with its previous opinions15, the ECB reiterates the 
importance of ensuring that the proposed arrange ments under the draft legislation are implemented 
in full compliance with the relevant Community  law provisions, including EU financial services 
legislation and the single market principles. It s hould also be ensured that such measures are in 
accordance with the requirements of EC competition law, in particular State aid rules, and that 
State’s role as shareholder is limited in time. 
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 13 November 2008. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET 
 
                                                 
11  Cf. Paragraph 3.2 of ECB Opinion CON/2008/52. 
12  See e.g. paragraph 3.4 of ECB Op inion CON/2008/48, paragraph 3.1 of E CB Opinion CON/2008/50 and paragraph 3.4 
of ECB Opinion CON/2008/57. 
13  See point 2.2 of the explanatory me morandum to the draft legislation. 
14  See paragraph 18 of the Commission Communication, specifying th at ‘The eligibility criteria of financial institutions … 
must be objective, taking due account of their role in the relevant banki ng system and the overall economy, and non-
discriminatory so as to avoid undue distortive effects on ne ighbouring markets and the intern al market as a whole. In 
application of the principle of non disc rimination on the grounds of nationality, all institutions incorporated in the 
Member State concerned, including subsidiaries, and with si gnificant activities in that Me mber State should be covered 
by the scheme’. 
15  See paragraph 2.3 of ECB Opinion CON/2008/44 and paragraph 3.5 of ECB Opinion CON/2008/48.