9 March 2000
OPINION OF THE EUROPEAN CENTRAL BANK
of  09 March 2000
at the request of the Danish authorities on a draft Act amending
the Depositors’ and Investors’ Guarantee Fund Act
(CON/00/06)
1. On 9 February 2000 the European Central Bank (ECB) received a request from Danmarks
Nationalbank, on behalf of the Ministry of Economic Affairs, for an ECB Opinion on a draftAct amending the Depositors’ and Investors’ Guarantee Fund Act (hereinafter referred to as the“Draft Law”). 
2. The ECB’s competence to deliver an Opinion is based on Article 105 (4), second indent, of the
Treaty establishing the European Community (hereinafter referred to as the “Treaty”) andArticle 2 (1), sixth indent, of Council De cision No. 98/415/EC of 29 June 1998 on the
consultation of the European Central Bank by national authorities regarding draft legislative
provisions, as the Draft Law contains rules applicable to financial institutions which could havea material influence on the stability of financial institutions and markets. In accordance withArticle 17 (5), first sentence, of the Rules of Procedure of the European Central Bank, thisOpinion has been adopted by the Governing Council of the ECB. This Opinion is based on anunofficial English translation of the relevant provisions of the Draft Law.
3. The ECB understands that the main purpose of the Draft Law is to increase the freedom of
choice of the Depositors’ and Investors’ Guarantee Fund (hereinafter referred to as the
“Guarantee Fund”) with regard to its methods for dealing with crisis management, on the one
hand, and to provide for new rules for decision-making by the board of the Guarantee Fund, onthe other. These draft amendments are understood to be necessary in order to avoid uncertaintieswith the European Community rules concerning state aid. In this sense, the amendments areintended to facilitate a swift and simple administrative procedure for the intervention of the
2Guarantee Fund, as a private and independent entity, in the reorganisation of credit institutions
or investment firms, with full respect of competition rules.
4. The ECB welcomes the Draft Law and in particular the underlying aim of reinforcing a market-
based mechanism for handling situations of crisis relating to credit institutions and investmentfirms in Denmark. The new rules being introduced in the Depositors’ and Investors’ GuaranteeFund Act, while enhancing the scope of the functions of the Guarantee Fund, will ensure theobservance of certain principles of fair competi tion, such as transparency of procedures, equal
treatment and non-discrimination between credit institutions or investment firms. At the sametime, it should be noted that the intervention of the Guarantee Fund will not involve public
money, even though it will certainly contribute to the stability of the financial system as a public
good. This should strengthen awareness that the safeguards provided by the industry itself, andnot the access to public resources, are expected to contain the effects of a crisis. In this manner,it should also have a positive influence on the management and control of risks by marketparticipants.
5. The ECB notes that, according to Article 1 (1), Sections 3 and 4, together with Article 1 (2) of
the Draft Law, the Guarantee Fund must reimburse depositors and investors of a given creditinstitution or investment firm in the event of a suspension of payments or bankruptcy. In cases
where the suspension of payments or bankruptcy has not occurred, but where such institution or
firm no longer fulfils the conditions necessary for commercial activity, the Guarantee Fund hasthe option of contributing to the liquidation of such institution or firm by providing non-subordinate creditors with financial assistance or guarantees. This latter option may only beselected if it is viable and is estimated to in cur a lower cost for the Guarantee Fund. Therefore,
according to the ECB’s understanding, the Draft Law indicates that the Guarantee Fund shouldtake a decision on the basis of the Fund’s own best interests. Against this background, the ECBunderstands that the Guarantee Fund, when selecting the appropriate option, has to take intoconsideration the circumstances of the specific case in question. In this sense, the ECB suggests
that the supervisory authority shall provide adeq uate information to the Guarantee Fund on the
specific case in order for it to be able to assess which solution will involve the lowest cost forthe Fund. The involvement of this public authority should not, however, imply any sort ofinstructions to the Fund, which in all cases shall remain independent and assume finalresponsibility for its decisions. 
6. Accordingly, the ECB notes that Article 1 (2), Section 4, of the Draft Law stipulates that the
Minister of Economic Affairs shall determine the rules governing co-operation between theDanish Financial Supervisory Authority ( Finanstilsynet)  and the Guarantee Fund, as well as the
3rules governing the conditions for takeover bids. The ECB therefore notes that the Guarantee
Fund will, in certain situations, play a prominent role in the crisis management of credit
institutions and investment firms in Denmark. Thus the ECB welcomes in this regard the factthat there are rules in place regarding co-operation between the Danish Financial SupervisoryAuthority and the Guarantee Fund, and also that a public authority such as the Ministry ofEconomic Affairs will be laying down the rules for this co-operation as well as for takeoverbids. Clarification of the roles of the competent authorities and of the co-ordination of suchroles vis-à-vis the market-based intervention of the Guarantee Fund can only contribute to the
framework in place for the stability of the financial system.
7. The ECB notes that Article 1 (2) of the Draft Law provides the Guarantee Fund with the
discretion to contribute to the liquidation of a credit institution or an investment firm byproviding the non-subordinate creditors of such institution or firm with financial assistance orguarantees. The suitability of these measures for obtaining takeover bids, based on the marketprice for such institution or firm, should be taken into consideration by the Guarantee Fund.Moreover, such measures can be implemented in connection with others. The ECB notes thatthese measures may give the Guarantee Fund a considerable influence over the running of theinstitution or firm in question. The Guarantee Fund is, however, according to the Draft Law,prohibited from becoming the owner of such institution or firm, even for a short period. 
8. The ECB notes that, according to Article 1 (4) of the Draft Law, a board member may veto the
participation of the Guarantee Fund in the reorganisation of a credit institution or investmentfirm, if the member in question represents the same category of such institution or firm as theone which has failed. The majority of the board members of the Guarantee Fund represent thedifferent categories of credit institutions and investment firms, which are covered by the depositand investor guarantee arrangement. Consequently, the Guarantee Fund cannot contribute to thereorganisation of a credit institution or investment firm without the agreement of therepresentative of the sector in question. 
.
9. The ECB confirms that it has no objection to th is Opinion being made public by the competent
national authorities at their discretion.
Done at Frankfurt am Main on 9 March 2000.
The President of the ECB
[signed]
Willem F. Duisenberg