EN ECB-PUBLIC 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 29 April 2014  
on the legal framework for the recapitalisation th rough the HFSF of credit institutions in Greece 
(CON/2014/29) 
 
Introduction and legal basis 
On 24 Μarch 2014 the European Central Bank (ECB) r eceived a request from the Greek Ministry of 
Finance for an opinion on legislative provisions amending Law 3864/2010 on the establishment of the 
Hellenic Financial Stability Fund1 (HFSF) (hereinafter the ‘draft provisions’). On 30 March 2014, in 
accordance with an expedited parlia mentary procedure, the Greek Parliament adopted the draft provisions 
as part of the law entitled ‘Measures for the support a nd growth of the Greek economy in the context of 
implementation of Law 4046/2012 and other provisions’2. 
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 and sixth indents of Article 2(1) of Council 
Decision 98/415/EC3, as the draft provisions relate to the Bank of Greece and to rules applicable to 
financial institutions, insofar as they materially in fluence the stability of financial institutions and 
markets. In accordance with the firs t 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 provisions 
1.1 The purpose of the draft provisions is to refo rm the legal framework governing the provision of 
capital support to credit institutions in Greece through the HFSF, with a view to maintaining 
financial stability in the banking sector in Greece for the sake of the public interest, following 
restructuring of that sector in recent years. Furthe rmore, the draft provisions aim to align that legal 
framework with the guidance set out in the Communication from the Commission on the 
application, from 1 August 2013, of State aid rul es to support measures in favour of banks in the 
context of the financial crisis
4 (hereinafter the ‘Banking Communication’). 
1.2 The proposed reform concerns mainly: (a) th e objective of the HFSF and the rules and principles 
governing its function; (b) the circumstances in  which the HFSF can provide support; (c) the 
                                                 
1  FEK A 119/21.7.2010. 
2 FEK A 85/7.4.2014. 
3  Council Decision 98/415/EC of 29 June 1998 on the consultatio n of the European Central Bank by national authorities 
regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 
4  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. 
ECB-PUBLIC  
2 adoption of mandatory measures aimed at reducing the capital needs of credit institutions 
requesting capital support from the HFSF, in lin e with the Banking Communication; (d) the 
procedure and conditions for the provision of cap ital support to credit institutions through the 
subscription by the HFSF for shares or other contin gent convertible bonds; (e) the exercise of the 
shareholding rights of the HFSF in credit ins titutions to which it has provided capital support; 
(f) the procedure and conditions for the disposal of the HFSF’s holding in credit institutions; and 
(g) rules on the corporate governance and operation of the HFSF.  
1.3 The draft provisions clarify that the objective of the HFSF is to contribute to the maintenance of the 
stability of the Greek banking system for the sake of the public interest5. The draft provisions 
expressly provide that the HFSF shall act in line with the commitments of Greece under Law 
4046/2012 on the approval of the draft financi ng agreements between the European Financial 
Stability Fund, the Hellenic Republic and the Bank of Greece and of the draft Memorandum of Understanding between the Hellenic Republic, th e European Commission and the Bank of Greece 
and other provisions of utmost importance for reducing the public debt and saving the national 
economy
6 7. The draft provisions specify that, with a view to achieving its objective, the HFSF 
exercises the following main t asks: (a) it provides capital support to credit institutions and to 
transitional credit institutions under terms and conditions which take account of rules on the 
prudent management of its assets; (b) it monitors  and assesses the compliance of credit institutions 
with their restructuring plans, safeguarding their business autonomy, their operation on market terms and increasing private sector participation in such credit institutions in a transparent manner 
and in accordance with the State aid rules of the Union; (c) it exercises its shareholder rights in 
credit institutions to which it has provided capita l support in compliance with the rules on the 
prudent management of its assets and in line with the State aid rules of the Union; (d) it disposes of financial instruments issued by the credit institu tions in which it has a holding in accordance with 
the specific requirements set out in the draft provisi ons; and (e) it exercises its rights in transitional 
credit institutions in accordance with the specific requirements set out in the Law on the HFSF and 
the Law on Banking (Law 3601/2007
8)9. The draft provisions state that monitoring and supervision 
of tasks performed by bodies responsible for the sp ecial liquidation of credit institutions do not fall 
within the functions of the HFSF10.  
1.4  The procedure to activate support by th e HFSF is redefined in line with the Banking 
Communication. A credit institution assessed and de emed as viable by the Bank of Greece may 
request capital support from the HFSF for an am ount not exceeding its capital needs as identified 
by the Bank of Greece11. The request must be accompanied by a restructuring plan and a letter from 
                                                 
5  See draft Article 2(1). 
6  FEK A 28/14.12.2012. 
7  See draft Article 2(1). 
8  FEK A 178/1.8.2007. 
9  See draft Article 2(2). 
10  See draft Article 2(3). 
11  See draft Article 6(1). 
ECB-PUBLIC  
3 the Bank of Greece determining the capital needs of  the relevant credit institution and confirming 
that the credit institution, subject to meeting its cap ital needs, is viable. Credit institutions that have 
already received capital support from the HFSF are required to submit an amended restructuring 
plan. The restructuring plan must set out volunt ary measures to be undertaken by the credit 
institution in order to raise capital or mitigate its  capital needs. These measures may include the 
retention of earnings, the implementation of a sh are capital increase, the voluntary conversion of 
subordinated debt instruments into Tier 1 capita l instruments and the compilation of a list of 
instruments that may be subject, where necessary,  to mandatory measures aimed at reducing the 
credit institution’s capital needs12. Following consultation with the Bank of Greece, the HFSF may 
request amendments to the restructuring plan . The provision of HFSF support is conditional on 
European Commission approval of the restructuring plan and, where necessary, the implementation 
of mandatory measures aimed at reducing the cred it institution’s capital n eeds, in line with the 
Banking Communication13.  
1.5  To reduce the use of public funds in suppor t of credit institutions to a minimum, the draft 
provisions authorise the Cabinet of Ministers to enforce, following a recommendation by the Bank 
of Greece, mandatory measures aimed at allo cating the capital needs of credit institutions 
requesting capital support from the HFSF to their cap ital holders and subordinated creditors in line 
with the Banking Communication (hereinafter the ‘mandatory measures’). Such measures shall be 
adopted where: (a) the voluntary measures set out in  the credit institution’s restructuring plan are 
insufficient to address its total capital needs as determined by the Bank of Greece; and (b) the 
liquidation or resolution of the credit institution co ncerned, which would be required under Greek 
law were the institution unable to restore its capital position, could result in serious disturbances to 
the economy with adverse effects upon the public14. The mandatory measures may include, under 
the specific conditions set out in the draft provi sions: (a) a reduction in the nominal value of 
common shares, following a decisi on of the credit institution’s co mpetent body; (b) a reduction in 
the nominal value of preference  shares and other Tier 1 liab ilities; and (c) the conversion of 
preference shares, other Tier 1 liabilities and subordinated liabilities into Tier 1 capital instruments
15. The mandatory measures may apply also to  subordinated liabilities of the credit 
institution concerned that stem from agreements it has concluded with third entities included in its 
consolidated financial statements (guarantees for the issue of debt or equity instruments and credit 
arrangements)16. The draft provisions allow the authorities,  subject to the approval of the European 
Commission, not to enforce mandatory measures where their implementation would endanger financial stability or lead to disproportionate results. The draft provisions require that, following 
the implementation of mandatory measures, th e financial position of the capital holders or 
subordinated creditors affected should not be wo rse than it would be were the credit institution 
                                                 
12  See draft Article 6(1)(b). 
13  See draft Article 6(4). 
14  See draft Article 6a(1). 
15  See draft Article 6a(2). 
16  See draft Article 6a(3). 
ECB-PUBLIC  
4 placed into liquidation (‘no-creditor-wor se-off-than-in-insolvency’ principle)17. The draft 
provisions set out publication requirements in relation to the implementation of mandatory 
measures18. A Cabinet act will set out the necessary de tails for the implementation of mandatory 
measures of this kind19.  
1.6  The draft provisions clarify that the HFSF may provide capital support to credit institutions only to 
the extent that their capital needs, as determ ined by the Bank of Greece, remain uncovered 
following the application of vol untary and mandatory measures aimed at reducing such and 
following any participation of private sector investors20. The HFSF shall provide capital support 
through the subscription of shares or contingent convertible bonds or other convertible instruments 
issued in the context of a capital increase21. The subscription price for these instruments shall be 
determined by a decision of the General Council of the HFSF on the basis of two valuation reports 
prepared by independent financia l advisers. New shares in the rele vant credit institution offered to 
the private sector in the context of the same issu ance shall have an offer price no lower than the 
subscription price for the HFSF. In contrast, the o ffer price may be lower than the price at which 
the HFSF previously subscribed for shares in the credit institution or lower than the current stock 
market price22. The independent financial advisers shall be requested to take account of all relevant 
information, including any available asset quality revi ew and stress test results, as well as market 
conditions. A summary of the elements and met hodology used by the advisers will be published on 
the HFSF’s website within 10 days of completion of the transactions23.  
1.7 According to the draft provisions, the HFSF sha ll be entitled to exercise without limitations the 
voting rights attached to the common shares it ac quires in the context of the provision of capital 
support to credit institutions24. The draft provisions specify certain cases where the HFSF may 
exercise its voting rights only in re lation to decisions amending the by laws of the credit institution, 
including decisions concerning capital increase,  merger, extension of duration and dissolution25. 
The draft provisions introduce certain amendments  regarding the notification of information 
relating to shareholding and voting rights in cr edit institutions to which the HFSF has provided 
capital support, in accordance with Law 3556/2007 on transparency requirements for companies 
with stock listed on a regulated market26 27.  
                                                 
17  See draft Article 6a(8). 
18  See draft Article 6a(10). 
19  See draft Article 6a(11). 
20  See draft Article 7(1). 
21  See draft Article 7(2). 
22  See draft Article 7(5)(a). 
23  See draft Article 7(5)(b). 
24  See draft Article 7a(1). 
25  See draft Article 7a(2). 
26  FEK Α 91/30.4.2007. Law 3556/2007 implements Di rective 2004/109/EC of the European Parliament and of the Council 
of 15 December 2004 on the harmonisation of transparency requir ements in relation to information about issuers whose 
securities are admitted to trading on a regulated market  and amending Directive 2001/34/ EC (OJ L 390, 31.12.2004, p. 
38).  
27  See draft Article 7a(6). 
ECB-PUBLIC  
5 1.8  The draft provisions specify that the HFSF shall decide on how to dispose of its shareholding in a 
credit institution to which it has provided capital support within five years of acquiring that 
holding. The relevant decision shall be taken by the General Council of the HFSF on the basis of a 
report prepared by a financial expert, accompan ied by a comprehensive time schedule for the 
disposal. The disposal shall be carried out in compliance with the objectives of the HFSF28. The 
HFSF may sell its shares to the market or to sp ecific investors or groups of investors through 
different procedures, including through an open tende r procedure, the excha nge of shares for cash 
or other securities and book building29. The disposal price, which may be lower than the price at 
which the shares were acquired by the HFSF or thei r current market price, shall be determined by 
the General Council of the HFSF on the basis of two valuation reports of  independent advisers30.  
With regard to the exchange and adjustment of warrants issued by the HFSF, a Cabinet act shall 
determine the methodology to adjust their terms a nd conditions in the case of corporate actions 
consisting of a split, a reverse split and a shar e capital increase without abolition of pre-emptive 
rights31. In the latter case, the draft provisions allow for an adjustment only as regards the price and 
only up to the amount of the proceeds realised from the sale of pre-emption rights of the HFSF. 
1.9 The draft provisions amend certain rules relati ng to the corporate governance and operation of the 
HFSF. These amendments include in particular: (a ) an increase in the number of the independent 
members of the General Council of the HFSF from five to seven32; (b) strengthening of the 
eligibility criteria for members of the governing bodies of the HFSF33; (c) broadening of the 
limitations to which the members of the governin g bodies of the HFSF are subject when taking up 
a position subsequent to their employment at the HFSF34; and (d) further specification of the 
liability of the members of the governing bodies of the HFSF35.  
 2. Appropriate time to consult the ECB  2.1 According to Article 4 of Decision 98/415/EC, the ECB must be consulted at an appropriate stage 
in the legislative process enabling the consultin g authority to take the ECB’s opinion into 
consideration before the draft provisions are adopt ed. This requires, in turn, that the ECB should 
have sufficient time to adopt its opinion. 
2.2. The ECB notes that, in this case, the consulta tion request was submitted a few days before the 
adoption of the draft provisions into law. As the ECB appreciates this urgency, the observations 
made in this opinion are limited to what is consid ered strictly necessary, having regard to the fact 
                                                 
28  See draft Article 8(1). 
29  See draft Article 8(2) and (3). 
30  See draft Article 8(4). 
31  See draft Article 8(6). 
32  See draft Article 4(2). 
33  See draft Article 4(6) and (7). 
34  See draft Article 16C(3). 
35  See draft Article 16C(4). 
ECB-PUBLIC  
6 that the draft provisions have already been voted into law and entered into force.  
 
3. General observations  3.1 The ECB welcomes the reform of the legal framework governing the operation of the HFSF and 
the recapitalisation of credit institutions, which ai ms at safeguarding the stability of the Greek 
banking system for the sake of the public interest
36.  In the context of the current economic and 
financial crisis, the proposed re form should generally contribute to reducing the amount of State 
aid that the beneficiary credit institutions ma y require and to safeguarding and protecting 
taxpayers’ interests more effectively. 
3.2 The ECB wishes to emphasise the importance it atta ches to the stabilisation of the financial system 
in Greece, such that the latter may resume lending to the real economy and support growth, while also restoring a sustainable broad-based funding model. The timely and efficient recapitalisation of Greece’s financial system is crucial to the achievement of this objective. Furthermore, the ECB reiterates that it is equally essential to ensure that the amended recapitalisation framework will 
allow credit institutions to benefit from capital support provided by the HFSF only after having 
fully exhausted all possibilities to generate capital through mitigating measures (such as 
divestments) and through private capital-raising. This will enable the HFSF to maintain significant 
State resources as a safety net against the challenges that Greek banks continue to face as a result of 
the recession and the problems of some borrowers to service their debt obligations, to the benefit of 
the financial system, the economy and the public  at large. Without prejudice to these general 
observations, the ECB has the following specific observations to make.  
 4. Objective and operation of the HFSF 4.1 The ECB welcomes the clarification that the objective of the HFSF is to contribute to the 
maintenance of the stability of the Greek banking system, for the sake of the public interest, and 
that the HFSF shall act in line with the commitments of Greece under the second economic 
adjustment programme for Greece. Moreover, th e ECB welcomes the specification of the tasks 
conferred upon the HFSF for the fulfilment of th is objective, and the principles governing the 
performance of these tasks. Of particular importance is the requirement that, in exercising its tasks, 
the HFSF shall take account of rules on the prudent  management of its assets. The prudent use and 
management of the assets of the HFSF is crucial fr om a financial stability perspective, as these 
assets include both the holdings of the HFSF in cr edit institutions that have benefited from HFSF 
support and the capital of the HFSF, paid in by th e Greek Government with funds raised from the 
European Union and International Monetary Fund (IMF) financial assistance for Greece. The ECB 
supports the financial sector strategy set out in the Memorandum of Economic and Financial 
                                                 
36  In relation to the development of the relevant legal framewor k, the ECB refers to its prev ious relevant opinions. See in 
particular opinions CON/2010/ 54, CON/2011/72, CON/2012/14, CON/ 2012/25, CON/2012/39, CON/2012/90, 
CON/2013/17 and CON/2013/38. All ECB opinions are ava ilable on the ECB website at www.ecb.europa.eu. 
ECB-PUBLIC  
7 Policies37 and the recent statement on Greece by the Eurogroup to strengthen Greek banks by 
meeting ‘capital needs swiftly first and foremost from private investors’38. Private capital injections 
should help to strengthen the management, efficien cy and solvency of Greek banks, thereby also 
contributing to the prudent use and manage ment of the existing assets of the HFSF. 
4.2 The ECB notes that the draft provisions increase the number of members of the General Council of 
the HFSF, other than the representative of the Mini stry of Finance and the person appointed by the 
Bank of Greece, from five to seven, and understand s that this amendment aims at increasing the 
participation of persons with in ternational experience in banking ma tters in the governing bodies of 
the HFSF. As regards the role of the person appoi nted by the Bank of Greece, the ECB notes that 
as a full voting member of the General Council of  the HFSF, the Bank of Greece appointee might 
be required to take a position on issues falling out side the tasks and responsibilities of the Bank of 
Greece as national supervisory authority. This migh t give rise to perceived conflicts of interest, 
such as in connection with business decisions relating to the exercise of the shareholding rights of 
the HFSF. The ECB considers that the role of th e person appointed by the Bank of Greece could be 
usefully transformed into that of a representativ e of the Bank of Greece without voting rights, who 
would act in an observer capacity, and who would, in practice, be called to provide input only from 
a prudential supervisory perspective. 
 5. Procedure and conditions for the provision of capital support by the HFSF 5.1 Circumstances in which the HFSF may provide support  
5.1.1 The ECB welcomes the fact that, under the draft provisions, only credit institutions that have been 
assessed and deemed viable by the Bank of Greece are deemed eligible to receive support from the 
HFSF. In addition, it welcomes the fact that the draft provisions require credit institutions 
requesting capital support to submit a restructuri ng plan setting out the measures that they will 
undertake in order to raise capital from private r esources or mitigate their capital needs, so as to 
minimise State aid support. These safeguards are necess ary to ensure that the provision of State 
support will strengthen the capital position of fundament ally sound financial institutions in order to 
improve the functioning and stability of the banking syst em and to foster an adequate flow of credit 
to the economy. 
5.1.2 The ECB is of the view that the Bank of Gr eece, as the national supervisory authority, is the 
institution best placed to: (a) asses s whether there is a residual sh ortfall in capital; (b) assess the 
viability of credit institutions facing capital shortfa lls, taking into consideration their restructuring 
plans also including measures relating to voluntary  liability management; and (c) instruct credit 
institutions that have been deemed viable, subj ect to meeting their capital needs, to submit a 
request for capital support to the HFSF.  
                                                 
37  Annex V to Law No 4046/2012, as revised fro m time to time (FEK A 28/14.12.2012).  
38  See Eurogroup statement on Greece of 1 April 2014, available at: 
http://www.eurozone.europa.eu/newsroom/n ews/2014/04/eurogroup-statement-on-greece/ .  
ECB-PUBLIC  
8 5.1.3 The ECB notes that the implementation of H FSF support is further conditional on the adoption of 
mandatory measures aimed at allocating any r esidual capital needs, following the adoption of 
voluntary measures, to capital holders and subo rdinated creditors of  the credit institution 
concerned, in compliance with the Banking Communication. The ECB understands that the 
relevant measures aim to address public interest cons iderations and in particular: (a) the need to 
ensure that the use of public funds remains at  the minimum necessary; (b ) the need to prevent 
serious disturbances to the economy with adverse effects upon the public that in certain cases could 
result from the liquidation or resolution of the cr edit institution concerned; and (c) the need to 
protect the integrity of the single market and ensure a level playing field as well as the State’s fiscal strength
39. 
5.1.4 The ECB notes that the Banking Communication requires the adoption of mandatory measures of 
the kind specified in the draft provisions, provi ded that fundamental rights are respected and 
financial stability is not put at risk40. In this regard, adherence to the ‘no-creditor-worse-off-than-in-
insolvency’ principle established in the draft pr ovisions will be crucial. Furthermore, the ECB 
welcomes the fact that the draft provisions refer explicitly to the public interest considerations 
which underpin the adoption of mandatory measures  and allow also for exceptions to the adoption 
of mandatory measures, where their implementation would endanger financial stability or lead to disproportionate results.   
5.1.5 The ECB notes that the draft provisions include among the instruments that may be subject to 
mandatory measures subordinated liabilities of the credit institution concerned that stem from the 
provision of guarantees to third entities or from cr edit arrangements with such entities. The ECB 
understands that these provisions will only be relevant  in the event that the guarantee is activated. 
Implementation of mandatory meas ures in relation to obligations of that kind requires further 
specification. 
5.2 Provision of capital support and pricing of recapitalisation instruments 
5.2.1 The ECB welcomes the fact that, under the dr aft provisions, the HFSF shall provide capital support 
only for the purpose of covering the capital shortfa ll determined by the Bank of Greece and only to 
the extent that the shortfall remains uncove red following the application of voluntary and 
mandatory mitigating measures and the participation of private sector investors. This provision is 
necessary to enable the HFSF to adequately fulfil its objective to maintain the stability of the 
financial system, for the sake of the public interest. 
5.2.2 According to the draft provisions, the decision by the HFSF determining the price for its 
subscription of common shares will take account of its objectives along with the prevailing market conditions. These principles, which require the HFSF,  alongside other aims, to take account of the 
rules on the prudent management of its assets, wi ll enable the HFSF to ensure the appropriate 
                                                 
39  See ECB opinion CON/2013/87, paragraph 3.1 et seq. 
40  According to paragraph 19 of the Banking Communication, al l capital generating measures should be exhausted before 
the State may recapitalise a credit institutio n, provided that fundamental rights are respected and financial stability is not 
put at risk. 
ECB-PUBLIC  
9 pricing of recapitalisations with State support, thus  avoiding the situation that private investors 
prepared to inject capital in line with prevaili ng market conditions are crowded out as a result of 
the HFSF setting a price that is too high. The ECB emphasises the importance of ensuring that the 
valuations provided to the HFSF by  independent financia l advisers take account of all pertinent 
information and are subject to all necessary transpar ency requirements. The reference to that effect 
in the draft provisions will provide an additi onal safeguard to promote financial stability.  
5.2.3 The provision of capital support by the HFSF under the draft provisions will be subject to the 
assessment and control of the European Commission  in accordance with the State aid rules laid 
down in the Treaty. In particular, the European Commission’s role will contribute to ensuring that 
the recapitalisation of credit institutions with capital support from the HFSF will not result in the 
granting of State aid which distorts or threat ens to distort competition by favouring certain 
undertakings. 
 6. Disposal of the HFSF’s shareholding in credit institutions 6.1 The draft law contains detailed provisions govern ing the disposal of the HFSF’s shareholding in 
credit institutions. These provisions aim at setting out clear rules and principles to guide the HFSF’s decision-making process with regard to in creasing private sector participation in credit 
institutions in which the HFSF holds shares. The EC B considers that the relevant provisions will 
promote the re-privatisation of Greek banks and thus the operation of the credit institutions 
concerned on market terms, thereby facilitati ng the return to normal market conditions and 
ensuring the proper financing of the Greek economy. 
6.2 The ECB notes that, according to the draft provisi ons, the disposal price may be lower than the 
price at which the shares were acquired by the HFSF or their current market price. The ECB 
welcomes the fact that, when determining the dis posal price, the HFSF will be required to act in 
compliance with its objective, as specified unde r the draft provisions. Furthermore, the ECB 
considers it important that the rules concerning th e information to be taken into account by the 
independent financial advisers and the transparen cy requirements concerning the elements and  
ECB-PUBLIC  
10 methodology used by those advisers also apply in relation to the determination of the disposal price. In 
this connection, it is also noted that disposal of HFSF shareholdings in credit institutions will be subject 
to the State aid rules.  
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 29 April 2014.  
[signed] 
 
The President of the ECB 
Mario DRAGHI