EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 24 November 2008 
at the request of the Finnish Ministry of Finance 
on a draft law on state capital investment in deposit banks 
(CON/2008/75) 
 
Introduction and legal basis  
On 18 November 2008 the European Central Bank (ECB) received a request from the Finnish Ministry of 
Finance for an opinion on a draft proposal for a law on State capital investment in deposit banks 
(hereinafter the ‘draft law’), including as an annex a draft decree on State capital investment in deposit 
banks (hereinafter the ‘draft decree’). 
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 
In consequence of the global financial crisis, th e Finnish Government has announced measures that may 
be taken to stabilise the financial markets, including  (i) State guarantees for new debt instruments issued 
by banks; (ii) State capital support for solvent financ ial institutions; and (iii) State recapitalisation of 
distressed banks
2. The draft law relates to the second measure, which is aimed at providing capital 
support to solvent deposit banks to ensure  the proper financing of the economy. 
Capital support is proposed to be provided by subscrib ing a capital loan as referred to in Section 45 of the 
Law on credit institutions, i.e. an unsecured capital lo an belonging to original own funds of the bank 
(Tier 1 capital). The terms of the loan must be appr oved by the Financial Supervision Authority (FSA). 
Support may be provided to sound and solvent Finn ish deposit banks, including subsidiaries of foreign 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2  For further details, see press releas es 164/2008 and 168/2008 of the Ministry of Finance, available on the Ministry’s 
website at www.vm.fi. As regards Gove rnment guarantees, the Finnish Govern ment requested on 22 October 2008 the 
Parliament’s consent to State guarant ees for debt instruments issued by banks (Government proposal HE 181/2008 vp). 
Recapitalisation of distressed banks would be, where necessary , conducted according to procedures laid down by the Law 
on the Government Guarantee Fund. 
2 credit institutions. According to the draft law, capita l loans could be subscribed up to a maximum of 
EUR 4 billion in total, and up to 20 % of each sup ported bank’s original c onsolidated own funds. The 
State could subscribe capital loans until 30 Apri l 2009 or, if the Government so decided, until 
31 December 2009. The capital amount of a capital loan would only be repayable to the State after five 
years from the date of its issue, provided that certain  solvency requirements were met and that the FSA 
gave its consent for the repayment. The Government would have no right to demand such repayment, but 
the capital of the loan would be gradually raised in th e event of non-repayment. In the event of a deposit 
bank’s bankruptcy, other debts would have priority over capital loans. 
The interest rate of the capital loan would be the higher of the following: (i) 12-month Euribor plus a 
margin of seven percentage points; or (ii) a proportio n of the issuer’s net earnings after tax, corresponding 
to the proportion of the subscribed capital loan of th e issuer’s original consolidated own funds. Interest 
would be payable only if the deposit bank had distributable funds for th e payment. If the deposit bank had 
not paid interest for two calendar years, the Govern ment would be entitled to appoint two members to its 
board of directors. 
The draft law and draft decree contain certain restri ctions applicable to issuers of a capital loan, inter alia  
with regard to profit distribution, business restructur ing (such as mergers), marketing, expansion of the 
business activity and remuneration a nd benefits of the management. Compliance with the terms and 
conditions of the capital loan would be supervised by the FSA. 
 2. General observations 2.1 The ECB has issued recently a number of opini ons with regard to measures taken by Member 
States in the context of the financial crisis . It has emphasised the importance of a common 
approach aimed at restoring confidence in th e financial markets and compliance with the 
Declaration on a concerted European ac tion plan of the euro area countries
3 of 12 October 2008 
(hereinafter the ‘Declaration’). Such an appro ach should include initiatives aimed at: (i) ensuring 
appropriate liquidity; (ii) facilitating the funding of  banks through various means; (iii) providing 
additional capital resources to financial institutions ; and (iv) recapitalisation of distressed banks. 
These principles were also endorsed by the Europ ean Council on 16 October 2008 in respect of all 
Member States. In this context, the ECB delivered on 13 November 2008 its opinion CON/2008/68 on the Finnish draft legislation concerning the Government Guarantee Fund
4, making observations 
which also have a bearing in the context of the present opinion. 
2.2 In line with its previous opinions, the ECB notes that it should be ensured that beneficiary 
institutions are not unfairly advantaged and th at financial support a rrangements which may be 
considered as providing preferential treatment to sp ecific credit institutions should be avoided. It 
also notes that, in line with the Declaration, Me mber States must act in a coordinated manner to 
                                                 
3  The Declaration is ava ilable on the French Presidency’s website at www.ue2008.fr. 
4  ECB Opinion CON/2008/68 at the request of the Finnish Mi nistry of Finance on a draft government proposal for laws 
amending the Law on the Government Guarante e Fund and the Law on credit institutions. 
3 avoid significant differences in national impl ementation of support measures from having a 
counterproductive effect and creating distortions in global banking markets. The ECB would also like to emphasise the importance of ensuring that  such measures are in accordance with the 
requirements of EC competition law, in particular St ate aid rules, and that the State’s provision of 
capital to banks is limited in time. In this regard, reference should also be ma de to the criteria set 
out in the Commission’s Communication entitled ‘The  application of State aid rules to measures 
taken in relation to financial institutions in th e context of the current global financial crisis’ 
(hereinafter the ‘Commission Communication’)
5 and, in particular, to Section 4 concerning 
recapitalisation schemes6. 
 3. Specific observations 
Eligibility criteria 
3.1 In line with the Commission Communication, the ECB notes that eligibility criteria should be 
objective and non-discriminatory. According to the draft law, capital support may be provided ‘to a 
deposit bank that is authorised to carry on credit institution activity in Finland’. The explanatory 
memorandum further clarifies the scope of this  provision, referring to Finnish deposit banks 
including subsidiaries, but excluding branches of foreign credit institutions
7. The ECB welcomes 
this provision, as it avoids the preferential treatme nt of specific financial institutions and distortion 
of the level playing field. Moreover, only ins titutions fulfilling the solvency requirements laid 
down in Section 2(2) of the draft law would be  eligible for capital support. The ECB understands 
that this condition differentiates the draft law from the special rescue provisions which were the 
subject of Opinion CON/2008/68 and which were aimed inter alia  at credit institutions whose 
solvency had decreased or was e xpected to decrease in such a way that they no longer fulfilled the 
conditions required to c ontinue their operations8. The ECB understands that the clear 
differentiation between two types of support is inte nded to be maintained (preventive support to 
sound credit institutions under the present draft la w and reactive support to troubled institutions 
under the law commented on in Opinion CON/2008/68). In this context, the ECB also welcomes the FSA’s involvement in the evaluation of th e need for support of solvent institutions.  
 Conditions applicable 3.2 In line with previous opinions, the ECB recalls that harmonisation and coor dination of government 
measures intended to alleviate tensions in the fi nancial markets is of crucial importance. The 
                                                 
5  2008/C 270/02. 
6  Section 4 concerns recapitalisation meas ures to be used to support financial ins titutions that are fundamentally sound but 
may experience distress because of extreme conditions in fina ncial markets. In this context, the Commission laid down 
the following general principles: (i) objective and non-discriminatory criteria for eligib ility; (ii) the tem poral scope of the  
scheme; (iii) limitation of the aid to th e strict necessary; (iv) the need for sa feguards against possible abuses and undue 
distortions of competition; and (v) the requirement for recap italisation as an emergency m easure to support the financial 
institution through the crisis. 
7  See Section 4, ’Impacts of the proposal’. 
8  See the Section 11a which it was proposed to add to  the Law on the Government Guarantee Fund (379/1992) of 
30 April 1992 by the draft law commented on in Opinion CON/2008/68. 
4 recapitalisation measures considered in Member  States are aimed at strengthening the capital 
position of fundamentally sound financial instituti ons in order to improve the functioning and 
stability of the banking system and ensure the pr oper financing of the economy. In particular, a 
consistent approach should be employed in defining the conditi ons for recapitalisations and the 
pricing of the instruments to provide Tier 1 capital to financial institutions, in order to support the 
implementation of the Declaration. Against this  background, the ECB notes that in general the 
conditions for capital suppor t should aim at protecting the interest of taxpayers and respecting the 
level playing field among institutions. Moreover, th e ECB highlights that the pricing conditions for 
capital support should be risk-based and market-orien ted, determined by taking into consideration 
the specific risk of both the specific instrument  chosen for injecting capital and the institution 
concerned. Specific features of the instruments fo r capital injections (such as preferred shares and 
other hybrid instruments) should be appropriately ch osen so that, while encouraging an early end of 
the State’s capital support of banks, they should not  result in an excessive increase in the cost of 
capital. Finally, the temporary nature of the Stat e’s intervention should be ensured by providing 
financial institutions with incentives to redeem such  instruments as early as possible after a certain 
period of time. 
3.3 The ECB notes that, according to the draft law, in  the event that a deposit bank did not pay interest 
for two calendar years, the Government would be  entitled to appoint two members to the bank’s 
board of directors. It also notes that the infl uence of such board members may vary depending on 
the management structure of the bank in question. In principle, such a provision should allow the involvement of the State to the extent necessar y in the decision-making of the defaulting bank. 
Further, the ECB would like to reiterate that , as stated in the Commission Communication, the 
capital injection must be limited to the minimum necessary and should not allow the beneficiary to 
engage in aggressive commercial strategies or e xpansion of its activities or other purposes that 
would imply undue distortions in competition.  
3.4 As regards the temporal scope of the scheme,  as mentioned above the E CB notes that under the 
draft law capital loans could only be subscribed until 30 April 2009, or 31 December 2009 if the Government so decided. 
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 24 November 2008. 
 
[signed] 
The President of the ECB 
Jean-Claude TRICHET