EN 
 
 
1 OPINION OF THE EUROPEAN CENTRAL BANK 
of 19 November 2010 
on the restructuring of banks 
(CON/2010/83) 
 
Introduction and legal basis  
On 4 October 2010, the European Central Bank (E CB) received a request from the German Federal 
Ministry of Finance for an opinion on a draft law on the restructuring and organised winding up of banks, the creation of a restructuring fund for banks and th e extension of the limitation periods for management 
and supervisory board members’ liability towards lis ted companies and banks (Law on restructuring) 
(hereinafter the ‘draft law’). 
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 (TFEU) and the thir d and sixth indents of Article 2(1) of Council 
Decision 98/415/EC of 29 June 1998 on the consu ltation of the European Central Bank by national 
authorities regarding draft legislative provisions
1, as the draft law relates to the Deutsche Bundesbank and 
contains rules applicable to banks which materially  influence 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 law 
1.1 The general purpose of the draft law is to affo rd the competent authorities the powers and tools to 
resolve situations of distressed banks whose fa ilure would pose a risk to the stability of the 
financial system. The draft law also aims to ensure  that the consequential costs of dealing with the 
failure of such institutions are met by the privat e sector, i.e. the banking industry, and not by public 
funds, to the extent possible.  
1.2 The draft law introduces new supervisory and r esolution tools and procedures for the stabilisation, 
reorganisation, and, as a last resort, the orderly winding up of banks with a registered office in Germany which are in financial difficulties. For this purpose, the draft law introduces two main 
sets of measures.  
(i)  It provides for a two-stage procedure for th e stabilisation and reorganisation of banks. Both 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
 
2 stages of the procedure are introduced voluntar ily at the credit ins titution’s initiative and 
serve to enable it to overcome the financ ial difficulties under its responsibility. When 
initiating this procedure, the credit institution will provide a plan for the stabilisation or 
reorganisation. Moreover, the relevant pro cedure and its underlying plans only become 
effective if the Federal Financial Supervisory Authority (BaFin) regards them as appropriate 
and if they are approved by the Higher Regional Court. In both stages of the procedure, an 
advisor is to be appointed by the Court. The ro le for this advisor is modelled on that of the 
special representative under the Law on ba nking and the provisional insolvency 
administrator.   
The stablilisation stage of the procedure is designed as an early intervention measure to 
correct financial difficulties. It does not involve  any interference with shareholder or creditor 
rights.  
The reorganisation stage does interfere with such  third party rights. It  may only take place if 
the existence of the distressed bank is at risk  and this constitutes a threat to the system, 
meaning that the measures taken must be covered by a manifest public interest. The reorganisation stage provides for rules on credito r voting and, if relevant, shareholders as 
regards the reorganisation plan under which they gi ve or are deemed to give their consent to 
the plan. If the procedure described above is unlikely to succeed, the BaFin may immediately 
take the intervention measures set out under Artic le 2 of the draft law (amendment to the 
Law on banking). 
(ii)  The draft law also significantly increases Bafin’s powers and tools to restructure and wind 
up banks by amending the current  law on banks (Article 2 of the draft law, as mentioned 
above). This amendment contains, as a measure of last resort, BaFin’s power to order the 
transfer of assets from the failing bank to a new safe haven entity (‘bridge bank’) (new 
Section 48a of the Law on banking), if the dist ressed bank is at risk and this constitutes a 
threat to the system. A bridge bank is a ba nk which is independent from an organisational 
and financial perspective. The establishment of  such a bank may be necessary if, at the 
relevant time, no credit institution is available to take over the relevant assets and liabilities. 
This is intended to ensure that stabilisation measures can subsequently focus on the new 
bank, whilst the non-systemically relevant parts of the old institution can be wound up under 
the ordinary insolvency procedure. The draft la w also enables the BaFi n to appoint a special 
representative, who may be given the power to act as the institution’s statutory organs. These 
new measures can be taken by the BaFin w ithout prior agreement of creditors or 
shareholders.  
1.3 In addition to these new procedur es and tools, Article 3 of the draft law establishes a restructuring 
fund for banks (the ‘Fund’) and transfers new duties related to the management of this Fund to the 
Federal Authority for Financial Market Stabilisa tion (FMSA). The purpose of the Fund, a Federal 
special-purpose vehicle, is to finance future bank restructuring and winding-up measures. All 
 
3 German banks will be obliged to contribute to th e Fund. The amount of an individual institution’s 
contribution will be based on the systemic risk it poses , and this is determined according to the size 
of the bank and its cross-linkage within the fina ncial market. In this regard, an institution’s 
liabilities must be taken into account and other re levant indicators may also be considered. The 
FMSA will be responsible for implementing restru cturing measures and administering the Fund.  
1.4 In addition to these key elements, the draft law extends the period of limitation for claims against 
Members of the Board of Management and the Supervisory Board who breach their managerial 
duties under the Law on stock corporations from 5 to 10 years. It also amends the Law on the 
Financial Market Stabilisation Fund and the Law on financial markets stabilisation acceleration so 
that the new procedures and tools mentioned above would, in the application of some transitional 
provisions, replace the stabilisation measures of the Fund.  
 2. General observations  2.1 The ECB welcomes the draft law as it strengthens  the tools and procedures available to the national 
authorities for effective early intervention, reorga nisation and restructuring of distressed banks.  
The ECB notes that, in accord ance with the Council conclusions of May 2010, the European 
Commission presented a communication which define d the milestones for a major overhaul of the 
Union’s regulatory framework. This overhaul is  to be undertaken from 2011 onwards and aims to 
establish a holistic, coordinated and more harmonised framework for preventative action, early 
intervention and resolution management. In pa rticular, the Commission announced legislative 
proposals aiming at further harmonisation of a wide set of early intervention and resolution tools. 
The ECB broadly supports such plans and notes that a common set of tools should be designed with the aim of allowing authorities to address probl ems with a distressed bank, without needing to 
resort to public support. In turn, such tools shoul d also facilitate a private sector solution or, when 
appropriate, ensure the liqidation of the bank in  a way which has minimal effects on financial 
stability.  
In this context, it is noted that the draft law si gnificantly enhances the tools available to the national 
authorities, in particular by introducing a co mprehensive framework for reorganisation which 
would enable the transfer of assets, or parts of thereof, of a systemically relevant bank to a private bank, or temporarily to a State ‘bridge  bank’ or a debt to equity swap.  
2.2 The ECB welcomes the acknowledgement of th e German Government, as reflected in the 
explanatory notes to the draft law, of the need for coordinated action at Union level and the need 
for any national proposal to be integrated and a ligned with the current preparatory work of the 
European Commission on a cross-border crisis mana gement framework for the financial sector (EU 
crisis management framework)
2. Member States may need to adopt  measures on crisis management 
                                                 
2  Communication from the Commission to the European Parlia ment, the Council, the European Economic and Social 
Committee, the Committee of the Regions and the European Central Bank on ‘An EU Framework for Crisis Management 
 
4 in the interests of urgency. However, prior to th e adoption of the EU crisis management framework 
in the form of a Union legal instrument, and even  before its implementati on, Member States should 
take into account developments at Union level in  the preparation of such a framework and should 
thus avoid any national le gislation conflicting with it, in accord ance with the general principle of 
sincere cooperation and loyalty pursuant to the Treat y on European Union. In this respect, the ECB 
also refers to guidance provided by the Council (ECOFIN)3, as well as the Declaration issued by 
the Heads of State of the euro area4.  
2.3 It should also be ensured that the application of the draft law complies with Article 107(3)(b) 
TFEU, meaning that domestic support measures to banks  in distress and their terms of application 
must comply with the principle of non-discrimin ation and competition law and the State aid rules 
of the Union. 
 3. Procedure for the stabilisation and reorganisation of banks 3.1 In Section 19(4) of Article 1, the draft law provi des for the deemed consent of shareholders to the 
reorganisation plan, where the majority of the creditors have voted in favour and where the 
measures under the plan are proportionate and ai m to prevent serious negative effects on other 
financial institutions arising from the failure of th e bank concerned. This constitutes an interference 
with shareholder rights as guaranteed by Directive 77/91/EC
5, notably Article 25(1) on the increase 
of capital, for example in the case of a debt to e quity swap. The explanatory notes to the draft law 
extensively address this legal issue. The ECB r ecognises the manifest conflict arising between 
shareholder rights and public interest issues in such  a situation, and this may need to be addressed 
at national level as a matter of urgency. Howeve r, legal uncertainty could be exacerbated by 
provisions which clearly breach the Directive and me rely rely on a possible future change in Union 
law in this regard. The existing conflict between the strong protection of shareholder rights and the 
legitimate protection of public interests needs to  be addressed at Union level, respecting the 
principle of the primacy of Union law.  
3.2 The stabilisation and reorganisation plans may only enter into force if they have been approved by 
the Higher Regional Court. Under this procedure, th e Court is the final authority, after the BaFin’s 
prior involvement. As the ECB has stated in  previous opinions, in many cases the banking 
supervisory authority will be best placed to assess whether a distressed  bank is able to continue in 
                                                                                                                                                             
in the Financial Sector’, COM(2010) 579 final of 20 Octo ber 2010; Commission Communication on an EU Framework 
for Cross-Border Crisis Management in the Banking Sector on 20 October 2009. 
3  See the recent Council (ECOFIN) report to the European Counc il on the state of play on fina ncial levies and taxes, and 
for guidance to the Member States in the conclusions of the ECOFIN meeting see ‘Immedi ate responses to financial 
turmoil’, Council Conclusions of 7 Oct ober 2008, both available on the Council’s  website at www.consilium.europa.eu.  
4  The text of the declaration of 12 Octobe r 2008 is available on the former French  Presidency’s website at www.ue2008.fr.  
5  Second Council Directive 77/91/EC of 13 December 1976 on coor dination of safeguards which, for the protection of the 
interests of members and others, are re quired by Member States of companies within the meaning of the second 
paragraph of Article 58 of the Treaty, in respect of th e formation of public limited liability companies and the 
maintenance and alteration of their capita l, with a view to making such safeguar ds equivalent (OJ L 26, 31.1.1977, p. 1). 
 
5 business6 and therefore will also be able to assess the appropriateness of such plans. Whilst this is 
reflected in the draft law, the requirement for th e Court to approve the plans may mean that the 
restructuring is not always quick. 
3.3 The provisions concerning the content of the reorga nisation plan (Section 8(2)  of Article 1) provide 
for the building of voting groups among the cred itors, whose composition depends not only on the 
creditors’ legal position but also their respective economic interests. The sub-division following the 
concept of ‘economic interest’ might create lega l uncertainty unless the criteria for making these 
decisions, which may have direct consequences on creditor rights, are more clearly stipulated. 
 4. Amendments to the Law on banking – Improve d instruments for resolution of systemically 
relevant banks 
4.1 The draft law’s introduction of the option of a full or partial transfer of a distressed bank’s assets 
and liabilities to a bridge bank is welcomed. The Eu rosystem highlighted the importance of such a 
resolution tool in ensuring the continuity of essen tial business operations of systemically important 
banks when replying to the Commission’s initial an alysis of a future EU framework for crisis 
management and resolution
7. The availability of such resolution tools is also in line with the 
recommendations on the need for an enhanced conve rgence of national crisis management regimes 
adopted at both international and Union levels8. In view of the increasing inter-dependencies 
between financial systems and the need to address the possible systemic impact of the failure of 
cross-border financial institutions, the domestic cr isis management framewo rks may need to be 
further aligned with future regulatory initiatives at Union level. These initiatives address, inter alia , 
existing problems in the coordination of resolu tion and insolvency proceedings concerning cross-
border banks.  
4.2 In line with its previous position, the ECB sees th e need for the close involvement of central banks 
in prudential supervision9. The ECB notes the involvement of the Deutsche Bundesbank, together 
with the BaFin, in assessing whether an existential risk to the credit institution and a systemic risk 
are present (Section 48b(3) of Article 2 of the dr aft law). The involvement of the Bundesbank is 
consistent with its role as a member of the Europ ean System of Central Banks in contributing to the 
stability of the financial system (Article 127(5) TFEU). 
4.3 Pursuant to the provisions on transfer orders (Section 48a et seq.  of Article 2), the choice of assets 
and liabilities to be transferred from the distressed credit institution to an other entity will depend 
                                                 
6  Opinion CON/2005/36, paragraph 10. All ECB opinions ar e available on the ECB's website at www.ecb.europa.eu. 
7  See the Eurosystem’s reply of 8 February 2010 to the public consultation by the Commission launched in its 
Communication on an EU Framework for Cross-Border Crisis  Management in the Banking Sector on 20 October 2009. 
8  See in particular ‘Report and Recommendations of the Cross-border Bank Resolution Group’, March 2010, available at 
www.bis.org and ‘Practical Guide on Cross-Border Insolv ency Cooperation’ adopted by UNCITRAL on 1 July 2009, 
available at www.uncitral.org ; and the Communication of the Commissi on of 20 October 2010 on ‘An EU Framework 
for Crisis Management in the Financial Sector’, COM(2010) 579 final. 
9  Opinion CON/2010/7, paragraph 2.1.1;  Opinion CON/2007/33, paragraph 2.1. 
 
6 considerably on the BaFin’s discretion. There are no specific rules or other criteria in the draft law 
which provide the basis on which assets should be selected for transfer10. Although it may be 
necessary to retain some flexibilit y to allow the BaFin to address different possible situations, some 
basic rules to be respected by the authorities in exercising this power would be useful as there 
could be considerable intrusion on the rights of creditors and on the principle of equal treatment 
(priority rights etc.). Whilst such basic rules woul d maintain a degree of flexibility, they would also 
limit the discretion in exercising this power with a view to promoting legal certainty on the market 
for bank debt. 
 5. Suspension of close-out netting clauses 5.1 Section 13 of Article 1 fo the draft law provid es that contractual relationships with a credit 
institution cannot be terminated until the busin ess day following the date of an institution’s 
application to BaFin for the initiation of the reorganisation procedure. The ECB supports the 
rationale behind this temporary prohibition, as it ma y be essential to efficiently and safely transfer 
en bloc assets, such as derivativ e contracts with counterparties, to a bridge bank or another new 
entity to preserve the distressed bank’s business ope rations until it can be safely reorganised.  
 Moreover, Section 48g(7) of Article 2 of the dr aft law contains an outright ban on counterparties 
terminating contracts with banks which are the s ubject of a spin-off of assets to another entity 
based on a BaFin transfer order.    
As stated in recommendation 9 of the Report and Recommendations of the Basel Committee on 
Banking Supervision’s Cross-border Bank Resolution Group
11, ‘the ability of relevant [national] 
authorities to impose a brief delay on the exercise of early termination and netting rights would maximise the possibility of transfer to a sound financ ial institution, a bridge bank or another public 
entity provided that the period of time during wh ich the authorities can delay immediate operation 
of contractual early termination rights pending a tran sfer is clearly defined and limited, after which 
full termination and close-out rights would be availa ble for all financial contracts not transferred to 
a solvent transferee;’.  
5.2 The ECB notes that any suspension of counterpa rties’ close-out netting rights conflicts with 
Directives 98/26/EC
12, 2002/47/EC13 and 2001/24/EC14. Article 7(1)(b) of Directive 2002/47/EC 
                                                 
10    Article 2 Section 48j(3) only provides that the selection of the remaining spin-off assets depends on how significant they 
are to an effective, cost-efficient defence of the systemic risk  emanating from the credit institu tion. It is unclear if this 
sentence is at all applicable in the case  of partial transfer, as Section 48k(2) only refers to the fourth to sixth sentences. 
This seems to be a drafting error as S ection 48j(3) only has five sentences. Theref ore the reference is understood to be to 
the third to fifth sentences; i.e. the main sentence dealing with selection of remaining sp in-off assets for re-transfer. 
11  Basel Committee on Banking Supervision, ‘Report and Reco mmendations of the Cross-border Bank Resolution Group’, 
March 2010, available at www.bis.org.  
12  Directive 98/26/EC of the European Parliament and of th e Council of 19 May 1998 on settlement finality in payment and 
securities settlement system s (OJ L 166 , 11.06.1998 p. 45), as amended by Directive 2009/44/EC of the European 
Parliament and of the Council of 6 May 2009 (OJ L 146, 10.6.2009, p. 37). 
13    Directive 2002/47/EC of the European Parliament and of th e Council of 6 June 2002 on financial collateral arrangements, 
(OJ L168, 27.6.2002, p. 43). 
 
7 requires Member States to ensure that in case of financial collateral  a close-out netting provision 
can take effect in accordance with its terms not withstanding the commencement or continuation of 
winding-up proceedings or reorganisation measures or any purported assignment, judicial or other attachment or other disposition of or in respect of such rights. Similarly, settlement finality is required by Directive 98/26/EC for netting w ithin Union designated payment and securities 
settlement systems. Article 25 of Directive 2001/24/EC  further provides that netting agreements 
shall be governed by the law of the contract which governs such agreem ents. The ECB notes that 
the master agreements on which close-out netting rights are based are often concluded by German 
banks under the laws of other jurisdictions, such as E nglish or New York law. It is legally uncertain 
whether the proposed temporary stay would be co nsistent with the existing provisions of Union 
law. Also, it is unclear under Union law whether the proposed stay could be enforced against a 
German credit institution which h as entered into a netting agreement governed by English or New 
York law or other non-German laws. In view of these legal uncertainties, any statutory powers to impose a temporary stay on such contracts should be coordinated closely at Union level. 
 6. The restructuring fund and bank levy  6.1 The ECB welcomes the establishm ent of the Fund as part of a broader range of initiatives aiming at 
strengthening financial stability. The Fund regime en tails the further disengagement of the State in 
favour of restructuring primarily financed by the banking sector
15. This financing regime is in line 
with the G20 and the European Commission communications16. 
6.2 Nonetheless, the ECB considers that the Fund should provide financial support to mitigate the 
impact of an institution’s distress, i.e. in the cont ext of a resolution, and sh ould not be used for the 
purposes of a bail-out. The purpose of resolution funds is to mitigate the effects of a failure on different stakeholders by trying to maximise the va lue of remaining assets and facilitate, if possible, 
a quick return to their productive use. In some c ases, this type of fund may help to continue the 
performance of core services by creating a bridge bank that will be sold afterwards. The costs 
incurred in these activities should be borne by the private sector, thus avoiding recourse to public 
funds to support distressed institutions. From this  perspective, the ECB acknowledges the intention 
of the German authorities to establish a fund with a wider scope.  
6.3 It cannot be excluded however that in a crisis s ituation, funding by the industry may be insufficient 
and that supplementary use of public funds may be necessary. In that case, the banking sector 
should be called upon to reimburse the State for the public funds it has provided. The principle of ex post recovery from the banking sector should promote additional market discipline and address 
moral hazard risk. 
                                                                                                                                                             
14  Directive 2001/24/EC of the European Parliament and of the Council of 4 April 2001 on the reorganisation and winding 
up of credit institutions (OJ L 125, 5.5.2001, p 15). 
15 See Opinion CON/2010/45. 
16  Commission Communication on Bank Resolutio n Funds, COM (2010) 254 final, 26 May 2010. 
 
8  
This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 19 November 2010. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET