EN ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 27 October 2020  
on the deposit guarantee scheme and other amendments to the financial services legislation  
(CON/20 20/25) 
 
Introduction and legal  basis  
On 5 August 2020 the European Central Bank (ECB) received a request from the Luxembourg Ministry of  
Finance for an opinion on a draft law which seeks to implement Directives (EU) 2019/878 and (EU) 
2019/879 of the European Parliament and of the Council1 and Regulation (EU) 2019/876 of the European 
Parliament and of the Council2 and to amend various provisions of Luxembourg financial sector 
legislation3 (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 and the sixth indent  of Article  2(1) of Council Decision 98/415/EC4, as 
the draft law  concerns rules applicable to financial institutions insofar as they materially influence the 
stability of financial institutions 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  Directive (EU) 2019/878 of the European Parliament and of the Council of 20 May 2019 amending Directive 
2013/36/EU as regards exempted entities, financial holding companies, mixed financial holding companies, 
remuneration, supervisory measures and powers and capital conservation measures  (OJ L 150, 7.6.2019, p. 253) ; 
Directive (EU) 2019/879 of the European Parliament and of the Council of 20 May 2019 amending Direct ive 
2014/59/EU as regards the loss -absorbing and recapitalisation capacity of credit institutions and investment firms 
and Directive 98/26/EC  (OJ L 150, 7.6.2019, p. 296) . 
2  Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) 
No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible 
liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective 
investment undertakings, large exposures, reporting and disclosure requirements, and Regulation (EU) No 648/2012  
(OJ L 150, 7.6.2019, p. 1) . 
3  Projet de loi portant: 1. transposition: a) de la directive (UE) 2019/878 du Parlement européen et du Conseil du  
20 mai 2019 modifiant la directive 2013/36/UE en ce qui concerne les entités exemptées, les compagnies 
financières holding, les compagnies financières holding mixtes, la rémunération, les mesures et pouvoirs de 
surveillance et les mesures de conservation des fonds propres; et b) de la directive (UE) 2019/879 du Parlement 
européen et du Conseil du 20 mai 2019 modifiant la directive 2014/59/UE en ce qui concerne la capacité 
d'absorption des pertes et de recapitalisation des établissements de crédit et des entreprises d'investissement et la 
directive 98/26/CE; 2. mise en oeuvre du règlement (UE) 2019/876 du Parlement européen et du Conseil du 20 mai 
2019 modifiant le règlement (UE) n° 575/2013 en ce qui concerne le ratio de levier, le ratio de financement stable 
net, les exigences en matière de fonds propres et d'engagements éligibles, le risque de crédit de contrepartie, le 
risque de marché, les expositions sur contreparties centrales, les expositions sur organismes de placement collectif, 
les grands risques et les exigences de déclaration et de publication, et le règlement (UE) n° 648/2012; et 3. 
modification: a) de la loi modifiée du 5 avril 1993 relative au secteur financier; b) de la loi modifiée du 18 décembre 
2015 relative à la défaillance des établissements de crédit et de certaines entreprises d'investissement ; c) de la loi 
modifiée du 24 mars 1989 sur la Banque et Caisse d'Epargne de l'Etat, Luxembourg; d) de la loi modifiée du 23 
décembre 1998 portant création d'une commission de surveillance du secteur financier; e) de la loi modifiée du 12 
novembre 2004 relative à la lutte contre le blanchiment et contre le financement du terrorisme; f) de la loi modifiée 
du 10 novembre 2009 relative aux services de paiement, à l'activité d'établissement de monnaie électronique et au 
caractère définitif du règlement dans les systèmes de paiement et les systèmes de règlement des opérations sur 
titres; et g) de la loi modifiée du 7 décembre 2015 sur le secteur des assurances.  
4  Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national 
authorities regarding draft legislative provisions ( OJ L 189, 3.7.1998, p. 42) . 
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2  
1. Purpose of the draft law  
1.1 The main purpose of the  draft law is to implement into Luxembourg law Directive (EU) 201 9/878, 
which amends the Capital  Requirements Directi ve (CRD)5, Directive  (EU) 2019/879,  which amends 
the Bank Recovery and Resolution Directive (BRRD)6 and Regulation (EU) 2019/876 which 
amends the Capital Requirements Regulation (CRR)7. For this purpose, the draft law seeks to 
amend primarily8 the Law of 5 April 1993 on the financial sector and the Law of 18 December 2015 
on the failure of credit institutions and certain investment undertakings9. In that context, in order to 
transpose Article 32b of the BRRD10, the draft law introduces in the lat ter Law a new Article 33- 2 
on insolvency proceedings for the institutions and entities which are not subject to a resolution 
action . This provision specifies that where the Resolution Board considers that an institution is 
failing or likely to fail without the prospect of an alternative measure to prevent this, but a resolution 
measure is not in the public interest, it requests the Court to wind up the institution in accordance 
with a normal insolvency procedure or, where applicable, in accordance with the provisions of the 
Code of Commerce.  
1.2 In addition, the draft law aims at reinforcing the protection of depositors  by introducing an additional 
backstop for the benefit of the national deposit guarantee fund,  Fonds de garantie des dépôts 
Luxembourg (FGDL).  The FGDL has the status of établissement public  (public body). It is vested 
with legal personality and is placed under the authority of the Minister responsible for the financial 
sector11.The backstop takes the form of a State guarantee for a maximum amount of one billion 
                                                 
5  Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activit y of 
credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 
2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338).  
6  Directive (EU) 2014/ 59/EU  of the European Parliament and of the Council of 15 May 2014 establishing a framework 
for the recovery and resolution of credit institutions and investment firms and amending Council Directive 
82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC,  2005/56/EC, 2007/36/EC, 2011/35/EU, 
2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European 
Parliament and of the Council  (OJ L 173 ,12.6.2014, p. 190) . 
7  Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential 
requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 
27.6.2013, p. 1) . 
8  The draft law also amends the following laws:  the Law of 23 December 1998 establishing the Financial Sector 
Supervisory Commission (Loi du 23 décembre 1998 portant création d'une commission de surveillance du secteur 
financier, Mém. A 1998, N°112) , the Law of 12 November 2004 on combating  money laund ering and terrorism 
financing (Loi du 12 novembre 2004 relative à la lutte contre le blanchiment et contre le financement du terrorisme 
portant transposition de la directive 2001/97/CE du Parlement européen et du Conseil du 4 décembre 2001 
modifiant la dir ective 91/308/CEE du Conseil relative à la prévention de l’utilisation du système financier aux fins du 
blanchiment de capitaux, Mém orial A 2004, n° 183) , the Law of 10 November 2009 on payment services (Loi du 
10 novembre 2009 relative aux services de pai ement, à l’activité d’établissement de monnaie électronique et au 
caractère définitif du règlement dans les systèmes de paiement et les systèmes de règlement des opérations sur 
titres,  Mémorial A 2009, N° 215) and the Law of 7 December 2015 on the insurance sector  (Loi du 7 décembre 2015 
sur le secteur des assurances,  Mémorial A 2015, N° 229).   
9  Loi du 5 avril 1993 relative au secteur financier,  Mémorial A 1993 N° 2 7; Loi du 18 décembre 2015 relative aux 
mesures de résolution, d’assainissement  et de liquidation des établissements de crédit et de certaines entreprises 
d’investissement ainsi qu’aux systèmes de garantie des dépôts et d’indemnisation des investisseurs, Mém orial A 
2015 N° 246.   
10  Article 32b of  the BRRD,  introduced by Directive (EU) 2019/879 states  as follows : ‘Member States shall ensure that 
an institution or entity referred to in points (b), (c) or (d) of Article 1(1) in relation to which the resolution authority 
considers that the conditions in points ( a) and (b) of Article 32(1) are met, but that a resolution action would not be in 
the public interest in accordance with point (c) of Article 32(1), shall be wound up in an orderly manner in accordance 
with the applicable national law ’. 
11  Article 154(1) of the Law of 18 December 2015 on the failure of credit institutions and certain investment 
undertakings.  
ECB -PUBLIC  
3 euro, which the Government is authorised to grant in respect of credit facilities that the FGDL may 
contract in order to avail itself of adequate financial means. The draft law further provides that 
when the State guarantee has been used, the payment of contributions to the FGDL must  continue 
until the State has been repaid in full, even if the FGDL’s target level has been reached. It also 
specifies that the FGDL’s available financial means will be used to repay the State guarantee, 
including principal and interest.  According to the expl anatory memorandum, the State guarantee 
will be provided against remuneration.  
1.3 Furthermore, the draft law amends the Law of 24 March 1989 on the Banque et Caisse d’Epargne 
de l’Etat12, which is an autonomous legal entity under public law, in order to ensure the resolvability 
of the Banque et Caisse d’Epargne de l’Etat ( BCEE) , in line with the BRRD and the Single 
Resolution Mechanism Regulation13. As noted in the explanatory memorandum , the objective of 
the draft law in this respect  is to all ow, in case of bail -in, the conversion of liabilities towards the 
BCEE’s creditors into  participation certificates issued by the BCEE, which meet the criteria for 
Common Equity Tier 1 instruments. To that end, the draft law requires that the participation 
certificates issued by the BCEE comply with the criteria laid down in Article 28 of the CRR. The 
draft law also provides that these  participation certificates may be held by the State or the public. 
The draft law amends the provisions in the L aw of 24 Marc h 1989 on the available profit of the 
BCEE, by specifying that interest may be paid on the participation certificates on the basis of the 
available profit on the endowment capital (held by the State).  
 
2. General observations   
This opinion focuses on the following aspects of the draft  law: (1) the backstop arrangements of the 
FGDL , (2) the orderly winding- up of failing or likely to fail institutions that are not subject to a resolution 
action  and (3) the issuance of participation certificates by the BCEE.  
 
3. Specific observations   
3.1 Backstop to the deposit guarantee fund  
The ECB recalls that, as noted previously13 ,the efficiency of the deposit guarantee schemes 
(DGSs) in the EU currently ultimately rests on the credibility of national backstop arrangements, 
which are therefore highly important.  Therefore, the ECB welcomes the draft law which aims at 
ensuring that the FGDL is adequately funded. An adequately  funded DGS provides protection for 
smaller depositors, while enhancing financial stability. Sound funding arrangements ensure an 
effective deposit guarantee and foster the maintenance of public confidence14. 
The ECB n otes, as pointed out in the explanatory memorandum to the draft law, that several other 
Member States have introduced backstop mechanisms in order to support the funding of their 
                                                 
12  Loi du 24 mars 1989 sur la Banque et Caisse d'Epargne de l'Etat, Mémorial A 1989 N° 16.  
13  Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform 
rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of 
a Single Resolution Mechanism and a Single Resolution Fund and amending Regulat ion (EU) No 1093/2010 (OJ L 
225, 30.7.2014, p.1).  
14  See paragraph 4.1 of Opinion CON/2014/86; paragraph 3 of Opinion CON/2012/53.  
ECB -PUBLIC  
4 respective national DGSs. Member States have followed various paths for the set -up of their 
backstops. In some instances, the backstops  are based on mandatory arrangements, while in 
other s the provision of the backstop is optional. Some backstops are of a private nature, while 
other backstops are provided by the State15. 
3.2 Orderly wi nding- up of failing or likely to fail institutions that are not subject to resolution action  
The explanatory memorandum to the draft law clarifies that the concept of winding- up used in 
Article 33- 2 of the draf t law is to be interpreted broadly, and includ es procedures such as the 
suspension of payments, which allow for the restructuring of failing entities. In accordance with the 
current provisions of the Law of 18 December 2015 on the failure of credit institutions and certain 
investment undertakings16, the winding- up may take place where it is apparent that the suspension 
of payments scheme previously decided upon is not able to rectify the situation which caused it. It 
is important that the provisions of Directive (EU) 2019/879 are transposed in a comparable manner 
across EU Member States to ensure a level playing field within the Banking Union. The ECB 
therefore recommends clarifying that all procedures applicable to the institution meeting the 
conditions of Article 32b of the BRRD  lead to its w inding- up in an orderly manner with the eventual 
realisation of all of its assets.  
3.3 Issuance of participation certificates by the BCEE    
The ECB takes note of the amendments to the Law on the Banque et Caisse d’Epargne de l’Etat, 
which the ECB  understands are aimed at ensuring compliance with the conditions for these 
instruments to qualify as Common Equity Tier 1 pursuant to Article 28 of the CRR . 
 
This opinion will be published on EUR -Lex.  
 
 
Done at Frankfurt am Main, 27 October 2020.  
 
[signed]  
 
The President of the ECB  
Christine  LAGARDE  
                                                 
15  See e.g. for Belgium , Royal Decree of 16 March 2009 on the protection of deposits and life insurances by the s pecial 
protection fund for deposits and life insurances; for Bulgaria,  the Law on b ank deposit guarantee; for Croatia,  
Article  13(3) of the Law on deposit insurance; for Estonia,  Section 86(2) of the Law on the g uarantee fund; for 
Greece,  Article 29 of Law 4370/2016 implementing the Deposit Guarantee Schemes Directive; for Latvia,  the Law on 
the deposit guarantee;  for Netherlands , the Decree on special prudential measures, investor compensation and 
deposit guarantees; for Romania,  the Law on deposit guarantee schemes and the b ank deposit guarantee fund, for 
Sweden,  the Law on deposit insurance.  
16  See Article 129 of the Law of 18 December 2015 on the failure of credit institutions and certain investment 
undertakings.