EN
OPINION OF THE EUROPEAN CENTRAL BANK
of 21 September 2001
at the request of the Finnish Ministry of Finance
on a draft proposal concerning legislation
on the reorganisation and winding-up of credit institutions
(CON/2001/27)
1. On 21 May 2001 the European Central Bank (ECB) received a request from the Finnish
Ministry of Finance for an opinion on a draft Government proposal concerning legislation onthe reorganisation and winding up of credit institutions (hereinafter referred to as theproposal). The proposal contains three different elements. First, it intends to introduce inFinland a new Law on the temporar y suspension of the activities of a deposit bank (hereinafter
to as the draft law). Secondly, it intends to amend certain related provisions in the existinglaws governing the different legal forms of credit institutions in Finland as well as in a numberof other related laws. Thirdly, the proposal also consolidates the existing laws on the differentlegal forms of credit institutions, i.e. the laws on commercial banks and other credit institutionsin the form of a limited company, on cooperative banks and other cooperative-based creditinstitutions, and on saving banks. 
2. The ECBs competence to deliver an opinion is based on Article 105(4) of the Treaty
establishing the European Community (hereinafter referred to as the Treaty) and the fifth andsixth indents of Article 2(1) of Council Decision 98/415/EC of 29 June 1998 on the consultationof the ECB by national authorities regarding draft legislative provisions
1, as the proposal
contains provisions concerning payment systems and rules applicable to financial institutionswhich could materially influence the stability of financial institutions and markets. Inaccordance with the first sentence of Article 17.5 of the Rules of Procedure of the EuropeanCentral Bank, this opinion has been adopted by the Governing Council of the ECB. 
                                                     
1 OJ L 189, 3.7.1998, p. 42.
23. The proposal mainly intends to complement Finnish legislation concerning the voluntary
reorganisation measures in the Finnish banking sector by extending the application of generalcompany law provisions on voluntary reorganisation measures, such as mergers, divisions andtransfers of business, to cover also all credit institutions in Finland. However, in order to takeinto account the specific features of the banking sector, the proposal introduces the draft law. Inaddition, the proposal will harmonise the rules applied to different legal forms of creditinstitutions with regard to their reorganisation and winding-up. These uniform rules will ensurethat the same principles for safeguarding the rights of creditors will apply to all such measures,and that they will be equal irrespective of the legal form of credit institution concerned. Therights of depositors in Finland are safeguarded by specific legislation on the Deposit GuaranteeFund. The proposal does not intend to change this legislation. The ECB welcomes the proposalin general as it aims to facilitate through voluntary reorganisation measures the developments inthe banking sector and in general in the financial markets.
4. The ECB notes that according to the Finnish legislation currently in force, the voluntary
reorganisation measures concerning credit institutions require the authorisation of the FinnishMinistry of Finance. As the preconditions for granting such an authorisation are at the momentnot covered by legislation, the Ministry of Finance has until now had a wide discretionarypower in considering the authorisation and safeguarding the creditors rights in differentreorganisation measures. The proposal intends to abolish this role of the Ministry of Finance. Asa result, the existing control exercised by the Ministry of Finance in safeguarding creditorsrights would be replaced by a procedure for creditor consultation following the provisions ofgeneral company law in Finland. These provisions provide the creditors with the right to opposethe planned reorganisation measures. The Finn ish Trade Register Authority approves the
execution of the planned reorganisation measures only if none of the creditors opposes themeasures. The ECB welcomes the fact that in such a consultation procedure the FinnishFinancial Supervisory Authority (FSA) will also be consulted in order to ensure that theconditions regarding the authorisation of a credit  institution are not endangered. The FSA would
have the right to oppose the reorganisation measures if it considers that the measures wouldhave negative effects on such conditions, inter alia , as liquidity, solvency, or procedures for
controlling the risk exposure of the credit institution concerned. In such case, the Finnish TradeRegister Authority cannot approve the execution of the planned reorganisation measures. Ifthere were appeals against the opposition of th e FSA, the Supreme Administrative Court would
take the final decision.
5. The ECB would like to recall that the Treaty and the Statute of the European System of Central
Banks and of the European Central Bank (hereinafter referred to as the Statute) entrust theEurosystem
2 and Suomen Pankki, as a component member of the Eurosystem, with, inter alia ,
                                                     
2 The Eurosystem comprises the ECB and the national central banks of the Member States which have adopted the
euro as their single currency.
3the tasks of defining and implementing the monetary policy of the Community. Furthermore,
the Treaty and the Statute entrust the Eurosystem with the task of overseeing payment systemsin order to promote the smooth operation of payment systems and thus contribute to financialstability. The Eurosystem may provide facilities, and the ECB may make regulations, to ensureefficient and sound clearing and payment syst ems within the Community and with other
countries.
The ECB observes that all reorganisation measures, as well as the winding-up of creditinstitutions in Finland, would affect the role of Suomen Pankki, as a component member of theEurosystem, in assessing the risks involved when undertaking credit operations, both in thecontext of implementing monetary policy as well  as in providing intraday credit for payment
system purposes. Furthermore, such measures may have an impact on the smooth functioning ofpayment systems, and thus affect Suomen Pankki in its roles of both payment systems overseerand provider of payment services.
Therefore, the ECB submits that the proposal and the draft law should enhance and ensuretransparency vis-à-vis Suomen Pankki, which should be adequately informed of all measuresinvolved in the reorganisation and winding-up of credit institutions, and should have the right torequest all information needed in fulfilling its tasks under the Treaty and the Statute as acomponent member of the Eurosystem.
6. The ECB notes that, according to the draft law concerning the temporary suspension of the
activities of a deposit bank, if the liquidity of a deposit bank is impaired to the extent that it maybe unable to fulfil its obligations, the role of the Ministry of Finance would remain strongcompared to its role in voluntary reorganisation and the winding-up of credit institutions. TheMinistry of Finance would assess whether the liquidation of a deposit bank can be avoided, inparticular if the stability of the financial market requires the continuation of the activities of thebank concerned. The draft law lays down the conditions according to which the Ministry ofFinance can order a temporary suspension. The activities of a deposit bank would have to besuspended when its financial position is weakened to the extent that the continuation of itsactivities would jeopardize the position of the depositors and other creditors or the stability ofthe financial market, or otherwise cause severe distortions to the financial markets. The aim ofthe suspension is to prevent the bankruptcy of a deposit bank and provide for the continuation ofits activities in the future, if the adequate reorganisation measures are feasible. If thereorganisation measures are not deemed possible, the suspension aims to prepare the liquidationof the bank in a controlled way. The activities of a deposit bank may be suspended for amaximum period of six months. The ECB welcomes the possibility for the Ministry totemporarily suspend the activities of a deposit bank, as it could help prevent disturbance to thestability of financial markets due to temporary problems within the bank. Moreover, the ECBwelcomes the obligation for the Ministry to consult Suomen Pankki before adopting thedecision to order the temporary suspension. This will allow Suomen Pankki to provide the
4process with a central banking perspective, in particular on the basis of financial stability
concerns.
7. The intended legal effects of the suspension procedure of a deposit bank correspond to a large
extent to the legal effects of the company reorganisation measures provided in the FinnishCompany Reorganisation Law No 47/1993 (C ompany Reorganisation Law). Both the
suspension of the activities of a deposit bank, and the reorganisation measures according to theCompany Reorganisation Law, aim at a continuation of the business by impacting on theposition of the creditors to the least possible extent. Therefore, according to the draft law theprovisions of the Company Reorganisation Law would apply, with certain restrictions, to thelegal effects of initiating the suspension of activities of a deposit bank and control of its assetsduring the suspension period.
According to the draft law, and the applicable provisions of the Company Reorganisation Law,during the suspension the bank is not allowed to take deposits or other refundable assets fromthe public without the permission of the Ministry of Finance. Furthermore, the bank is notallowed to grant or otherwise obtain new loans, or to enter into or otherwise obtain financial
agreements. Moreover, during the suspension the liabilities of the bank are frozen, thefulfilment of its obligations towards the depositors and other creditors is prevented, the bank isnot allowed to provide any additional collateral and the creditors are not allowed to realise thecollateral already provided. These measures are established in order to secure the equaltreatment of the creditors irrespective of the outcome of the suspension procedure. In addition,they will help to avoid the risk of s udden large-scale withdrawal of deposits.
8. The ECB notes that the principles of the Finnish Company Reorganisation Law intend to lead to
the restructuring of viable enterprises and the avoidance of unnecessary bankruptcies. Such arestructuring procedure is a long-term process lasting possibly several years. Instead, theprincipal aim of a temporary suspension of the activities of a deposit bank should be to ensurethe continued smooth and stable functioning and operation of financial markets. The temporarysuspension of the activities of a deposit bank should be an extreme measure by the authorities inorder to safeguard the stability of financial markets. Such a suspension should therefore be ashort-term measure.
Furthermore the ECB notes the differences between the nature of activities of a creditinstitution, on the one hand, and the nature of activities of companies in general, on the otherhand. In particular, the debt structure of a credit institution is by definition of a special naturecompared to any other company in general. The ECB understands that the CompanyReorganisation Law does not take into account the special features, as a consequence of suchdifferences, inherent in the resolution of financial problems of credit institutions, and that theCompany Reorganisation Law is therefore designed to govern general company restructuringmeasures and procedures.
5Therefore, the ECB considers that the application of the Company Reorganisation Law with
regard to the temporary suspension of the activities of credit institutions pursuant to the draftlaw might be problematic. 
9. The ECB would see the need for the draft law to better take into account the role of the
Eurosystem, and in particular the role of Suomen Pankki as a component member of theEurosystem, on certain issues, as addressed below.
The ECB would like to point out that the Statute requires that all credit operations extended bythe ECB or the national central banks of the Eurosystem to credit institutions and other marketparticipants be based on adequate collateral. Following this primary law requirement, Article 9of Directive 98/26/EC of the European Pa rliament and of the Council of 19 May 1998 on
settlement finality in payment and securities settlement systems
3 (the Settlement Finality
Directive, SFD) provides that the rights of a na tional central bank of the Member States or of
the ECB to collateral security provided to them shall not be affected by insolvencyproceedings against the credit institution or another market participant which has provided thecollateral security. Such collateral may always be realised for the satisfaction of these rights.
The ECB notes that this provision of Community law has been implemented in Finland by aspecific law on netting in clearing and settlement systems ( Laki eräistä arvopaperi- ja
valuuttakaupan sekä selvitysjärjestelmän ehdoista  1084/1999) (the Netting law). Section 10
provides that the rights relating to the collater al provided to the central bank in connection with
central bank operations may be realised notwithstanding the initiation of an insolvencyprocedure or any other comparable procedure thereto. However, in order to avoid any
misunderstandings with regard to the application of this provision also to all cases of temporarysuspension of the activities of a deposit bank in Finland, as well as any reorganisation procedurestarted as a consequence of such suspension, the ECB considers it essential that the priority of
the provision of Section 10 of the Netting law over the rules of the draft law be guaranteed bynecessary clarifications in the proposal.
Furthermore, the ECB submits that in order to be in line with the above, the draft law shouldalso entitle Suomen Pankki to require additional collateral according to the risk managementprovisions of the Eurosystem or to call in its credit contracts irrespective of the rules of the draftlaw.
10. The ECB would also like to draw attention to  the minimum reserve requirements imposed on
credit institutions by Regulation ECB/1998/15 of 1 December 1998 on the application ofminimum reserves
4, as amended by Regulation ECB/2000/85, and to the statistical reporting
requirements imposed on monetary financial institutions by Regulation ECB/1998/16 of
                                                     
3OJ L 166, 11.6.1998, p. 45.
4OJ L 356, 30.12.1998, p. 1.
5OJ L 229, 9.9.2000, p. 34.
61 December 1998 concerning the consolidated balance sheet of the monetary financial
institutions sector, as amended by Regulation ECB/2000/86. The ECBs statistical requirements
will need to be fulfilled also during a temporary suspension of the activities of a deposit bank, incase a bank continues to hold its authorisation to act as a deposit bank. According to RegulationECB/1998/15, the ECB may exempt from minimum re serve requirements an institution subject
to winding-up proceedings or reorganisation measures.
11. Regarding the draft amendment of the Credit Institution Act No 1607/1993, the ECB notes that
the Ministry of Finance, when granting authorisation to a credit institution, will provide this newauthorisation for registration to the Finnish Trade Register and for information to the FSA.Since the new credit institution would be entitled to become a monetary policy counterparty andparticipate in payment systems, it would be preferable that also Suomen Pankki, as the monetarypolicy and payment systems oversight authority in Finland, be promptly informed thereof. 
12. Finally, the ECB recalls Directive 2001/24/EC of th e European Parliament and of the Council of
4 April 2001 on the reorganisation and winding up of credit institutions7, which provides for
mutual recognition of such proceedings. While the national implementation of this Directivedoes not need to take place before May 2004, the ECB suggests, without having made anassessment in this regard, that the proposal should already now be brought broadly in line withthe provisions of this Directive in order to avoid any abrupt regime changes when the Directiveis formally implemented in Finnish law.
13. The ECB confirms that it has no objection to the competent national authorities making this
opinion publicly available at their discretion.
Done at Frankfurt am Main on 21 September 2001.
The President of the ECB
[signed]
Willem F. DUISENBERG
                                                     
6OJ L 229, 9.9.2000, p. 34.
7OJ L 125, 5.5.2001, p. 15.