EN ECB-PUBLIC  
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 24 January 2012  
on a guarantee scheme for the liabilities of Italia n banks and on the exchange of lira banknotes  
(CON/2012/4) 
 
Introduction and legal basis  
On 15 December 2011, the ECB received a request from the Italian Ministry of Economic Affairs and 
Finance (the ‘Ministry’) for an opinion on Artic le 8 of Decree-Law No  201 of 6 December 2011 on 
equity, growth and fiscal consolidation1 (hereinafter the ‘Decree-Law’). This Opinion also considers 
Article 26 of the Decree-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 first, th ird and sixth indents of Article 2(1) of Council 
Decision 98/415/EC of 29 June 1998 on the consulta tion of the European Central Bank by national 
authorities regarding draft legislative provisions2, as the Decree-Law concerns currency matters, the 
Banca d’Italia and rules applicable to financial in stitutions insofar as they materially influence the 
stability of financial institutions and markets. In accor dance 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 Decree-Law 
1.1 Article 8 of the Decree-Law establishes a guara ntee scheme for the liabilities of Italian banks3 until 
30 June 20124, in accordance with the Communication fro m the Commission on the application, 
from 1 January 2012, of State aid rules to support measures in favour of banks in the context of the financial crisis (the ‘2011 Communication’)
5. The Ministry will provide6 (i) a guarantee7 for the 
liabilities of Italian banks8, provided they fulfill a number of requirements, including in particular 
                                                 
1  Gazzetta Ufficiale No 284, 6.12.2011. 
2  OJ L 189, 3.7.1998, p. 42.  
3  Meaning banks having their registered office in Italy. See Article 8(5). 
4  Such date may be further extended by means of decrees of the President of the Council of Ministers, on a proposal of the 
Minister for Economic Affairs and Finance, and in accordance with Union law. See Article 8(1) of the Decree-Law.  
5  OJ C 356, 6.12.2011, p. 7. 
6  Up to EUR 200 million per year from 2012 to 2016. Such amount s are deposited in an account to cover any activation of 
the guarantees. Additional financial needs will be addressed by the funds allocated to the Ministry. See Article 8(4). 
7  Unconditional, irrevocable, first demand guarantees may be prov ided on principal and interest. See Article 8(3) and (11) 
of the Decree-Law.  
8  In accordance with the 2011 Communicati on, instruments that qualify as regulator y capital under Banca d’Italia Circular 
No 263 of 27 December 2006, Title I, Chapter 1, Section 2 are excluded from the scope of the guarantee. See Article 
8(12) of the Decree-Law. 
ECB-PUBLIC  
2 that they have been issued by banks after the entry into force of the Decree-Law and have a 
residual maturity (a) between three months and five  years; or (b) up to seven years from 1 January 
2012, if they are covered bonds9 issued by Italian banks; and (ii) a guarantee for emergency 
liquidity assistance operations conducted by the Banca d’Italia10.  
1.2 A guarantee may be provided on the basis of an assessment conducted by the Banca d'Italia on the 
relevant bank, concerning (i) capital adequacy; an d; (ii) capacity to discharge the obligations 
assumed11. According to the Decree Law, the Banca d’Italia is closel y involved in the management 
of the guarantee scheme, and is entrusted with several functions, including biannual monitoring of 
the operations conducted and their effect on the economy12. The Banca d’Italia is also closely 
involved in the management of the beneficiary institutions' compliance with the conditions set out in the Decree Law
13, has an advisory function in view of possible changes to the framework14, and 
a responsibility for handling banks' applications for admission15 and recourse16 to the scheme, as 
well as guarantee payments17. 
1.3 Banknotes and coins denominated in lire lapse with in 10 years from the date on which they ceased 
to be legal tender18, and a deadline is imposed for the exch ange of such banknotes and coins at all 
branches of the Banca d’Italia19. Article 26 of the Decree-Law brings forward the deadline to the 
date of entry into force of the Decree-Law a nd specifies that the countervalue of unexchanged 
banknotes and coins, to be allocated to the Italian Treasury, is to be subsequently credited to the 
Italian Government Bonds Sinking Fund. 
 2. General observations  2.1
 The ECB welcomes the Decree-Law as a crucial step  in enhancing financial stability in Italy. At 
the same time, the ECB wishes to make the followi ng comments on several technical aspects of the 
Decree-Law.  
                                                 
9  Pursuant to Article 7bis of Law No 130 of 30 April 1999 ( Gazzetta Ufficiale No 111, 14.5.1999). 
10  See Article 8(34) of the Decree-Law. 
11  See Article 8(2) of the Decree-Law.  
12  See Article 8(6) of the Decree-Law. 
13  See Article 8(7) of the Decree-Law. 
14  See Article 8(20) and (33) of the Decree-Law. 
15  See Article 8(21), (22), (24) and (25) of the Decree-Law. 
16  See Article 8(26) of the Decree-Law. 
17  See Article 8(27) of the Decree-Law. In addition, according to Article 8(30), operations conducted by the Banca d’Italia 
to address liquidity needs against the provision of a ple dge or a loan disposal benefit until 31 December 2012 from a 
special regime, more favourable than th e regime under Law No 170 of 21 May 2004 ( Gazzetta Ufficiale No 164, 
15.7.2004), implementing Directiv e 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on 
financial collateral arrangemen ts (OJ L 168, 27.6.2002, p. 43). 
18  See Article 3 of Law No 96 of 7.4.1996 ( Gazzetta Ufficiale No 85, 12.4.1997) and Article 52- ter of Legislative Decree 
No 213 of 24.6.1998 ( Gazzetta Ufficiale No 157, 8.7.1998), respectively. This legi slation was amended by Article 87 of 
Law No 289 of 27 December 2002 ( Gazzetta Ufficiale  No 305 of 31.12.2002), i.e. the ‘ 2003 Budget Law’, which was the 
subject of Opinion CON/2002/31. All ECB opinions are published on the ECB’s website at www.ecb.europa.eu.  
19  Article 87 of the 2003 Budget Law also introduced an obliga tion for the Banca d’Italia to  pay to the Government the 
value of the banknotes not submitted for exchange by that da te. Pursuant to the amended provisions, the Banca d’Italia 
and the Ministry also estimated the amount of banknotes whic h would have not been submitted for exchange, and on that 
basis the Banca d’Italia carried out in two instalment s an interim payment of 90% of the estimated amount.  
ECB-PUBLIC  
3 2.2 Proper timing to consult the ECB   
The ECB received the consultation request onl y on 15 December 2011 although the Decree-Law 
entered into force on 6 December 2011. As specifi ed in the consultation request, the Decree-Law 
was presented to Parliament for conversion into law within 60 days. The consulting authority 
requested the ECB to consider the consultation as a matter of urgency, without however setting a 
time limit. As underlined in several ECB opinions , Article 3 of Decision 98/415/EC provides that 
the consulting authorities may set a time limit for the submission of an ECB opinion, but it may not be less than one month, unless a shorter time lim it is justified with reasons for the extreme 
urgency
20. Hence, the Ministry has not consulted th e ECB in accordance with Decision 98/415/EC. 
The ECB would therefore like to remind the cons ulting authority of the importance of consulting 
the ECB at an appropriate point in time ‘enab ling the authority initiating the draft legislative 
provision to take into consideration the E CB’s opinion before taking its decision on the 
substance’21.  
2.3 Compliance with the Union legal  framework, temporary nature of the scheme and pricing of 
guarantees 
 National legislative provisions need to fully co mply with Union law, including competition and 
State aid rules. In particular, national authorities should seek to coordinate their responses to the 
current financial situation with th eir Union partners, in order to act in a united manner and to avoid 
that national measures adversely affect the functi oning of the single market and the other Member 
States. In this respect, it is essential that Member  States comply with the European Commission’s 
communications22 on the application of State aid rules to support measures in favour of banks and 
government guarantee schemes for bank debt, incl uding with regard to the temporary nature23 of 
the acceptability of such aid measures and the need for credit institutions receiving State support to 
submit to the Commission restructuring plans. Ag ainst this background, the ECB understands that 
the pricing terms and conditions for the State gua rantees under the Decree-Law are aligned with the 
conditions established by the Commission for the relevant reference periods24 and expects that such 
pricing terms will be applied to financial institutions benefiting from the granted State guarantees.  
                                                 
20  On 26 October 2011 the ECB wrote to the Ministry, together  with consulting authoritie s in other Member States, 
encouraging them to take the measures necessary to ensure  effective compliance with Article 4 of Decision 98/415/EC, 
by duly consulting the ECB on draft legislative provisions fa lling within its field of competence, including provisions 
which are not subject to parliamentary approval, at an appropria te stage of the legislative process. In that context they 
should put in place appropriate internal pr ocedures to ensure that consultation of the ECB takes place at an appropriate 
stage, which enables the consulting and/ or adopting authority to take into c onsideration the ECB’s opinion before the 
legislative provision in  question is adopted. 
21  See Article 4 of Decision 98/415/EC. 
22  See ‘Communication from the Commission – The application of State aid rules to measures taken in relation to financial 
institutions in the context of the current global fi nancial crisis’ (OJ C 270, 25.10.2008, p. 8) and the 2011 
Communication. 
23  See Opinion CON/2009/24, paragraph 3.1, Opinion CON/ 2009/54, paragraph 2.5.2, Op inion CON/2009/73, paragraph 
3.2, Opinion CON/2011/79, paragraph 4 and Opinion CON/2011/85, paragraph 4. 
24  For the period ending on 31 December 2011, see the DG Comp etition Staff Working Document of 30 April 2010 ‘The 
application of State aid rules to govern ment guarantee schemes covering bank de bt to be issued after 30 June 2010’, 
which referred to the ‘Recommendations of the Govern ing Council of the European Central Bank on government 
guarantees for bank debt’ of 20 October 2008; for the peri od starting on 1 January 2012 see the 2011 Communication. 
ECB-PUBLIC  
4  The ECB understands that implementing rules will expand on the provisions of the Decree-Law25 
and expects to be consulted on any proposed im plementing legislation to  be adopted on matters 
within its competence26.  
 3.  Interaction of the Decree-Law with the monetary policy of the euro area  
The ECB reminds the consulting authority that g overnment guarantees for bank debt should, when 
implemented: (i) address the funding problems of liquidity-constrained solvent banks by improving the functioning of the market for bank debt of longer-t erm maturity; (ii) preserve the level playing field 
among financial institutions and avoid market distortions ; and (iii) ensure consistency in the management 
of Eurosystem liquidity. In this regard, government gua rantees for short-term bank debt with a maturity of 
three to 12 months may be provided to re vitalise the short-term bank debt market
27. The ECB welcomes 
that the Decree-Law does not allow government guaran tees for bank debt with a maturity of less than 
three months28.  
Moreover, it is also stressed that it is of the utmost importance that s upport operations conducted by 
national authorities do not in any way affect the c onduct and the implementation of monetary policy in 
the euro area29. In this context, the ECB reiterates its view that the extension of a State guarantee to cover 
interbank deposits should be avoided30, as this could entail substantial distortion in the various national 
segments of the euro area money market by potentiall y increasing short-term debt issuance activity across 
Member States, thereby impairing the implementation of the single monetary policy, which is an exclusive competence of the Eurosyst em under Article 127(2) of the Treaty
31. The extension of a State 
guarantee to cover interbank deposits could also af fect the transmission of monetary policy decisions32 
and make it difficult to maintain the necessary level pl aying field in the euro area between the financial 
institutions benefiting from a State guarantee, on th e one hand, and those not benefiting from a State 
guarantee, on the other hand.  
 
                                                 
25  See Article 8(33) of the Decree-Law. 
26  See the definition of ‘draft legislative provisions’ in Article 1(1), and also the sixth indent of Article 2(1) of Decision 
98/415/EC.  
27 See Opinion CON/2009/12, paragraph 3.3, Opinion CON/2009/ 49, paragraph 3.9 and Opinion CON/2009/73, paragraph 
3.1. 
28  See Opinion CON/2008/58, paragraph 3.2,  Opinion CON/2009/73, paragraph 3.1, Opinion CON/2009/92, paragraph 3.5, 
Opinion CON/2011/79, paragraph 3 and Opinion CON/2011/85, paragraph 3. 
29 See Opinion CON/2009/73, paragraph 3.1 an d Opinion CON/2009/92, paragraph 3.5. 
30  See Opinion CON/2008/50, paragraph 3. 2, Opinion CON/2009/12, paragraph 3. 3.2, Opinion CON/2009/49, paragraph 
3.9 and Opinion CON/2009/73, paragraph 3.1. 
31  See Opinion CON/2008/48, paragraph 3. 7, Opinion CON/2009/12, paragraph 3. 3.2, Opinion CON/2009/49, paragraph 
3.9 and Opinion CON/2009/73, paragraph 3.1. 
32  See Opinion CON/2009/12, paragraph 3.3.2, Opinion CON/2009/49, paragraph 3.9 and Opinion CON/2009/73, 
paragraph 3.1. 
ECB-PUBLIC  
5 4. The role of the  Banca d’Italia in managing the scheme and the prohibition on monetary 
financing  
4.1 Under the Decree-Law, the Banca d’Italia is clo sely involved in managing the scheme. First, it will 
assess the eligibility of the beneficiary institutions w ith particular regard to their capital adequacy 
and ability to discharge the obligations assumed33. Second, it will support the Ministry in ensuring 
the compliance of the beneficiary institutions with  the general conditions for the provision of the 
guarantees34. In line with its previous opinions35, the ECB reiterates that the functions to be 
performed by the Banca d’Italia in managing th e guarantee scheme need to comply with the 
monetary financing prohibition as regards the remuneration of the Banca d’Italia for its 
involvement. Such functions must be conducted in a manner fully compatible with the Banca 
d’Italia’s institutional and financ ial independence under the Treaty a nd the Statute of the European 
System of Central Banks and of the European Central Bank. 
4.2 The involvement of the Banca d’Italia must not go beyond the traditional task of a fiscal agent and 
all the guarantees must be financed from the State’s budget36. The role of the Banca d’Italia must 
comply with the monetary financing prohibition in Article 123 of the Treaty, which prohibits 
overdraft facilities or any other type of credit f acility with an NCB in favour of the public sector, 
including ‘any financing of the public sector’s obligations vis-à-vis third parties’37. This means in 
particular that no bridge financ ing may be provided by an ESCB central bank to enable a Member 
State to honour its obligations in respect of St ate guarantees of bank liabilities. Under the Decree-
Law, payments of State guarantees are carried out  by the Banca d’Italia in its capacity as fiscal 
agent for the Italian Government. If the normal proc edure cannot be followed, Article 8(27) of the 
Decree-Law provides that the Banca d’Italia will make payments to creditors, to be recorded on a 
suspense account38 and settled in the following 90 days. The ECB understands that pursuant to 
Article 5(4) of the Consolidated Law on the public debt39, any payment by the Banca d’Italia in its 
capacity as government fiscal agent is recorded daily in the Treasury account held by the 
Government with the Banca d’Italia. According to  Article 5(1) of the Consolidated Law, such 
Treasury account may not have a negative balance, and in general, Article 5(1) of the Consolidated 
                                                 
33  The Banca d’Italia will assess against the following benchmarks: (i) the capital ratios at the date of the last supervisory 
reporting should not be below mi nimum requirements; and (ii) income producing capacity shoul d be adequate to meet the 
guaranteed liabilities. See Article 8(23) of the Decree-Law. In th is respect, the Banca d’Italia will benefit from its role as 
supervisory authority of the banking sect or: see Title III, and in particular Ar ticle 51 of Legislative Decree No 385 of 
1 September 1993 ( Gazzetta Ufficiale  No 230, 30.9.1993). 
34 See Article 8(8) of the Decree-Law. 
35  See, in particular, Opinion CON/2008/52, paragr aph 3.2 and Opinion CON/2008/65, paragraph 3.1. 
36   See, e.g. Opinion CON/2008/58, pa ragraph 4.2, Opinion CON/2008/65, pa ragraph 3.2 and Opinion CON/2011/76, 
paragraph 3.1. See also the ECB Annual Report 2010, p. 120, and the ECB Convergence  Report, May 2010, p. 25. 
37  See Article 1(1)(b)(ii) of Council Regulation (EC) No 3603/93 of 13 December 1993 specifying definitions for the 
application of the prohibitions referred to in Articles 104 and 104b(1) of the Treaty (OJ L 332, 31.12.1993, p. 1). 
38  See Article 8(27) of the Decree-Law. 
39  Decree of the President of the Republic No 398 of 30 December 2003 ( Gazzetta Ufficial e No 57, 9.3.2004, S.O. No 37).   
ECB-PUBLIC  
6 Law prohibits the Banca d’Italia from granting an y kind of overdraft facility to the Government40. 
However, the ECB notes that the provisions re garding the suspense account lack some clarity. 
Thus, for the sake of legal certainty, the ECB recommends regulating more transparently the 
suspense account, as well as any other sub account of the Treasury account.  
 5. Emergency liquidity assistance operations collateralised by a State guarantee and the 
prohibition on monetary financing 
The Decree-Law provides for the possi bility for the Ministry to provide a State guarantee on discretional 
loans made by the Banca d’Italia to Italian banks and to Italian branches of foreign banks in severe 
liquidity crises (emergency liquidity assistance)
41. The ECB notes that emergency liquidity assistance, 
granted by the national central bank (NCB) independent ly and at its full discretion to a solvent credit 
institution on the basis of a collateral security in the form of a State guarantee, is in principle possible, 
provided that a number of conditions are met in order to ensure the N CB’s compliance with the monetary 
financing prohibition under Article 123 of the Treaty. As  noted in previous opinions, the relevant criteria 
are the following: (i) it must be ensured that the cred it provided by the NCB is as short term as possible; 
(ii) there must be systemic stability aspects at stake; (iii) there must be no doubts as to the legal validity 
and enforceability of the State guarantee under applicab le national law; and (iv) there must be no doubts 
as to the economic adequacy of the State guarantee, which should cover both prin cipal and interest on the 
loans, thus fully preserving th e NCB’s financial independence42.  
 6.  Payment by the Banca d’Italia to the Govern ment of the value of unexchanged lira banknotes  
The 2003 Budget Law introduced a regime for the tr eatment of lira banknotes which have not been 
exchanged by 28 February 2012. The Ministry and the Banca d’Italia estimated the value of such banknotes and the Banca d’Italia had to pay such estimated amount to the Government in three 
instalments, amounting to 65% by 28 February 2003, 25% by 31 January 2008 and the residual amount by 31 March 2012. The ECB issued Opinion CON/2002/ 31 on this matter. The Decree-Law provides that 
all lira notes still in circulation will be withdrawn in favour of the Treasury w ith immediate effect and 
their value allocated to State revenue, thereby br inging forward the withdrawal by three months.  
                                                 
40  The ECB understands that the suspense account is an accounti ng unit used to record payments carried out by the Banca 
d’Italia with funds withdrawn from the Treasury account, befo re these amounts are debited to the relevant part of the 
public administration; i.e. in this case, the Ministry. As  a consequence, the ECB also understands that recording a 
payment in the suspense account is only po ssible insofar as the payment has been financed with the funds held in the 
Treasury account and this operation has been duly recorded un der this account, and that this does not constitute the 
provision of a temporary overdraft facility to the Treasury. 
41  One of the specific tools available to central banks in a cris is situation is the provision of  emergency liquidity assistance 
to individual banks. This provision of liqui dity assistance consists in giving supp ort in exceptional circumstances and on 
a case-by-case basis to temporarily illiquid but solvent credit institutions. The extension of emergency liquidity assistance 
falls within the Banca d’Italia’s task of contributing to the stability of the financial system. See the ECB’s Financial 
Stability Review, December 2006, pp.171-172, and the ECB Annual Report 1999, p. 98; see also in particular Opinion 
CON/2008/42, paragraph 4.10, Opinion CON/2008/46, paragra ph 3.1 and Opinion CON/2008/58, in particular paragraph 
4.1. 
42  See Opinion CON/2008/42, paragraph 4.11, Opinion C ON/2008/48, paragraph 3.9 and footnote 34 and Opinion 
CON/2008/58, paragraph 4.3 and in particular footnote 20 referring to Opinion CON/2008/46, paragraph 4.3.  
ECB-PUBLIC  
7 In light of the ECB’s refinement of the principle of financial independence and the monetary financing 
prohibition in its opinions and Conve rgence Report, the ECB notes that the provisions according to which 
the value of legacy banknotes that have not been exchanged into euro is allocated to State revenue raise 
concerns for the following reasons. Given that th e banknotes denominated in the legacy currency are 
recorded as a liability on an NCB’ s balance sheet, the revenue should be determined via the relevant 
NCB’s profit and loss account to safeguard its financia l independence. Directly allocating to the State the 
value of unexchanged banknotes denomina ted in the legacy currency, outside the calculation of profits, 
and prior to establishing whether the NCB accumulated any losses that have to be covered, constitutes an 
intra-year payment in advance of the profit di stribution breaching the principle of financial 
independence43.  
Moreover, given that the distribution of central bank profits which have not been  fully realised, accounted 
for and audited does not comply with the monetary financing prohibition44, a payment to the State by the 
NCB of the proceeds from the withdrawal of the banknotes, denominated in the legacy currency in 
advance of the distribution of the NCB’s annual prof its, raises concerns with regard to the monetary 
financing prohibition. Against this background, proper safe guards should be in place to ensure that the 
revenue from the withdrawal of unexchanged banknotes denominated in  the legacy currency is only 
transferred to the State after any potential losses have been covered.  
 
This opinion will be published on the ECB’s website.    Done at Frankfurt am Main, 24 January 2012. 
 
[signed] 
 
The President of the ECB 
Mario DRAGHI 
                                                 
43  See ECB Convergence Re port, May 2010, p. 23. 
44  See ECB Convergence Report, May 2010, p. 25.