EN ECB -PUBLIC 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 16 April 2012  
on the Deposit  Guarantee Fund and the bank resolution regime  
(CON/2 012/30) 
 
Introduction and legal basis  
On 2 March 2012 the European Central Bank (ECB) received a request from the Danish Ministry of 
Business Affairs and Growth  for an opinion on a law amending the Law on a guarantee fund for 
depositors and investors, the Law on financial business, the Law on securities trading, the Law on 
financial stability and the Law on tax assessment (amending the f unding  of the Guarantee Fund for 
depositors and i nvestors, extending the compensation scheme, upholding  banking licenc es as a resolution 
measure and the disclosure of confidential information by the Financial Supervisory Authority)1 
(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/EC of 
29 June 1998 on the consultation of the E uropean Central Bank by national authorities regarding draft 
legislative provisions2, as the draft law relates to the rules applicable to financial institutions insofar as 
they materially influence the stability of financial institutions and markets . In ac cordance 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  
1.1 The draft law has the following objective s: First, it amends the meth od of f inancing  of the Danish 
Guarantee Fund for d epositors and investors  (hereinafter ‘the DGS’). Second, it strengthens the 
possibility of winding up a banking institution in distress without the non -subordinated creditors 
incurring a loss, by amending t he bank resolution powers and tools available to  the Danish 
Financial Supervisory Authority (FSA) and the Financial Stability Company A/S , a State -owned 
bridge bank
3.  
                                                 
1  The Law on a guarantee fund for depositors and investors, see Consolidated Law No 133 of 22 February 2011 with later 
amendments; Law on financial business, see Consolidated Law No 885 of 8 August 2011 with later amendments; Law on 
securities trading, see Conso lidated Law No 883 of 9 August 2011; Law on financial stability, see Consolidated Law 
No 875 of 15 September 2009 with later amendments and the Law on tax assessment, Consolidated Law No 1017 of 
28 October 2011 with later amendments.  
2  OJ L 189, 3.7.1998,  p. 42.  
3  The draft law implements the political agreement of 25 August 2011 (the ‘Bank Package IV’), initially adopted by the 
Financial Committee of the Danish Parliament on 7 September 2011 as Document No 181. The current draft law is 
related to a prev ious draft law on the issuance of a loss guarantee in connection with an extended compensation scheme 
ECB -PUBLIC 
2 1.2 With regard  to the financing of the DGS, the draft law provides for ex- ante annual c ontributions4 to 
be paid to the Bank Department of the DGS by the member banking  institutions. The draft law also 
requires the standing liquidity facility of the DGS’s Bank Department to be maintained at  0.75% of 
the covered net deposits , in order to addre ss situations where the annual contribution by the 
member banking institutions does not cover payments liable to be made by the DGS5. The standing 
liquidity  facility  may be used as collateral by  the DGS to raise loans, including loans with a S tate 
guarante e.  
The draft law also extends the scope of the DGS’s  Winding -up Department so that  the Winding- up 
Department may cover the costs of a bank ing institution  having to withdraw from a data -handling 
centre in connection with the merger or transfer of assets be tween th e distressed  bank and another 
bank6. 
1.3 With regard to  amendments related to bank resolution powers and tools, the draft law proposes two  
changes:  
First,  the draft law extends the existing compensation scheme in order to create sufficient 
incentiv es for sound banking  institutions to take over all or parts of a banking  institution in 
distress7. The extended compensation scheme will involve  the Financial Stability Company A/S 
which may provide compensation in connection with the winding -up or take -over of a distressed 
banking  institution , in whole or in part , by a sound credit institution, i.e. the Model I and Model II 
resolution8. Such compensa tion may amount  to the level of losses , which the State would incur , 
based on the state guarantees issued to  the distressed banking institution under resolution.  
Second, the draft law amends the rules by which the FSA can withdraw  a banking  licen ce from  a 
banking  institution  which no longer  fulfil s the statutory solvency requirements by a set date. This is 
to ensure the continued functioning  of a banking  institution in distress where  the FSA assesses that 
there are on -going serious negotiations with one or more potential acquirers. Furthermore, the draft 
law bring s forward the time  at which  the FSA may  disclose confidential information concerning the 
                                                                                                                                                             
on which the ECB issued an Opinion on 9 November 2011;  see Opinion CON/2011/90. All ECB Opinions are published 
on the ECB’s website at www.ecb.europa.eu.  
4  The draft law provides for a total annual contribution of 0.25% of the banks’ covered net deposits at 1 October of the 
preceding year. This rate may be changed under extraordinary circumstances in which the contribution may be increased. 
See §1 subsecti on 7 of the draft law and pages 14 to 16 of the Explanatory Memorandum to the draft law.  
5  See §1 subsection 7 of the draft law and page 15 of the Explanatory Memorandum.  
6  The Winding -Up Department was set up by Section 3 of Law No 721 of 25 June 2010 amending the Guarantee Fund for 
depositors and i nvestors of 1 October 2010, and is financially and organisationally separate from the ordinary guarantee 
obligations of the DGS. The capital of the Winding -Up Department is provided entirely through mandatory  contributions 
from the banking sector. See paragraph 1.5 of Opinion CON/2010/45.As a consequence of the extended scope in the draft 
law the Winding -Up Department will change its name to ‘the Winding -Up and Restructuring Department’.  
7  The existing compe nsation scheme allows the DGS, subject to certain conditions, to provide funds or a guarantee 
covering all depositors and non-subordinated creditors of a distressed banking institution in connection with the complete 
transfer of assets and liabilities of a  distressed bank to another financially sound bank. The ECB issued Opinion 
CON/2011/45 on this scheme on 24 May 2011.  
8  Under Model I a sound banking institution takes over an entire business of the banking institution in distress. Under 
Model II a sound banking institution purchases the sound part of the distressed banking institution from the Financial 
Stability Company A/S and funds obtained from this sale are included in the winding -up of the unsound part of the 
distressed banking institution; this is conditional upon the industry -funded Winding -Up Department of the DGS issuing a 
guarantee to the Financial Stability Company A/S, covering any losses incurred after the final winding -up of the 
distressed banking institution. Moreover, the use of Model I or  Model II resolution procedures is subject to an assessment 
by the Financial Stability Company A/S that it does not put the State in a worse financial position than if the distressed 
banking institution was to be wound up under the special bank resolution regime (the Bank Package III).  
ECB -PUBLIC 
3 distressed banking  institution to the interested  private sector acquirers and  to the public 
authorities9. In this last respect, t he FSA  is given a broader authority to disclos e confidential  
information to the Financi al Stability  Company A/S and the committees  and groups , appointed by 
the Minister for Business Affairs and Growth , which  are aimed at  coordinating measures ensuring 
financial  stability  and addressing systemic risks.  
1.4 The draft law also amends the Law on  tax assessment to ensure that State compensation  arising as a 
result of the application of  Model I is not  included in the calculation of taxable income , as is the 
case in the application of Model II10. 
 
2. General observations  
The draft law was submitted to the Danish Parliament on 1 February  2012;  the ECB only received the 
request for an opinion on 2 March 2012. T he ECB wishes to d raw the consulting authority’s attention to 
the second sentence of Article 4 of Decision 98/415/EC which  provides that the ECB  must be consulted 
‘at an appropriate stage’ in the legislative process. This implies that the consultation should take place at a 
stage in the legislative process which  affords the ECB sufficient time to examine the draft legislative 
provisions , and to adopt its opinion in the required language versions in sufficient time to enable the 
relevant national authorities to consider the  ECB’s opinion before the legislative provisions are adopted.  
 
3. Specific comments  
3.1 Ex-ante funding of the DGS  
The ECB welco mes the proposal for ex- ante funding arrangements to replace the current ex -post 
funding arrangements for the Danish DGS . This solution takes into consideration the proposed 
recast of the Directive on deposit -guarantee schemes (hereinafter, the ‘proposed D irective’ )11 
which anticipates a specified target level of ex -ante funding available to deposit -guarantee  
schemes, based on a percentage of deposits  held. The ECB supports ex- ante funded deposit -
guarantee schemes as a means to ensur ing financial stability, where credit institutions participate in 
the deposit protection costs , and as an exclusive reliance on ex -post contributions may be a source 
of procyclicality. The ECB notes  that the proposed Directive may also introduce risk -based 
elements into the calcul ation of the contributions payable  into the deposit -guarantee scheme by the 
individual member credit institutions, which will  better reflect  the risk profiles of individual credit 
institutions thereby providing incentives to operate under less risky busine ss models12. Further, t he 
                                                 
9  The draft law proposes that the FSA may disclose confidential information at the point in time at which the FSA has 
received a mandate from the Ministry of Business Affairs and Growth to participate in the management of a banking 
institution in distress.  
10  See §5 of the draft law.  
11  See the proposal by the Commission for a Directive of the European Parliament and of the Council on D eposit Guarantee 
Schemes (COM(2010) 368), as commented on in Opinion CON/2011/12. See the latest Presidency Compromise proposal 
of 14 June 2011 and  the Commission’s proposal and Presidency compromise proposal of 10 February 2012 on key issues 
with a view to negotiations with the European Parliament, both documents are available on the Council’s  website at 
http://register.consilium.europa.eu.  
12  See the Commission’s staff working document ‘Summary of the impact assessment. Accompanying document to the proposal for a Directive of the European Parliament and of the Council on Deposit Guarantee Sche mes’, p. 5, available 
on the Commission’s website at www.ec.europa.eu.  
ECB -PUBLIC 
4 ECB supports the model of partial risk- based contributions, with provisions ensuring comparability 
of various asset classes13.  
3.2 Bank resolution powers and tools   
The ECB welcomes the enhancements made to the Danish bank resoluti on regime  and how it  
facilitat es private market -based solutions to deal with banking institutions in distress . The ECB 
understands that the enhanced resolution procedures to which the draft law relates will be 
conducted in accordance with Union State aid r ules, inter alia , as regards the involvement of the 
DGS and the Financial Stability Company A/S in these procedures. More specifically , the ECB 
understands that the draft law establishing the extended compensation scheme has been notified to 
the Commission and that the Commission has approved the scheme in its Decision14. Finally , the 
ECB understands that the enactment of a legal framework on bank recovery and resolution is somewhat complicated due to the absence of a stable legislative proposal at Union lev el. It invites 
the consulting authority to review the law in light of the future Union regulatory framework on bank recovery and resolution, in particular with regard to the resolution tools and the powers of 
resolution authorities, and of the proposed Dir ective.  
3.3 The ECB understands that the possibility of not withdraw ing a banking licence from an insolvent 
banking  institution , where  serious take- over negotiations are being conducted , is intended to ensure 
a smooth resolution  procedure . However, this sh ould not affect the immediate cessation of central 
bank credit to any banking  institution  that does not fulfil national solv ency conditions and t hat 
could result in the provision of solvency support. Whereas the provision of financial support to illiquid b ut solvent banks constitutes an inherent central bank task,  any public sector  solvency 
support  of credit or other financial institutions has to be carried out by the State and not  the central 
bank . Continued provision of central bank credit to such a banki ng institution would contravene the 
monetary financing prohibition expressed in Art icle 123 of the Treaty
15.  
 
This opinion will be published on the ECB’s website.  
  
Done at Frankfurt am Main, 16 April 2012.  
 
[signed]  
 
The President of the ECB  
Mario DRAGHI  
                                                 
13  See paragraph 8 of Opinion CON/2011/12.  
14  See Commission Decision SA 33757 (2011/N)  of 9.12.2011, available on the Commission’s website.   
15  See the ECB’s Convergence Report of May 2010, p. 25 .