EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 13 April 2011 
on the legal framework for the Loan and Consignment Fund and on amendments to the 
enhancement scheme for the Greek economy’s liquidi ty following the international financial crisis 
(CON/2011/34) 
 Introduction and legal basis
 
On 23 March 2011, the European Central Bank (ECB) received a request from the Greek Ministry of 
Finance for an opinion on two sets of draft legisl ative provisions in relation to: (a) the Loan and 
Consignment Fund (LCF) (hereinafter the ‘first set of  draft provisions’); and (b ) the enhancement of the 
economy’s liquidity following the international financ ial crisis (hereinafter the ‘second set of draft 
provisions’). Both sets of draft provisions are include d in the draft law entitled ‘Reform of the operational 
framework of the Loan and Consignment Fund, the Public Debt Management Agency, public enterprises 
and bodies, establishment of a secretariat general for public property and other provisions’ (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 third and sixth indents of Article 2(1) of Council 
Decision 98/415/EC of 29 June 1998 on the consul tation of the European Central Bank by national 
authorities regarding draft legislative provisions1, as the draft provisions relate to the Bank of Greece 
(BoG) and to rules applicable to fi nancial institutions insofar as they ma terially 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, th e Governing Council has adopted this opinion. 
 1.  Purpose of the draft provisions 
1.1 The first set of draft provisions reform the LCF’s operational framework
2. In line with Union law, 
they introduce a prohibition on cross-subsidisation w ithin the LCF, in particular subsidisation of 
the services provided by the LCF in the open mark et, e.g. the granting of loans to private 
individuals, deposit-taking etc., by activities related to the LCF’s reserved operations established 
under public law, such as consignmen t deposits, compulsory deposits etc.3. This is to be achieved 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2  The LCF, established by Law 1608/1919, is  a legal entity governed by public law and supervised by the Ministry of 
Finance.  
3  See Article 2 of the draft law, which also sets out terms a nd conditions for loans to local authorities and enables the LCF 
to enter into agreements with credit inst itutions in order for them to take deliv ery of consignment deposits to be further 
rendered to the LCF. 
2 by: (a) an operational division of the LCF’s reserved sector from its commercial activities sector; 
and (b) the establishment of a separate branch for the latter, subject to separate accounting 
monitoring in line with the Interna tional Financial Reporting Standards4. Furthermore, while the 
LCF’s single legal personality is preserved, the first set of draft provisions provides for the possibility, where necessary
5, for the commercial activities branch to be spun-off into an existing 
LCF subsidiary or a new LCF subsidia ry to be established for that purpose6. Finally, the Minister 
for Finance is authorised to adopt the LCF’s ope rational rules to ensure the LCF’s functioning and 
activities comply with Union law7.  
1.2 The purpose of the second set of draft provisions, contained in Article 19 of the draft law, is to 
provide further financial support in the context of  the guarantee scheme adopted under Article 2 of 
Law 3723/20088 through an additional amount of EUR 30 billion. This is subject to the 
requirement set out in Article 19(2) of the draft law, which provides that each credit institution will 
prepare and implement a plan for medium-term fina ncing needs to be approved by the BoG and the 
ECB, in cooperation with the European Commissi on and the International Monetary Fund (IMF). 
Furthermore, Article 19(3) of the draft law extends the competences of the representative of the Greek State originally provided for in Law 3723/2008, with a view to ensuring the efficient monitoring of the implementation of the measures for enhancing the releva nt credit institutions’ 
liquidity. Finally, Article 19(4) of the draft law extends to the fiscal year 2011 the restriction imposed by Article 1(3) of Law 3723/2008 on dividend dist ribution by credit institutions 
participating in the liquidity enhancement schem e. Distribution of dividends in this case is 
restricted to shares only. 
 2. Specific observations 
The ECB understands that both sets of draft provisi ons aim to reflect the contents of the updated 
Economic Adjustment Programme for Greece
9, in particular the Memorandum of Understanding on 
Specific Economic Policy Conditionality10 and the Memorandum of Economic and Financial 
Policies (MEFP)11). Under the Programme mentioned above, these sets of provisions are subject to 
a specific timeframe for their implementation.  
                                                 
4  See Article 1 of the draft law. 
5  See explanatory note to the draft law. 
6  See Article 3 of the draft law. The terms, the conditions and the procedure for the spin-off, as well as any other related 
detail, will be set out by decisi on of the Minister for Finance. 
7  See Article 4 of the draft law. 
8  Law on the enhancement of liquidity of the economy in respons e to the impact of the intern ational financial crisis, FEK 
A 250/9.12.2008. 
9  Third Review - winter 2011. Available on the Eur opean Commission’s website at: http://ec.europa.eu. 
10  See Section 1 (iii) thereof, under ‘Fin ancial Sector Regulation an d Supervision’, which provides for the unbundling of the 
LCF’s core consignment activity from deposit-taking and loan dist ribution as part of the actions to be completed by the 
end of Q1 2011. 
11  See paragraph 15 thereof, which states that ‘Initiatives unde rway should help preserve sufficient system liquidity. As a 
temporary measure, the government will put forward for legisl ative adoption a new tranche of government guarantees for 
uncovered bank bonds (proposed as a structural benchmark for end-March). The tranche will be in an amount of €30 
billion, and the guarantee scheme will be subject to approva l by decision of the European Commission. This additional 
3 2.1 In relation to the first set of draft provisions , the ECB welcomes in principle the operational 
segregation of the LCF’s reserved sector from its commercial activities sector. Such segregation of 
the core consignment activity from deposit-taking  and loan distribution activities should address 
the lack of a level playing field that could ari se from cross-subsidisation of the LCF’s commercial 
activities by resources from its reserved sector. In  this respect, however, the ECB notes that the 
first set of draft provisions only provides for the spin-off of the commercial activities branch as an 
option12. The ECB takes the view that a segregation co uld best serve its purpose if followed, in the 
short-term, by an actual spin-off, as a second step completing the procedure. This would, inter alia , 
enhance legal certainty in terms of the structure,  governance and operation of the entity that is to 
take up the commercial branch of the LCF’s activities, including its compliance with the regulatory 
and supervisory requirements app licable under national and Union legislation to credit institutions.  
2.2 In relation to the second set of draft provisions, Ar ticle 19(2) of the draft law provides that access 
by domestic credit institutions to the liquidity enha ncement provided for in draft Article 19(1) is to 
be conditional on the submission, by each domestic  credit institution, of a medium-term funding 
plan, for the approval of the BoG and the ECB, in cooperation with the European Commission and 
the IMF. Article 19(2) might be seen to establish an automatic outcome between the submission of 
funding plans and the transformation into Euro system collateral of the additional guarantees 
provided for in Article 19(1); however, this does not reflect the need for the Eurosystem to assess, 
on a case-by-case basis, the actual liquidity needs of individual banks. In fact, regardless of the 
funding plans submitted for approval, such assessmen t is needed to ascertain the extent to which 
the submission of new collateral in the form of State-guaranteed uncovered bank bonds is 
warranted. 
2.3 Finally, the ECB considers that the wording of Ar ticle 19(2) of the draft law, in particular the 
reference to ‘plan for medium-ter m financial needs’, should be furt her clarified. The February 2011 
update of the MEFP introduced the concept of ‘m edium-term funding plans’. These plans will aim 
at reducing excesses in banks’ recourse to Eurosy stem borrowing and will in particular show how 
banks will adjust their balance sheets to achieve that goal. The current wording in the draft law 
could be misleading as to the real nature of the envisaged plans. 
 
                                                                                                                                                             
liquidity should provide an adequate buffe r to address liquidity issue potentially arising from continued market volatility. 
The tranche will be made available on a bank-by-bank basis,  conditioned on the adoption and implementation of medium 
term funding plans by banks.’ 
12  Under Article 3 of the draft law, by virtue of a resolution of  the LCF’s Board of Directors, the latter’s commercial branch 
may be separated and transferred to an existing or newly incorporated company. 
4 This opinion will be published on the ECB’s website.  
  Done at Frankfurt am Main, 13 April 2011. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET