EN ECB-PUBLIC  
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 9 December 2013  
on measures to strengthen bank stability 
(CON/2013/86) 
 
Introduction and legal basis 
On 25 November 2013, the European Central Bank (ECB)  received a request from the Slovenian Ministry 
of Finance for an opinion on a draft regulation on  the implementation of measures to strengthen bank 
stability (hereinafter the ‘draft regulation’). 
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 consultation of  the European Central Bank by national authorities 
regarding draft legislative provisions1, as the draft regulation relates to Banka Slovenije and to 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.  Purpose of the draft regulation 
1.1 The draft regulation implements the Law on Slovenia’s measures to strengthen bank stability
2 
(hereinafter the ‘Law on bank stability’). It replaces the Regulation on the implementation of 
measures to strengthen bank stability3 which was subject to earlier ECB opinions4, and which 
principally governs the detailed rules and pro cedures for the implementation of measures to 
strengthen the stability of banks. These measures,  as envisaged by the Law on bank stability, 
include: (a) the transfer of bank assets to the State-owned Bank Asset Management Company (BAMC) or to dedicated companies
5; (b) the issuance of State gua rantees for the liabilities of the 
BAMC and of the dedicated companies; and (c) the recapitalisation of banks by the State or the BAMC (hereinafter the ‘measures’). While mainta ining the general structure and the majority of 
                                                 
1 OJ L 189, 3.7.1998, p. 42. 
2 Zakon o ukrepih Republike Sloven ije za krepitev stabilnosti bank  (Uradni list Republike Slovenije  No 105/2012). 
3 Uredba o izvajanju ukrepov za krepitev stabilnosti bank  (Uradni list Republ ike Slovenije  Nos 22/2013 and 51/2013). 
4 Opinions CON/2013/21 and CON/2013/67. All ECB Opin ions are published on the ECB's website at 
www.ecb.europa.eu. 
5 Dedicated companies are companies that take over the risks of banks. They may be established by the banks or by the 
banks together with the BAMC, as join t-stock companies, pursuant to Articles 2 and 21 of the Law on bank stability. 
ECB-PUBLIC  
2 the provisions of the above-mentioned Regulation, the draft regulation contains several new and 
amended provisions, as further described below. 
1.2 According to the explanatory memorandum of th e draft regulation, the measures laid down in the 
Law on bank stability may be extended to banks that ar e not expected to continue to operate in the 
long term and that will be subject to supervised wind-down. The draft regulation reflects the potential application of the measure s to such banks and lays down, inter alia , the definition and 
content of the wind-down plan to be prepared by the bank in question and assessed in the process 
of approving the application of  measures by the Government
6. 
1.3 The draft regulation lays down an additional c ondition relating to the app lication of any measures 
approved with respect to a bank under the Law on  bank stability, which is that a contract be 
concluded between the bank in question and the State in which the bank agrees, inter alia , to: (a) 
comply with any commitments given by the State to the European Union in  accordance with Union 
State aid rules; (b) provide the Ministry of Finance with any information required to assess its compliance with such commitments; and (c) reim burse the State in respect of any financial 
penalties imposed on it by Union bodies due to non-compliance with such commitments
7. 
1.4 The draft regulation no longer limits the financia l amount of State guarantees that may be issued in 
respect of the BAMC’s liabilities to the value of the assets transferred by banks to the BAMC8. 
1.5 A new Section 6 has been added governing the rules on the BAMC’s borrowing and debt 
management, use of available cash assets and payment of dividends9. 
1.6 The draft regulation no longer stipulates any detailed methodology for assessing the real long-term 
economic value of claims and potential cl aims to be transferred to the BAMC10. The explanatory 
memorandum states that the current methodology ‘does not meet the requirements of the European Commission’. In the context of the valuation of  assets for the purpose of the measures, the draft 
regulation requires the Ministry of Finance to agree with the Commission as to which entity would 
carry out the valuation of assets
11. If such a valuation is performed by the Commission, the bank 
subject to the measures would not be required to perform the valuation itself12. 
1.7 To further streamline the processes involved in the implementation of the measures, the draft 
regulation now allows the results of a bank’s asset  quality review performed ‘in accordance with 
instructions’ by the Commission or the ECB to be used in the context of recapitalisation measures, 
in order to determine the value of the relevant bank ’s shares, their issue value and the rate of return 
of the bank’s other capital instru ments used to increase its capital13. 
                                                 
6 See, in particular, Articles 4(2), 7(4) , 8(3) and 9(2) of the draft regulation. 
7 See Article 12 of the draft regulation. 
8 The relevant content of Articles 25 and 26 of th e Regulation is not included in the draft regulation. 
9 See Articles 36 to 47 of the draft regulation. 
10 Annex 2 of the Regulation. 
11 See Article 18 of the draft regulation. 
12 See Articles 19(1), 20(4), 21(3), 22(5)  and 23(4) of the draft regulation. 
13 See Article 13(5) and Article 14(2)  and (3) of the draft regulation. 
ECB-PUBLIC  
3 1.8 As regards the measure under the Law on bank stabili ty relating to the recapitalisation of banks, the 
draft regulation now explicitly includes the possib ility for such recapitalisation to be done by non-
cash contributions, subject to the general conditions  for such contributions laid down in the Law on 
banking14. 
 2. Monitoring the BAMC and dedicated companies The ECB has encouraged the establishment of an indepe ndent body that is not involved in the activities of 
asset management companies established in other eu ro area countries to which bank assets have been 
transferred (a) to monitor the operations of the comp anies concerned; and (b) to have access to relevant 
information
15. No such mechanism is envisaged for the BA MC and any dedicated companies that may be 
established. The ECB believes that such arrangements may prove useful to enhance the acceptance of the 
BAMC and its work. The consulting authority should consider establishing such a body under the draft 
regulation or any other appropriate legal act. 
 3. Financing the BAMC’s operations Article 36(1) of the draft regulation provides th at the BAMC may borrow funds when necessary to 
compensate banks for the assets they ha ve transferred to the BAMC, or to  ensure the availability of the 
resources required by the BAMC to carry on its business. Unlike the current Regulation, the draft 
regulation also allows for part of such borrowing that  exceeds the value of assets transferred by the banks 
to the BAMC to be backed by State guarantee. 
It is important that the BAMC is provided with su fficient resources to efficiently conduct its operations, 
including the maintenance or increase of the value or marketability of the assumed assets before their 
ultimate sale. To ensure the BAMC’s financial s oundness, its capital should be bolstered, preferably 
through cash contributions. 
 4. Use of excess cash holdings by  the BAMC and dividend payments  
4.1 The ECB notes that Section 6 of the draft regulation aims, inter alia , to follow the ECB’s previous 
recommendation to provide for the necessary lega l arrangements to ensure, in a transparent 
manner, the timely redemption of State-guaranteed  BAMC bonds, other financial instruments and 
credit claims of transferring banks. As stated in  paragraph 6 of Opinion CON/2013/21, this may be 
accomplished by additional provisions that limit di vidend payments by the BAMC and by ensuring 
that cash held by the BAMC is, as a priority, used to make timely or early repayment of the State-
guaranteed bonds, such other financial instrument s as may potentially have been issued by the 
BAMC or credit claims of the transferring banks . The ECB reiterates its view that such cash 
protocol arrangements should also apply to an y entity to which the BAMC’s liabilities towards 
                                                 
14 See Article 13(1) of the draft regulation. 
15 See paragraph 10 of Opinion CON/2013/21. 
ECB-PUBLIC  
4 banks, arising from bonds or other potential financ ial instruments or credit claims, would be 
transferred following expiry of the BAMC’s te rm in 2017, as envisaged by the Law on bank 
stability. The same requirements should apply in respect of any dedicated companies. 
4.2 Article 38 of the draft regulation defines the cont ent of a financial plan to be prepared by the 
BAMC, including a plan on the use of ‘available cash assets’, and the draft regulation also stipulates the manner in which such available cash assets should be calculated. The plan for using 
available cash assets shall stipulate the portion of ava ilable cash assets to be transferred to a special 
‘fund for payment of issued debt securities’. The assets held in this fund, to be managed by the 
BAMC, may then be used to meet obligations due  in relation to securities issued by the BAMC. 
They may also be used to redeem issued securiti es when this is economically justified. However, 
subordinated creditor claims may only be paid when they fall due
16. The ECB broadly welcomes 
the introduction of these provisions as they define the basic framework for the redemption of State-
guaranteed BAMC bonds and other financial instruments. 
4.3 If the BAMC’s liabilities are secured by State guarant ee, the financial plan shall be submitted to the 
Ministry of Finance, which may propose amendm ents to it. If the BAMC does not take such 
proposed amendments into account, it shall provide reasons for such a decision. Otherwise, the 
BAMC’s management board acts autonom ously in adopting the financial plan17, including the 
calculation and use of available cash assets, and in  deciding on the redemption of issued securities. 
Given the importance of the management board’s decision-making powers in applying the relevant 
provisions, effective supervision of the BAMC a nd its board is necessary to ensure that these 
provisions are applied in line with their underlying  purpose. Additionally, the relevant provisions 
should be more precise by defining the notion of ‘e xcess cash’ to facilitate early repayment of the 
BAMC’s liabilities, specifying clearer criteria for assessing when using such  excess cash for early 
repayment of the BAMC’s liabilities is ‘econom ically justified’, and determining who is 
responsible for carrying out such assessment18. 
4.4 Amendment of the financial plan is envisaged if substantial differences arise between actual and 
planned receivables and expenditure  in any given financial year. The ECB considers it important 
that the plan for receivables and expenditure (as pa rt of the financial plan) includes an appropriate 
temporal breakdown so that any departures from the plan can be spotted and addressed quickly. 
4.5 The ECB welcomes the fact that, in line with its previous suggestion, the provisions of the draft 
regulation introduce limitations on the payment of dividends by the BAMC19. The relevant 
provisions introduce a significant limitation, in particular by not allowing any payment of dividends as long as the BAMC continues to ha ve any liabilities which are backed by State 
guarantee. 
                                                 
16 See Articles 37 to 40 and Articles 44 and 45 of the draft regulation. 
17 See Articles 41 and 42 of the draft regulation. 
18 See Articles 40 and 44 of the draft regula tion, and in particular the imprecise criterion that ‘it is not expected that the 
BAMC will realise higher returns on investments than the retu rn it has to pay to holders of issued securities’. 
19 See paragraph 6 of Opinion CON/2013/21. 
ECB-PUBLIC  
5  
5. Other observations 5.1 In respect of the fact that the draft regulati on explicitly permits the recap italisation of banks under 
the Law on bank stability using non-cash contributions , subject to the general conditions on such 
contributions laid down in the Law on banking, the ECB, as stated in previous opinions, generally prefers that, for reasons of financial stabilit y, shares are issued against cash contributions
20. 
5.2 Articles 19 and 20 of the draft regulation envisag e cases when the real long-term economic value of 
assets to be transferred to the BAMC is to be assessed by the transferring bank, with the 
involvement of an independent appraiser, and audite d by an independent auditor. It should be clear 
that any value assessed in this way is merely a suggestion for real economic value as eventually 
determined by the Commission in cases expected to  involve State aid to the transferring bank. 
5.3 The draft regulation includes several new or am ended provisions reflecting the possible application 
of measures to banks subject to supervised wind- down. The ECB takes the view that the consulting 
authority should verify that all relevant provisions  of the draft regulation are reviewed from that 
perspective. 
5.4 The draft regulation contains several references  to a bank’s asset quality review being performed 
‘in accordance with instructions’ by the ECB21. In the interests of clarity, the ECB suggests 
amending this wording to reflect the non-binding nature of any involvement by the ECB in the relevant asset quality review. 
5.5 The ECB also invites the relevant authorities to consider implementing the other recommendations 
made in Opinions CON/2013/21 and CON/2013/67, in cluding (a) stipulating any further specific 
conditions that dedicated companies have to meet to be able to take over bank assets, as well as 
minimum conditions on key matters, such as co rporate governance standards and conflict of 
interest rules with respect to such dedicated co mpanies; and (b) taking into account the results of 
the stress tests (in addition to those of the asset  quality review) in the preparation by the Inter-
ministerial Committee of a proposal on the ex ecution of measures to be submitted to the 
Government (as envisaged in Article 8 of the current Regulation)
22. 
                                                 
20 See paragraph 3.5 of Opinion CON/2012/101. 
21 See Article 2(2)(4), Article 13(5) and Arti cle 14(2) and (3) of the draft regulation. 
22 See paragraph 9 of Opinion CON/2013/21 and paragraph 4 of Opinion CON/2013/67. 
ECB-PUBLIC  
6 5.6 The ECB also considers that the draft regula tion would benefit from a careful review before 
adoption in order to improve its clarity and consistency23. 
 This opinion will be published on the ECB’s website.    Done at Frankfurt am Main, 9 December 2013. 
 
[signed] 
 
The President of the ECB 
Mario DRAGHI 
                                                 
23 See e.g. the incomplete first sentence of Article 19(4) and refe rences to Article 8 in Article 12(1) of the draft regulation.