EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 17 October 2008 
at the request of the Danish Ministry of Economic and Business Affairs 
on a proposed Law on financial stability 
(CON/2008/54) 
 Introduction and legal basis
 
On 9 October 2008 the European Central Bank (ECB) re ceived a request from the Danish Ministry of 
Economic and Business Affairs for an opinion on  a proposed Law on financial stability, which was 
adopted on 10 October 2008 (hereinafter the ‘Law’). Given the turbulence in the international financial 
markets, the consulting authority requested the ECB to provide its opinion urgently. 
The ECB’s competence to deliver an  opinion is based on Article 105(4) of the Treaty establishing the 
European Community and on the sixth indent of Arti cle 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 Law relates to rules applicable to fi nancial 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 Eur opean Central Bank, the Governing Council has adopted 
this opinion. 
 1.  Purpose of the Law 
1.1   The Law is motivated by the current financia l market crisis. It introduces a special resolution 
regime for banks affected by financial difficulties and ensures that all domestic and foreign claims 
by depositors, debt holders (senior debt) and ot her ordinary creditors in relation to banks and 
savings banks in Denmark are fully covered by a State guarantee from 5 October 2008 until 
30 September 2010
2. Only creditors in relation to covere d bonds and holders of  subordinated debt 
(hybrid core capital and subordinate loan cap ital) are excluded from the State guarantee.  
1.2  The Law implements the political agreement on financial stability of 5 October 2008 between the 
Danish Government, the financial sector and the ma jority of political parties represented in the 
Danish Parliament ( Folketinget )3. That political agreement states th at the Danish financial sector 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2  See Sections 1(1) and Se ction 16(1) of the Law.  
3  Available on the website of the Ministry of Economic and Busine ss Affairs, www.oem.dk. 
2 should demonstrate moderation, implying for exampl e that a more moderate approach should be 
taken in future to management remuneration within credit institu tions, and it should also aim at 
consolidation over the next two years.  
1.3 The guarantee scheme set up under the Law suppl ements the existing Deposit and Investor 
Insurance Scheme, which transposed the EU Directives on depositor guarantee and investor-
compensation schemes4. It also widens the scope of operation of the existing Private Contingency 
Association (PCA), an association set up and administered by the Danish financial sector, which may draw on guarantees given by its members for the purpose of winding up ailing credit institutions. Such guarantees currently amount to DKK 750 million per year. Under the Law, the new guarantee scheme applies to all credit institu tions that apply for membership of the PCA 
before 13 October 2008, after which date such cred it institutions will not be allowed to withdraw 
from the guarantee scheme during the two years for which it is scheduled to apply
5. 
1.4 In addition to the above features, the Law oblig es the Minister for Economic and Business Affairs 
to set up a Winding-Up Company (WUC), fully owned by the State, with the objective of covering the claims of creditors of credit institutions that are members of the PCA, and of contributing to a 
regulated winding-up of failing institutions
6. The WUC will have powers to organise private-sector 
takeovers of credit institutions affected by financ ial difficulties, either by means of a directed 
transfer of the troubled credit institution’s asset s and liabilities to a purchaser nominated by the 
WUC, e.g. a subsidiary of the WUC, or of capita l injections provided by the WUC to a selected 
private-sector purchaser acquiring the assets and liabilities of the troubled credit institution under a commercial contract
7. Where insolvency procedures are initiate d in relation to a credit institution, 
the WUC will enter into an agreem ent with the insolvency administra tor on the sale of the insolvent 
credit institution’s assets and liabilities8. 
1.5 The PCA will guarantee losses incurred by the WUC during the period of operation of the Law up 
to a maximum amount of DKK 35 billion9. The State will guarantee any losses exceeding the 
amount guaranteed by the PCA10. 
 2. General observations 
2.1 The ECB was consulted on the Law at the draft st age in the afternoon of 9 October 2008. Less than 
24 hours later, the Danish Parliament adopted th e Law. The ECB understands that the application 
                                                 
4  Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes, 
OJ L 135, 31.5.1994, p. 5 and Directive 97/9/EC of the Eu ropean Parliament and of the Council of 3 March 1997 on 
investor-compensation schemes, OJ L 84, 26.3.1997, p. 22.  
5  See Sections 2(1) and (5) of the Law.  
6  See Sections 3-6 of the Law.  
7  See Section 7 and Section 8(1) of the Law.  
8  See Section 8(2) of the Law.  
9  See Sections 9 and 10 of the Law 
10  See Section 11 of the Law.  
3 of an accelerated procedure during the preparati on and adoption of the Law did not leave room for 
the normal consultation process. This does not, how ever, prejudice the duty under Article 105(4) of 
the Treaty to consult the ECB on national draft legi slative provisions falling within its advisory 
fields of competence, and perhaps the ECB could have been consulted on a previous draft of the 
Law a few days earlier.  
2.2 As already mentioned in a recent ECB opinion on another draft national la w relating to emergency 
measures arising out of the current financial turmoil11, the ECB is of the view that it is important 
for national authorities to seek to coordinate their responses to the current financial situation with 
their EU partners. In view of the similarities of the causes and consequences of the financial crisis 
across Member States and the potential interdepende ncies of policy responses, it would have been 
advisable to consult other EU authorities formally on the envisaged Law at the draft stage. At the 
same time, the ECB notes that there is an ongoing  discussion at international and European level 
aimed at coordinating action to preserve confiden ce and financial stability. More specifically, the 
ECB would draw attention to the conclusions a dopted at the Ecofin meeting on 7 October 2008, 
which highlighted common principles to guide the action of Member States as follows: (i) interventions should be timely and the support shoul d in principle be temporary; (ii) the interests 
of taxpayers should be protected; (iii) existing sh areholders should bear the due consequences of 
the intervention; (iv) the government should be  in a position to bring about a change of 
management; (v) management shoul d not retain undue benefits; (v i) governments may have, inter 
alia. the power to intervene in remuneration; (v ii) legitimate interest of competitors must be 
protected, in particular through the State aid rules, and negative spill-over effects should be 
avoided
12. Against this background, the ECB notes that a number of the elements contained in the 
Law are in line with the conclu sions of the Ecofin meeting of 7 October 2008, inter alia on the 
temporary nature of the arrangement and the possibi lity, subject to certain conditions, to replace the 
board and management of institutions.  
2.3 In line with the Declaration of 12 October 200813 made at the summit of the euro area Member 
States in Paris, the ECB notes that EU Member St ates have to act in a coordinated manner to avoid 
significant differences in national implementati on having a counter-productive effect, creating 
distortions in global banking markets. In partic ular, the ECB notes that uncoordinated decisions to 
guarantee interbank deposits in some Member St ates should be avoided as they may involve a 
fragmentation of money markets. 
2.4 At this stage, the ECB wishes to  underline the importance it attaches to ensuring that the Law, and 
any subsequent executive orders, fully comply w ith the relevant provisions of Community law, 
including State aid rules, especially in view of th e fact that interbank deposits from foreign credit 
                                                 
11  See ECB Opinion CON/2008/44 of 3 October 2008 at the request of the Irish Minister for Finance on a draft Credit 
Institutions (Financial Support) Bill 2008. 
12  See the press release of the 2894th Council meeting (13784/08), avai lable on the Council’s website, 
www.consilium.europa.eu. 
13  See the Declaration of 12 Octobe r 2008, available on the website of the French Presidency, www.ue2008.fr. 
4 institutions are covered by the guara ntee scheme. This feature could be seen to give some Danish 
credit institutions a competitive advantage both in a European context and domestically, as certain 
national competing financial institutions, such as mortgage credit institutions, are excluded from 
the guarantee scheme14. In this respect, the ECB notes that  the Danish authorities notified the 
Commission of the State guarantee on 8 October 2008. According to the Commission’s press release the guarantee scheme has been approved unde r the State aid rules laid down in the Treaty, 
because it was the most appropriate means of addr essing the risk of a severe disturbance in the 
Danish economy, while keeping potential distor tions of competition to a minimum through 
effective safeguard mechanisms
15.  
 3. State guarantee and the prohibition on monetary financing  
3.1 The ECB welcomes the new guarantee scheme, wh ich is structured in such a way that it should 
encourage the Danish financial sector to take an active and responsible role in the measures 
necessary to ensure financial stability and the re gulated winding-up of faili ng institutions. At the 
same time, it is noted that Section 3 of the Law states that the Minister for Economic and Business Affairs will set up a company, the WUC, with share capital provided by the State. The State will be the sole owner of the WUC
16, which will be able to borrow to cover its financing needs17. However, 
neither the Law nor the explanatory memorandum to the Law specifies or clarifies from whom such borrowing will take place. 
3.2 In this specific context, the ECB would remind the Danish authorities that a number of elements 
must be observed in order to comply with the monetary financing prohibition laid down in the 
Treaty. First, it should be noted that the WUC will qualify as a ‘public undertaking’ within the meaning of Article 101(1) of the Treaty, since th e State will exercise dominant influence over the 
WUC by controlling its entire subscribed capital a nd will have the majority vote in a general 
meeting, while also being able to a ppoint members of the WUC’s governing body
18. The WUC 
will also qualify as a ‘body governed by public  law’ of Denmark within the meaning of 
Article 101(1) of the Treaty, since it will be estab lished by the Law as a legal person financed and 
closely dependent on the Danish State, with the specific purpose of meeting needs in the general 
interest, while its organisation and the exercise of  its public functions and powers in relation to 
commercial banks will be based on the provisions of the Law19. The ECB notes therefore that the 
                                                 
14  See paragraph 2.3 of ECB Opinion CON/2008/44. 
15  See Commission press release IP/08/1483 of 10 Octobe r 2008. The non-confidential version of the Commission’s 
decision will be made avai lable under Case NN 58/2008. 
16  See Section 3 of the Law. 
17  See Section 3(2) of the Law. 
18  Such being the three options for classification as a ‘public undertaking’, as specified in  Article 8(1) of Council 
Regulation 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. 
19  Cf. paragraph 2.4 of ECB Opinion CON/2008/5 of 17 January 20 08 at the request of the Polish Minister for Finance on a 
draft law amending the Law on the Bank Guarantee Fund. 
5 WUC should not be allowed to benefit from any type of lending or overdraft facilities from 
Danmarks Nationalbank to ensure compliance w ith the prohibition on monetary financing, and 
Danmarks Nationalbank has confirmed that it does not intend to lend or provide any financing to 
the WUC. Second, it should also be remembered that the provision of emergency liquidity assistance is a central bank function, which consists  in giving support in exceptional circumstances 
and on a case-by-case basis to temporarily  illiquid but solvent credit institutions
20. 
3.3 It is the ECB’s view that national legislati on providing for the financing by NCBs of credit 
institutions other than in connection with central banking tasks, such as monetary policy, payment 
systems or temporary liquidity support operations, in particular to support insolvent credit and/or 
other financial institutions, is incompatible  with the monetary financing prohibition. 
 This opinion will be published on the ECB’s website.    Done at Frankfurt am Main, 17 October 2008. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET 
                                                 
20  See ECB Opinion CON/2008/42 of 10 September 2008 at the request of the Banque centrale du Luxembourg on 
amendments to the draft law improving th e legislative framework for Luxembourg as  a financial centre and amending the 
Law of 23 December 1998 on monetary status and on the Banque centrale du Luxembourg, footnote 16.