EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 24 June 2009  
on further financial market stabilisation measures  
(CON/2009/54) 
 
Introduction and legal basis  
On 26 May 2009, the European Central Bank (ECB) received a request from the German Federal 
Ministry of Finance for an opinion on a draft law on the further development of financial market stabilisation (hereinafter the ‘draft law’). On 15 J une 2009, the ECB received a further request from the 
German Federal Ministry of Finance for an opinion on a proposal to amend the wording of the draft law 
(hereinafter the ‘proposed amendment’). 
The ECB’s competence to deliver an  opinion is based on Article 105(4) of the Treaty establishing the 
European Community and the sixth indent 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 
provisions
1, as the draft law relates to rul es applicable to financial instituti ons 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 draft law and the proposed amendment 
1.1 While the German Federal Government has alr eady taken steps to stabilise the financial markets 
with the Law on financial market stabilisation
2, credit institutions nevertheless hold large volumes 
of structured securities (e.g. asset backed securities,  collateralised debt obligations, etc.) and there 
are further assets with increased  default risks in the balance sheets of credit institutions and 
financial services institutions. These securities and as sets are difficult to evaluate and are not easily 
sold in a volatile market environment. They enta il credit and liquidity risks that may result in the 
write-off of the value of the securities. Thus, c onfidence in the holders of these instruments and 
their financial resources may be impaired. 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2  Law on financial market stabi lisation of 17 October 2008, (2008) Bundesgesetzblatt I , p. 1982. 
 
 
2 1.2 The draft law 
1.2.1 Against this background, the draft law provid es for short-term measures to remove structured 
securities from the balance sheets of financial holding companies, credit institutions and their 
subsidiaries (hereinafter the ‘transferring instituti ons’). It also creates certainty with regard to 
write-offs. 
1.2.2 Under the draft law, a transferring institution may transfer structured securities (hereinafter the 
‘transferred securities’) at a reduced book value3 to a special purpose vehicle (SPV) that is 
established for this purpose. In return, the tran sferring institution receives bonds for the same value 
issued by the SPV and guaranteed by the So nderfonds Finanzmarktstabilisierung (SoFFin, 
Financial Market Stabilisation Fund), i.e. by the State. Thus, the transferring institution has State 
guaranteed bonds instead of volatile assets on its bala nce sheet. The interest and repayment of the 
bonds are serviced from the cash flows of the tran sferred securities. In return, the transferring 
institution pays a guarantee fee adequately reflectin g the risk connected to the transferred securities 
to the Government (the SoFFin). The real economic value of the securities is determined at the time the securities are transferred. If, b ased on a risk evaluation, the valu e of the securities is reduced, an 
additional deduction is made and the resu lting value is the ‘fundamental value’. 
1.2.3 The transferring institution is obliged to pa y a compensatory fee from the amount available for 
distribution to shareholders. The compensatory fee is equal to the difference between the discounted book value and the fundamental value a nd is paid in equal annual instalments over the 
life of the structured security, up to a maximum of 20 years. This payment is made to the SPV to 
compensate for expected losses arising from the purch ase of the asset. The interest rate advantage 
arising from the deferred payment of the diffe rence between the reduced book value and the 
fundamental value must be remunerated in the form of a market-based fee for the SoFFin’s 
guarantee. 
1.2.4 Any funds remaining after the SPV’s dissolution are paid to  the transferring institution’s 
shareholders. If the compensatory fee fails to cover losses stemming from the transferred securities, the transferring institution is liable and must fully  compensate the Government for such losses out 
of the amount available for distribution to sharehol ders. As a consequence, the shareholders of the 
transferring institution are responsible for a ll losses stemming from the transferred securities. 
1.2.5 The transferring institutions eliminate the risks associated with the transf erred securities once they 
are written down to the reduced book value. To a ttract new investors and to shield them from the 
risks associated with the transf erred securities, the transferring institutions may issue preferential 
shares, which may also have voting rights. Such preferential rights have priority over other shareholders and the SoFFin’s claims.  
                                                 
3  This is the higher of 90 % of the book value as stated in the last audited annual accounts or the real economic value as 
defined by the Commission;  this haircut on the book value is s ubject to the proviso that the transferring institution retains 
a core capital ratio of at least 7 %. 
 
 
3 1.3 The proposed amendment  
1.3.1 The proposed amendment provides for the transformation of the current 
Finanzmarktstabilisierungsanstalt (F inancial Market Stabilisation Authority) into the Bundesanstalt 
für Finanzmarktstabilisierung (FMSA, Federal Au thority for Financial Market Stabilisation), a 
Federal authority with legal capac ity under public law, within the sphere of responsibility of the 
Federal Ministry of Finance. Further, under the proposed amendment the deadline for applying to the FMSA for support measures is extended until 31 December 2010. 
1.3.2 In substance, the proposed amendment provid es for measures to clean up the balance sheets of 
credit institutions, financial holding companies, thei r subsidiaries and SPVs with respect to risk 
positions and non-strategic business areas. These transfe rring institutions are able to transfer these 
risk positions and business areas to an organisa tionally and financially independent winding-up 
agency separately established under public law for each institution by and under the supervision of 
the FMSA. As the winding-up agencies are not subject to the provisions of the Banking Act within the framework of the EU law requi rements of the Banking Directive
4, the assets transferred to the 
winding-up agencies are not subject to the own funds requirements. 
1.3.3 The registered office, tasks, organisation, govern ance and surveillance etc. of these agencies are to 
be regulated in the statutes of each agency, whic h are to be published in the Federal Bulletin. 
1.3.4 The principle of proprietary responsibility applies, so that a winding-up agency and the direct and 
indirect owners of the transferring institutions which have a stake in the winding-up agency are liable to pay compensation for any losses. This is a direct and comprehensive liability for the losses 
of the winding-up agency. At the same time, the liability of the St ate is to be excluded as far as 
possible. 
1.3.5 According to the explanatory memorandum acco mpanying the proposed amendment, consideration 
for the transfer of risk positions and business areas depends on the design of the transfer and on who is ultimately liable for the transferred assets.  As stated in the explanatory memorandum, a 
Landesbank  (a bank owned by a German Federal State) should only be able to use this scheme 
once the Federal States that hold shares in that Landesbank  have committed themselves to a 
reorganisation of the Landesbank  sector. 
 2. General observations  2.1 All the comments and recommendations in relati on to the rescue package of  the German authorities 
made by the ECB in Opinion CON/2008/57 and Op inion CON/2009/24 apply equally to the draft 
law and the proposed amendment.  
                                                 
4  See Section A. of the explanatory memorandum accompanying the proposed amendment. 
 
 
4 2.2 In line with its previous opini ons, the ECB emphasises the following: 
(i) when adopting measures to deal with the financial crisis, Member States should act in a 
coordinated manner in order to avoid signifi cant differences in national implementation 
having a counter-productive effect, which may i nvolve distortions in global banking markets. 
Moreover, it is crucial to ensure consistency w ith the management of liquidity and with the 
operational framework of the Eurosystem5. Such considerations are particularly important in 
ensuring a sufficiently level playin g field within the euro area;  
(ii)  the ECB welcomes the fact that the SoFFin, as well as the newly created FMSA, is 
organisationally separate from the Deutsch e Bundesbank, as recommended in Opinion 
CON/2008/57. In this respect, the ECB reiterat es its comments made in paragraph 3.1 of 
Opinion CON/2008/57 on other aspects of compliance with Article 101 of the Treaty;  
(iii)  as concerns eligibility for support, the ECB notes that, as mentioned in Opinion 
CON/2008/57, the measures under the draft law are available to credit institutions and 
financial holding companies which have their registered office in Germany, or their subsidiaries. 
2.3 The Eurosystem has assessed the features and implementation modalities of asset support schemes 
and has developed a number of guiding principles
6 for the attainment of the following objectives: 
(i) safeguarding financial stability and restoring th e provision of credit to the private sector while 
limiting moral hazard; (ii) ensuring that a level play ing field within the single market is maintained 
to the maximum extent possible; and (iii) contai ning the impact of possible asset support measures 
on public finances. The seven guiding principles id entified are sufficiently broad to apply to all 
schemes falling under the wide category of asset  support measures. These concern: (i) the 
voluntary nature of participation,  with institutions with large concentrations of impaired assets 
being given priority; (ii) a broad definition for eligib le assets; (iii) transparency of valuation of the 
assets; (iv) an adequate degree of risk sharing; (v) a sufficiently long duration of the schemes; (vi) governance of the institution according to bus iness principles; and (vii) making such support 
schemes conditional on certain commitments by the participants. 
2.4 The draft law 
2.4.1 The draft law provides for an  asset support scheme according to  which a transferring institution 
sets up its own SPV and transfers securitised assets to it. In exchange, the SPV issues Government 
guaranteed bonds to the transferring institution. Moreover, under the draft law, the original 
shareholders of the transferring institution rema in liable for any of the SPV’s losses, as long as 
these are covered by the future amounts available for distribution to shareholders of the transferring 
institution. Under this model, th e securities are removed from the transferring institutions’ balance 
                                                 
5  See Opinion CON/2008/57. All ECB opinions  are available on the ECB website at 
www.ecb.europa.eu/ecb/legal/o pinions/html/index.en.html. 
6  Guiding Principles for Bank Asset S upport Schemes issued on 25 February 2009, available on the ECB website at 
www.ecb.europa.eu. 
 
 
5 sheets, while on the other hand the profit distributable  to the shareholders will continue to be used 
until all risks of the securities are covered. For th is reason, the draft law may be considered a 
‘hybrid’ asset support scheme. 
2.4.2 Since the shareholders of the transferring instit utions thereby have to fully bear the cost of the 
scheme as long as the transferring institutions exist, moral hazard as well as incentives to 
participate are likely to be limited. In addition,  possible complexities in determining the correct 
value of the transferred securities are partially ci rcumvented, as valuation only has an effect for the 
addressees of the distributable profits of the transf erring institution. If the transferred securities are 
overvalued, the compensation fee paid over the guarantee period would be too low. The difference would then be paid from future distributable profits, which would not be distributed to the 
shareholders but to the Government. In the even t of undervaluation, the opposite occurs and the 
shareholders would profit from the SPV’s profits . The effect of the scheme on the federal budget 
and debt may be limited, given that upfront payments by the government are not necessary. 
2.4.3 For the reasons given in paragraphs 2.4.1 and 2.4.2 above, the scheme provided for by the draft law 
is broadly in line with the guiding principl es, subject to the specific observations below. 
2.5 The proposed amendment 
2.5.1 The proposed amendment defines in very broad te rms: (i) the possible beneficiaries of the scheme, 
(ii) the types of assets to be covered, and (iii) the conditions and modalities of the scheme 
introduced by the proposed amendment. These must be laid down in the statutes of each winding-
up agency. The proposed amendment thus leaves a wi de margin of discretion to the FMSA and the 
Ministry of Finance to decide whether to estab lish a winding-up agency and on whether to specify 
further the modalities and conditions for the tr ansfer of assets to such agency. The ECB 
recommends that the proposed amendment shoul d follow the guiding principles set out in 
paragraph 2.3 above and it s hould be specified that the proposed amendment, and any 
implementing measures or decisions adopted pur suant to the proposed amendment, should be 
interpreted in the light of these guiding principles. 
2.5.2  The ECB notes that the initial deadline fo r applying for support measures by the SoFFin is 
prolonged for one year until 31 December 2010. As stated before
7, the ECB emphasises that 
harmonisation regarding the expiry of the various financial support measure s within a particular 
country and the national financial support schemes across the EU is of crucial importance in order 
to ensure a level playing field.  
2.5.3 Due to the general nature of the drafting of  the proposed amendment, no more specific comments 
can be made on it at this point. 
 
                                                 
7  See Opinion CON/2009/6. 
 
 
6 3. Specific observations on the draft law 
3.1 Eligibility of assets as collateral in Eurosystem refinancing operations  
3.1.1 The draft law does not specify any restricti ons on the guaranteed bonds th at will be provided in 
exchange for the transferred securities. 
3.1.2 The ECB assumes that the debt securities issued by the SPV will be straight bonds rather than, for 
example, structured securities. This is important  for the eligibility of these bonds in Eurosystem 
credit operations. It should be noted that for ex ample subordinated securities with an appropriate 
guarantee may be only temporarily eligible as collate ral for Eurosystem refinancing operations, i.e. 
until the end of 2010. For legal certainty reasons, clar ification of this issue in the draft law would be 
welcomed.  
3.1.3 The ECB understands that, according to the draf t law, the SoFFin’s guarantee covers all issuer 
obligations in relation to paymen ts of principal, interest and any other amounts due under the 
transferred securities. Again, this is important for the eligibility of these bonds in Eurosystem credit 
operations. 
3.1.4 The draft law does not specify whether the SPV  may sell or pledge the transferred securities 
received or whether they must be held to matur ity. If they can be repoed out or sold by the SPV 
(which will not be a counterparty to the Eurosy stem), then they may be available for use as 
collateral in Eurosystem credit operations8. 
3.2 Financial Stability 
3.2.1 The scheme provided for by the draft law is e xpected to offer two possible sources of relief for 
transferring institutions. First, the exchange of  transferred securities for government guaranteed 
bonds may provide transferring institutions with coll ateral that can be used to access central bank 
liquidity. Second, from a regulatory perspective,  exchanging securities subject to high capital 
requirements for government guaranteed bonds may free up capital.  
3.2.2 The provision of liquidity and the freeing up of capital would allow transferring institutions to 
continue their lending activity. Despite the cap on the haircut of 10 %, the risk is that some 
institutions may have limited incentives to particip ate in the scheme because of low capital buffers. 
However, this risk is limited by the condition that  the transferring institution retains a core capital 
ratio of at least 7 % and the haircut is only need ed if the fundamental valu e is lower than the book 
value. In addition, potential new investors coul d be discouraged from injecting capital into the 
transferring institution due to a future allocation of  distributable profits to cover the SPV’s losses; 
however, this is mitigated by the ability of the tr ansferring institutions to issue preferential shares 
granting new shareholders priority over the So FFin’s claims. Since the draft law allows for 
compensation for potential losses in the form of share issues to the SoFFin and this implies 
                                                 
8  This requires that the transferred securities fulfil the ECB’s eligibility criteria and are repoed out or sold to an eligible 
Eurosystem counterparty. 
 
 
7 increased government involvement in the banking secto r, the ECB considers that an assessment of 
the extent of this additional public involvement s hould be made and exit strategies be formulated. 
3.2.3 Finally, the ECB understands that the transferri ng institutions continue as going concerns, i.e. they 
will not be wound up. Therefore, a condition for pa rticipation is the maintenance of adequate 
capital levels, a sound business policy and a solid busin ess model. In the event of the transferring 
institution’s insolvency and a loss on the SPV’s  portfolio, the Government would become 
responsible for losses on the guaranteed transferre d securities. Consequently, the Government has 
an incentive to avoid the insolvency of a tran sferring institution by providing further support 
measures. In this regard, the draft law ma y necessitate further public support measures. 
3.3  Accounting 
3.3.1 In the context of the implementation of the draft law, the ECB notes that the accounting treatment 
of the transferred securities is unclear. Under th e current proposal, the shareholders of the 
transferring institutions remain liable to cover an y losses on the transferred securities out of their 
future amounts available for distribution to sharehol ders. Clarification is required as to whether: (i) 
the accounts of the SPVs must be consolidated; and ( ii) the transferred assets meet the requirements 
for derecognition under IAS 39. In addition, given that transferring institu tions remain liable for 
losses, they may not obtain relief from an accounting pe rspective. However, further clarifications in 
this regard would be helpful, and the ECB unders tands that such clarifications may already be 
under preparation. 
3.3.2 Under the draft law, the ‘compensatory fee’ is  paid annually by the transferring institutions from 
their distributable income, over a maximum of 20 years. The obligation to pay this fee is inextricably linked to the decision and ability of the transferring institution to pay dividends to 
shareholders. In this context, it should be fu rther assessed whether this scheme achieves its 
intended purpose given that it is unclear whether transferring institutions are required to set up 
provisions (against net income) for these additiona l losses in their annual financial statements.  
 This opinion will be published on the ECB’s website.    Done at Frankfurt am Main, 24 June 2009. 
   
The President of the ECB 
Jean-Claude TRICHET