EN ECB -PUBLIC 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 6 December 201 3 
on the recapitalisation  of credit institutions  
(CON/20 13/87) 
 
Introduction and legal basis  
On 17 October  2013, the European Central Bank (ECB) received  a request from the Portuguese Minister 
of State and for Finance for an opinion on a draft law  (hereinafter the ‘draft law’)  amend ing Law No 63-
A/2008 of 24 November  2008 establishing measures to strengthen the financial soundness of credit 
institutions ( hereinafter the ‘Law on recapitalisation’ ). 
The EC B’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 on the third and sixth indents 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 provisions1, as the draft law  relates to the Banco de Portugal 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 law 
1.1 The draft law introduces changes  to the Law on recapitalisation,  as amended and republished by 
Law No 4 8/2013 of 16 July 2013, on which the ECB adopted its Opinion CON/2013/ 192 on 
19 March  2013. The Law on recapitalisation was one of the actions considered necessary under the 
Economic Adjustment Pro gramme for Portugal with a view to restoring confidence in the banking 
sector and financial stability in the economy3. It aims at reinforcing the resilience of the banking 
sector  by establishing the conditions and procedures for providing temporary public support to 
viable credit institutions having their head office in Portugal.  
1.2 The Portuguese Government undertook , under Section 2.14 of the Memorandum of Understanding 
on Specific Economic Polic y Conditionality  agreed after the combined 8th and 9th Revi ew, to 
                                                           
1  OJ L 189, 3.7.1998, p. 42.  
2  The ECB also previously adopted Opinions CON/2011/95 , CON/2012/23 and CON/2013/19 regarding the Law on 
recapitalisation . All ECB opinions are published on the ECB’s website at www.ecb.europa.eu . 
3  Following the commitment to bolster the resilience of the banking sector as agreed on September 2011 under the 
Economic and Financial Adjustment Programme for Portugal ( 1st Review, MoU, para graph 2.3 and MEFP, para graph. 
18), the existing recapitalization law was  extensively  amended in 2011 in order to introduce a new recapitalization 
scheme.  
ECB -PUBLIC 
2 propose amendments to the  Law on  recapitali sation to reflect the recent Communication from the 
Commission on the application, from 1 August 2013, of State-aid rules to support measures in 
favour of banks  in the context of the financial crisis (‘Bank ing Communication’)4. 
1.3 The amendments now introduced by  the draft law aim mainly at adapting it to the principles, rules 
and guidelines enshrined in the Banking Communication, in particular regarding:  
(a) establish ing a plan  containing measures that credit institutions  may utilise  to raise capital , as 
well as  the possible  means for  burden -sharing among  the shareholders and subordinated 
creditors  of a credit institution which applies for State aid;  
(b) schemes for the recapitalisation and restructuring of small credit institutions; and  
(c) restrictions to the remuneration of staff, including board members and senior management.  
In addition, the draft law contain s new criteria for the return on public investment with regard to  
instruments that are eligible for inclusion as capital  for purposes of the capital adequacy 
requirements of the credit institution . 
 
2. General observations  
 The ECB welcomes the draft law , which in the context of the current economic and financial crisis 
generally  should contribute to reduce the amount of State aid that the beneficiary credit institutions  
may require and more effectively safeguard s and protect s the taxpayers’  interests.  
 
3. Capital -raising plan and burden- sharing measures  
3.1 The ECB welcomes the fact that the draft la w includes measures requiring  a thorough asset quality 
review and a forward -looking capital adequacy assessment , which are both intended to reduce a 
capital shortfall with regard to the capitalisation of a credit institution with access to public 
investmen t. The ECB is of the view  that the Banco de Portugal is the institution  best placed to : (a) 
assess whether there is  a residual shortfall in capital;  (b) determine the appropriate mechanisms to 
make up for that shortfall ; (c) approve  a capital -raising plan with public funds for  a given credit 
institution5 that also includes measures relating to  burden- sharing ; and (d) prevent the outflow of 
funds prior to a restructuring decision. This  includ es, notably, the State’s expected return on  its 
investment , in line  with Union State Aid rules , and the terms and conditions of public divest iture. 
3.2 The ECB also welcomes the new provisions in the draft law establishing t he burden- sharing 
principle and the ‘no creditor worse off principle’6. These provisions  lay down the necessary legal 
framework to ensur e that shareholders  and subordinated and hybrid debt holders of a credit 
institution benefiting from public funds contribut e appropriately to the rescue of such credit 
                                                           
4  Communication from the Commission on the application, from 1 August 2013, of State aid rules to support measures in 
favour of banks  in the context of the financial crisis (‘Banking Communication’) (OJ C 216/1, 30.7.2013 ). 
5  See Article 8-B(6) of the draft law.  
6  See section 3.1.2. of the Banking Communication and Articles 8-B(2)(b) and (4), 8 -D, 8 -I and 16(8)(d) of the draft law.  
ECB -PUBLIC 
3 institution . They also aim to protect the integrity  of the single ma rket and ensure a level playing 
field as well as the State's fiscal strength.  Nevertheless, in order to reflect Union State Aid rules and 
increase legal certainty, the  ECB recommends to further clarify  the way in which  burden- sharing 
measu res will be implemented recalling that, according to the Banking Communication7, all capital 
generating measures should be exhausted before the State may recapitalis e a credit institution , 
provided that fundamental rights are respected and financial stabil ity is not put at risk.  In this vein, 
exceptions to such principles can be made where implementing burden sharing and capital 
generating measures would endanger financial stability or lead to disproportionate results8. 
3.3 Although t he ECB supports the adoption of a simpler procedure regard ing public investment for 
small  credit  institutions with a balance- sheet totalling  no more than EUR 100 million, it notes that 
the draft law does not set a time limit for this kind of public investment9. Therefore, the EC B 
invites the consulting authority to clarify expressly in the draft law that authorised schemes for the 
recapitalisation and restructuring of small credit institutions are limited to a six -month period.  
 
4. Restrictions to the r emuneration of staff  
 The E CB welcomes the changes  introduce d to the remuneration policy applicable to institutions 
that benefit from capitalisation operations with recourse to public investment, in particular  those 
provisions that establish a cap on the total remuneration of the me mbers of decision -making  and of 
supervisory bodies and senior management, includ ing all possible components of that remuneration  
and of discretionary pension benefits. Furthermore, the ECB supports the fact that , under the draft 
law, severance payments to employee s of credit institutions should not be in excess of what is 
required by law or contract , that in no case can the total remuneratio n exceed the amount of the 
public investment in the credit institution at that time and that these restrictions wi ll apply until 
either the credit institution has repaid all of the public investment or the end of the restructuring 
period, if later10. 
 
5. Remuneration of the public investment  
The ECB welcomes the fact that the degree of subordination, in the event of liquidation, of the 
instruments subscribed by the State , and the amount of the increase of capital with a higher degree 
of subordination, are the  new criteria11 for the return on the public investment  on instruments that  
 
 
                                                           
7 See paragraph 19 of the Banking Communication.  
8 See paragraph 45 of the Banking Communication.  
9 See paragraph 54 of the Banking C ommunication.  
10 See Article 15 -A(2) (3) of the draft law  and paragraphs 38 and 39 of the Banking Communication.  
11 See Article 4 -A(5) of the draft law.  
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4 are eligible for inclusion as capital . 
 
This opinion will be published on the ECB’s website.  
 
 
Done at Frankfurt am Main, 6 December  2013. 
 
[signed]  
 
The President of the ECB  
Mario  DRAGHI