EN ECB-P UBLIC  
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 24 October 2011  
on a State guarantee covering certain loans gran ted to Dexia SA and Dexia Crédit Local SA  
(CON/2011/85) 
 
Introduction and legal basis  
On 21 October 2011, the European Central Bank (ECB) received a request from the French Ministry of 
Economic Affairs, Finances and Industry for an opinion on a draft Supplementary Budget Act providing 
for a State guarantee covering certain loans to Dexia SA and Dexia Crédit Local SA  (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 on the sixth i ndent 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 law, and in particular Article 4 thereof, relates to rules applicable to 
financial institutions insofar as they materially influe nce 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
2 is motivated by the current financial market crisis, and in particular in the context of 
the restructuring plan for the Dexia group, by th e need to restore investor confidence and reassure 
Dexia’s clients and creditors that Dexia will be  able to continue to meet its obligations3. To this 
end, the French State will grant two types of gua rantees under the draft law covering financing of 
certain entities of the Dexia group4. 
1.2 Under the draft law5, the Minister for Economic Affairs will  be authorised to grant the State 
guarantee in return for payment (first guarantee) for: 
(a) financing raised by Dexia SA and Dexi a Crédit Local from credit institutions and 
institutional depositors, as well as  bonds and debt securities that they issue for institutional 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2  Draft Law on the budget 2011 No 3804. 
3  See the explanatory memo randum to the draft law. 
4  See Article 4 of the draft law.  
5 In accordance with Article 34-II-5 of Organic Law No 2001-692 of 1 August 2001 on finance laws. 
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2 investors, provided that such financing, bonds and securities have been raised or subscribed 
between the date of publication of this draf t law once adopted and 31 December 2021; and 
(b) debt securities issued by Dexia Crédit Local SA and entered into its balance sheet at the date 
of publication of this draft law once adopt ed. The guarantee is granted for a maximum 
ceiling of EUR 32 850 000 000.  
In the event of a transfer by Dexia SA of direct or indirect control over Dexia Crédit Local SA to a 
third party, the guarantee will cease to apply to financ ing, bonds and debt securities raised or issued 
after the transfer. 
The guarantee is subject to a joint call by th e beneficiaries of the Belgian and Luxembourg 
guarantees granted within the limit of 36.5% of the eligible amounts.  
1.3  Under the draft law, the Minister for Economic A ffairs will also be authorised  to grant in return for 
payment the State guarantee (second guarantee) to Dexia SA and Dexia Crédit Local SA for commitments the two entities took, with the agreem ent of the French State, with regard to assets 
entered into the balance sheet of Dexia Municipal Agency on the date of transfer of Dexia Crédit 
Local SA of more than 50% of Dexia Municipal Agency’s capital. This second guarantee is granted 
for a maximum of EUR 10 000 000 000. It will a pply above a ceiling of EUR 500 million within a 
limit of 70% of the amounts due and of a total of EUR 6 650 000 000.  
1.4  The conditions under which each of the guarantees  mentioned may be called will be defined in one 
or several agreements entered into by the Minist er for Economic Affairs with the undertakings in 
question and, as far as the first guarantee is concerned, with the two other States. 
1.5 The draft law further provides that the governi ng bodies of a credit institution receiving from State 
support may not decide or propose (i) the allocation of stock options or bonus shares to members of the governing bodies; (ii) the allocation or payment of variable elements of remuneration based on 
performance and the allocation or payment of dela yed remuneration; and (iii) the distribution of 
dividends by the credit institution to shareholders wh en its solvency or liquidity is or likely to be 
jeopardised. 
 2. General observations  2.1 As explained in the draft law
6, the State guarantees supporting the Dexia restructuring plan will 
emanate from Belgium, Luxembourg and France. In this respect, the ECB was also consulted on 
12 October 2011 by the Belgian authorities regarding a draft royal decree granting a State guarantee covering certain loans granted to Dexia SA and Dexia Crédit Local SA
7 and on 14 
October 2011 by the Luxembourg authorities regard ing a draft Grand-Ducal Regulation authorising 
the Government to extend a financial guarantee in the context of the ordered restructuring of the 
Dexia banking group8. The ECB is unable to fully assess consistency between the legislation due to 
                                                 
6  See draft law. 
7  CON/2011/79. 
8   CON/2011/82. 
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3 different legislative techniques, and considering that certain modalities, varying according to the 
Member States, still have to be defined in im plementing agreements between these States and the 
Dexia entities9. The ECB emphasises the importance of ensuring the utmost consistency between 
the three sets of rules. 
2.2  It should also be ensured that the draft law and any subsequent im plementing measures fully 
comply with the relevant provisions of Union la w, including competition and State aid rules. In 
particular, national authorities should seek to coor dinate their responses to the current financial 
situation with their Union partners, to act in a united manner and to avoid that national measures 
adversely affect the functioning of the single market and the other Member States. In this respect, it is essential that Member States comply with the guidance given by the Eu ropean Commission in its 
communications on the application of State aid ru les to support measures in favour of banks and 
government guarantee schemes covering bank debt, in cluding with regard to the temporary nature 
of the acceptability of such aid measures and th e necessity for credit institutions receiving State 
support to submit a restructuring plan
10. 
 3.  Interaction of the draft law with the monetary policy of the euro area  
The draft law does not define the type of liabiliti es falling within the meaning of ‘financing’ under 
Article 4-I of the draft law. It  also does not specify in detail  the assets covered under the second 
guarantee. In this respect, the ECB makes the following observations.  
First, the ECB reminds the consulting authority th at government guarantees for bank debt should, when 
implemented: (i) address the funding problems of liquidity-constrained solvent banks by improving the functioning of the market for bank debt of longer-term maturity; (ii) preserve the level playing field among financial institutions and avoid market distortions; and (iii) ensure consistency in the management 
of Eurosystem liquidity. In this vein, government gua rantees for short-term bank debt with a maturity of 
three to 12 months may be provided to re vitalise the short-term bank debt market
11. In this regard, the 
ECB reiterates that granting government guarantees for bank debt with a maturity of less than three 
months should be avoided to the extent possible12.  
Second, it is also stressed that it is of the utmost  importance that support opera tions conducted by national 
authorities do not in any way affect the conduct and the implementation of monetary policy in the euro area
13. In this context, the ECB reiterates its view th at the extension of the State guarantee to cover 
                                                 
9  See Article 4-III of the draft law. 
10  See notably the Communication from the Commission on the appl ication, from 1 January 2011,  of State aid rules to 
support measures in favour of  banks in the context of the financial crisis, (OJ C 329, 7.12.2010, p. 7); 
 Communication from the Commission – The application of State aid rules to measures taken in relation to financial 
institutions in the context of the current global financ ial crisis (OJ C 270, 25.10.2008, p. 8); Commission Communication 
on the treatment of impaired assets in the Community banking sector, 25.2.2009 (OJ C 72, 26.3.2009, p. 1). 
11 CON/2009/73, paragraph 3.1, CON/2009/12, pa ragraph 3.3, CON/2009/49, paragraph 3.9. 
12  CON/2009/92, paragraph 3.5. 
13 CON/2009/73, paragraph 3.1, and 3. 3.2 CON/2009/92, paragraph 3.5. 
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4 interbank deposits should be avoided14, as this could entail substantial distortion in the various national 
segments of the euro area money market by potentiall y increasing short-term debt issuance activity across 
Member States and therefore impairing the implementa tion of the single monetary policy, which is an 
exclusive competence of the Eurosystem under Article 127(2) of the Treaty15. It could also affect the 
transmission of monetary policy decisions16 and make it difficult to maintain the necessary level playing 
field in the euro area between the financial institu tions benefiting from the State guarantee and those not 
benefiting.  
 4. Temporary nature of the scheme  In line with the assessment in the Commission’s staff working document
17, the ECB notes the need for 
national support measures to be temporary in nature18. The financing that will be covered by the first 
guarantee may be issued until 31 December 202119. Moreover, the maturity of the financing covered is 
not defined in the enacting terms of the draft law, and a 10 years’ maturity is only indicated in its 
recitals20. No time restriction is specified for the second guarantee. Thus, the support scheme could be 
considered of a longer-term rather than temporary nature. 
 5. Pricing of the guarantee The explanatory memorandum to the draft law specifies that the remuneration due to the French State for 
the first guarantee will take into account European sta ndards. The ECB takes note of the intention of the 
French State
21 to apply the pricing formula recommended by the ECB’s Governing Council22, which is 
also affirmed by the Commission’s staff in their as sessment of the application of State aid rules to 
Government guarantee schem es covering bank debt.  
 
                                                 
14  CON/2009/73, paragraph 3.1, CON/ 2009/49, paragraph 3.9, CON/2008/50, pa ragraph 3.2, CON/2009/12, paragraph 
3.3.2. 
15  CON/2009/73, paragraph 3.1, C ON/2009/49, paragraph 3.9, CON/2009/12 , paragraph 3.3.2 and CON/2008/48, 
paragraph 3.7. 
16  CON/2009/73, paragraph 3.1, CON/2009/12, pa ragraph 3.3.2, CON/2009/49, paragraph 3.9. 
17  DG Competition Staff Working Document - The application of  State aid rules to government guarantee schemes covering 
bank debt to be issued after 30 June 2011, availa ble on the Commission’s website at www.ec.europa.eu. 
18  CON/2009/73, paragraph 3.2, CON/2009/24, pa ragraph 3.1, CON/2009/54, paragraph 2.5.2. 
19  Article 4-I (a) of the draft law. 
20  See explanatory memorandum. 
21  See explanatory memorandum: ‘This guarantee will be  remunerated according to European standards’. 
22  Recommendations of the Governing Council of the Europ ean Central Bank on government guarantees for bank debt, 
20 October 2008. 
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5 This opinion will be published on the ECB’s website. 
  Done at Frankfurt am Main, 24 October 2011. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET