EN ECB-PUBLIC  
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
16 November 2012 
on amendments to the framework for the recapitalisation of credit institutions 
(CON/2012/90) 
 Introduction and legal basis 
On 23 October 2012, the European Central Bank (ECB) received a request from the Greek Ministry of 
Finance for an opinion on a draft law amending the legal framework for the recapitalisation of credit 
institutions in Greece (hereinafter the ‘draft law’ ). On 2 November 2012, the ECB received a revised 
version of 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 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 law relates to the Bank of Greece and to rules 
applicable to financial institutions , insofar as they materially influence the stability of financial 
institutions and markets. In accordance with the first sen tence 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  According to the explanatory memorandum of th e draft law, its purpose is to complete the legal 
framework for the recapitalisation of credit in stitutions in Greece via the Hellenic Financial 
Stability Fund (HFSF).  The draft law therefore amends Law No 3864/2010
2 establishing the HFSF 
(hereinafter the ‘HFSF Law’), mainly by refining the modalities for the recapitalisation of credit 
institutions by the HFSF; moreover, it further specifies some aspects related to the HFSF’s 
governance structure and introduces some editorial improvements to some provisions of the HFSF 
Law. 
1.2 More specifically, the following provisions of th e draft law may be noted: (i) Article 1(1) of the 
draft law supplements Article 2(2) of the HFSF law to provide that, if outstanding warrants exist on 
the date of initial termination of the HFSF’s durati on, its duration is automatically extended by one 
                                                 
1  OJ L 189, 3.7.1998, p. 42. 
2  FEK Α 138/9.8.2010. 
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2 more year, and that by ministerial decision th e HFSF’s duration may be extended by up to two 
years, if this is necessary for the fulfilment of its purpose; (ii) Article 1(6) codifies Article 4 of the 
HFSF Law setting out the HFSF’s governing bodies and introduces amendments mainly with a 
view to aligning the term of office of members of the governance bodies with the HFSF’s duration, 
and to further specifying the exercise of their tasks3; (iii) Article 1(8) sets out the terms for the 
remuneration of HFSF staff; (iv) Article 1(9) provides clarification as to credit institutions’ obligation to submit business plans; (v) Article 1( 13) amends Article 6(10) of the HFSF Law to 
provide that the Bank of Greece, when deciding on the recapitalisation of a credit institution, takes 
into account the need to preserve the stability of th e financial system and to ensure its contribution 
to growth and to the economy; (vi) Article 1(16) supplements Article 6 of the HFSF Law 
authorising the Cabinet to specify the terms of the pre-subscription agreements entered into by 
credit institutions, the European Financial Stab ility Facility and the HFSF for the purposes of the 
subscription by the HFSF to the convertible instrument s to be issued by the credit institutions being 
recapitalised; (vii) Article 1(17) replaces Article s 7 and 7a of the HFSF Law with a view to 
specifying the process and modalities for HFSF par ticipation in credit institutions’ share capital 
increase through the issuance of common stock and/ or contingent conver tible bonds (‘CoCos’)
4, as 
well as the HFSF’s voting rights in relation to th e threshold for private investor participation5; 
(viii) Article 1(18) inserts a new Article 7b in th e HFSF Law on the detailed terms for the issuance 
of warrants6 by the HFSF as a means of providing incentives for private sector participation and a 
new Article 7c setting out the details concerni ng the issuance of CoCos by credit institutions; 
(ix) Article 1(26) clarifies the secrecy and confiden tiality regime applicable to the members of the 
HFSF’s governance bodies and to the representatives of the ECB and the European Commission; 
(x) finally, Article 2 introduces a transitional provi sion stipulating that, until the appointment of the 
GC and EC members, the HFSF will be managed by th e existing Board of Directors; thereafter, the 
Board of Directors will be repealed and the term of office of its members will cease, without any 
payment.  
                                                 
3  It amends, inter alia, Arti cle 4(5) of the HFSF Law to provide that th e members of the HFSF’s General Council (GC) and 
Executive Committee (EC) will be appointed for a term of offi ce equal to the HFSF’s duration (until 30 June 2017), with 
the possibility of renewal thereof for a period equal to the extension of the H FSF’s duration under Article 2(2) of the 
HFSF Law. With regard to the HFSF  dual governance structure, see also pa ragraph 3.1 of Opinion CON/2012/14. All 
ECB opinions are published on the E CB’s website at www.ecb.europa.eu. 
4  Article 1(17) of the draft law repeals the delegation to th e Cabinet currently included in Article 7 of the HFSF Law to 
regulate any details arising from the provi sion of capital support by the HFSF under Article 7; instead, such details are 
now directly provided for in the draft law.  
5  Moreover, it is specified that both the HFSF and other shareholders of the recapitalised credit institutions are subject to 
additional information requirements deriving from their releva nt shareholding and voting rights in accordance with Law 
No 3556/2007 on transparency requirements for companie s with stock listed in a regulated market (FEK Α΄ 91), which 
implements Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the 
harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to 
trading on a regulated market and amending Di rective 2001/34/EC (OJ L 390, 31.12.2004, p. 38). 
6  The use of warrants is already provided for in Article 7 of  the HFSF Law, as currently in force. While newly-inserted 
Article 7b(11) introduces a delegation clause to the competent Minister to specify any necessary details relating to the 
implementation of Article 7, the Greek  legislator, according to the explan atory memorandum, has opted to regulate 
several modalities relating to the i ssuance, conversion and exercise of warrants directly in the draft law.  
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3  
2. General observations  
The ECB welcomes the draft law, which aims at complementing the Greek legal framework for the 
recapitalisation of credit institutions, established in line with the financial sector objectives outlined by 
the Greek authorities in the Memorandum  of Economic and Financial Policies7. In relation to the 
development of such a national legal framework, the ECB would like to refer to its previous relevant 
opinions8. The ECB continues to attach the utmost importa nce to the completion of the recapitalisation of 
credit institutions in Greece and considers that the draft law should allow for a timely and efficient 
recapitalisation, with the participation of private inv estors. Without prejudice to this general observation, 
the ECB has the following specific observations. 
 3. Duration of the HFSF Article 1(1) of the draft law provides that, if warra nts exist, the HFSF’s duration will be automatically 
extended by one more year, i.e. until 30 June 2018, and that by ministerial decision the HFSF’s duration 
may be extended by up to two years, if this is n ecessary for the fulfilment of its purpose. Furthermore, 
Article 8(1) of the HFSF law, as amended by Article 1(19) of the draft law, authorises the Minister to extend all time limits provided for therein with regard  to the sale of shares owned by the HFSF. The ECB 
has consistently underlined the need for any national support scheme to be temporary in nature
9. The 
current Greek formulation in the draft law suggests that the Minister may issue decisions extending the 
HFSF’s duration more than once. The ECB notes that the draft law should not leave any ambiguity as to 
the finite duration of the HFSF.  
 4.  Objectives taken into account by the Bank of Greece in the recapitalisation process 
The draft law
10 requires the HFSF’s advanced contribution to a capital increase to be necessary to 
preserve financial stability and to ensure contributio n to growth and the real economy. The ECB notes 
that such contribution is only en visaged for credit institutions which have already been assessed as viable 
by the Bank of Greece. Therefore, the ECB understands  that this criterion will in no event affect the 
viability assessment by the Bank of Greece. It also  understands that it will also not compromise the 
resolution objectives and other restructuring measures,  notably that non-viable banks should be resolved. 
In this respect attention needs to be drawn to the pr oposal for a directive of the European Parliament and 
                                                 
7  Annex V to Law No 4046/2012 on the approval of the draf t financing agreements betw een the European Financial 
Stability Fund, the Hellenic Republic and the Bank of Gr eece and of the draft Memorandum of Understanding between 
the Hellenic Republic, the European Commission and the Bank of Greece and other provisions of utmost importance for 
reducing the public debt and saving th e national economy (FEK A 28/14.12.2012) . 
8  See in particular Opinions CON/2010/54, CON/ 2011/72, CON/2012/014, CON/ 2012/25 and CON/2012/39.  
9  See, e.g. Opinion CON/2010/54, paragraph 2.2. 
10  Article 1(13) of the draft law. 
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4 of the Council establishing a framework for the recovery and resolution of credit institutions11, which 
should serve as a benchmark.   
 5. Pricing of recapitalisation instruments 5.1 Article 1(17) of the draft law provides for the subscription of common stock by the HFSF under 
specific conditions and sets out in detail the moda lities for determining the issue price for such 
common stock.  Article 1(18) lays down the terms of issuance of warrants by the HFSF. The price 
for the exercise of each warrant will be equal to  the issue price for each common stock, with an 
interest rate of 3% plus a spread increasing by 100 bps on an annual basis; this is expected to 
motivate private investors to exercise their ri ghts as soon as possible. Moreover, Article 1(18) 
stipulates that CoCos bear an annual interest rate  of 7%, increased by 50 bps per annum, payable in 
cash on an annual basis, provided that capital adequacy and profitability requirements are met
12. 
Their conversion rate will be equal to 50% of the offer price of the common stock subscribed for by 
the HFSF. 
5.2 The ECB welcomes the pricing under the draft law, which ensures market-oriented remuneration 
rates, appropriate behavioural safe guards and regular review mechanisms13, and is broadly in line 
with the methodology laid down by the ECB for be nchmarking the pricing of State recapitalisation 
measures14. It has repeatedly stressed the importance of  appropriate pricing for recapitalisations to 
enhance the stability of the financial system, fac ilitate a return to normal market conditions and 
ensure a level playing field and the proper financing of the economy15. More specifically, the ECB 
welcomes the remuneration of the capital injection on  the basis of the issue price and the sufficient 
discount ensured both by the exercise of warrants and by the CoCos conversion mechanisms. Moreover, it welcomes the quoted market price being the benchmark price and the alternative 
coupon satisfaction mechanism contained in the CoCos and underscores the importance of its 
inclusion in order to ensure a market-oriente d remuneration rate. The ECB considers that the 
proposed pricing framework contains appropriate incentives to encourage Greek credit institutions 
to exit State support as soon as possible. 
 
                                                 
11  COM(2012) 280/3. 
12  If payment of interest cannot be effected, it is substitu ted by a payment in kind through the issuance of new common 
shares by the credit institution, at a price equal to the great er of (i) the volume-weighted average price of the share over 
the 50 trading days preceding interest payment date; or (ii) the nominal share value. The credit institution may decide to 
cancel any interest payment but then Co Cos are immediately converted into co mmon stock at a discount of 75% while 
their normal conversion price at the end of the fifth year fro m the issuance (mandatory conversion) is 50% of the issue 
price of the common stock initially subscribed by the HFSF. 
13  On these principles see Commissi on Communications 2009/C 10/03 (OJ C 10, 15.1 .2009, p.2), point I.3, 2009/C 195/04 
(OJ C 195, 19.8.2009, p. 9) and 2011/C 356/02 (OJ C 356, 6.12.2011, p. 7). 
14  See the ECB Governing Council Recommendations of 20 November 2008. 
15  See, e.g., Opinion CON/2010/54, paragraph 2.6. 
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5 6. Timely completion of corporate proceedings for the recapitalisation  
6.1 According to the new Article 7(7) of the HFSF Law, as inserted by Article 1(17) of the draft law, 
the time limit for the convocation of  a general meeting of shareholders  and any adjourned meetings 
thereof for the purposes of deciding on the issuan ce of CoCos, as well as for the submission of 
documentation to the supervisory authorities, will be  shortened to one-third of the time limits 
provided for in Greek company law16. In this respect, the ECB stresses the importance of the timely 
completion of the issuance of common stock wh ich is also of essence to ensure the prompt 
finalisation of the recapitalisation process. The ECB thus invites the consulting authority to 
consider this element, having regard to both the Greek corporate law framework and to the relevant 
Union legislation17.  
6.2 Consistently with the above observation, the ECB considers that, without prejudice to the Greek 
legislator’s prerogative to choose the statutory chan nel to address technical or other special issues 
that may arise from the capital increase through th e issuance of common stock, including a 
delegation clause in Article 7 of the HFSF Law would provide the necessar y flexibility to allow 
such issues to be addressed promptly, given that the timing element is important for the successful 
recapitalisation of credit institutions. Furthermore, th e inclusion of such a clause in Article 7 would 
be in line with similar clauses in Articles 6, 7b and 7c of the HFSF Law, as amended or inserted by the draft law.  
 7. Voting rights of the HFSF  
Article 7a(1) of the HFSF Law, as amended by Article 1(17) of the draft law, provides that where private 
sector participation in the capital increase referred to in  Article 7(3) of the HFSF Law is at least equal to 
10% of the amount of the share capital increase, th e HFSF will exercise its voting rights in the general 
meeting of shareholders  only for decisions regard ing charter modifications, including capital increase or 
reduction or providing proxy powers to the Board of Di rectors to that effect, merger, division, conversion, 
revival, extension of duration or dissolution of the company, material asset transfers, including sales of subsidiaries but excluding current transactions, or an y other matters requiring an increased majority under 
Law No 2190/1920. The ECB notes that the concept of ‘c urrent transactions’, which are excluded, is not 
defined in the draft law and could create ambiguities in  relation to the scope of the HFSF’s voting rights. 
The ECB is of the view that the law should clearly s tipulate that the HFSF is always able to exercise its 
voting rights, in relation to decisions regarding char ter amendments or any other issue that requires an 
increased majority at the general meeting pursuant to Greek corporate law. 
 
                                                 
16  Law No 2190/1920 on limited liability companies. 
17  Notably Directive 2007/36/EC of the Eu ropean Parliament and of the Council of  11 July 2007 on the exercise of certain 
rights of shareholders in listed companies (OJ L 184, 14.7.2007, p. 17). 
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6 8. ECB representative  
Finally, the ECB welcomes the amendment to Ar ticle 16B(9) of the HFSF Law, as inserted by 
Article 1(26) of the draft law, whereby it is clarifie d that the HFSF confidentiality regime does not apply 
vis-à-vis the ECB. In the exercise of their mandate as observer in the HFSF, the ECB representative acts 
as an ECB staff member and is solely subject to th e ECB’s confidentiality regime. The very reason for the 
ECB representative’s mandate is to  share with the ECB any information obtained from the HFSF and, in 
so doing, the ECB representative is bound by the ECB’s strict confidentiality regime.  
Regarding the ECB representative’s mandate within th e HFSF more generally, the ECB reiterates that this 
mandate has always been limited to observer status  and therefore does not have an impact on decision 
making, which currently is the sole responsibility of the members of the current Board of Directors and 
will be the sole responsibility of the members of the EC and the GC, as soon as such bodies are 
constituted. Therefore, the ECB welcomes that Arti cle 4(15) of the HFSF Law clarifies that the ECB 
representative’s mandate is only to observe, without having voting rights. However, as regards the ECB 
representative’s right under the new governance structur e to request the future president to call for a 
meeting of the GC, the ECB considers that this goes be yond its observer status and thus should be deleted 
from the draft law.  
 This opinion will be published on the ECB’s website.    Done at Frankfurt am Main, 16 November 2012. 
 
[signed] 
 
The President of the ECB 
Mario DRAGHI