EN ECB-PUBLIC  
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 21 June 2012  
on bank recapitalisation 
(CON/2012/48) 
 
Introduction and legal basis 
On 1 June 2012, the European Central Bank (ECB) received a request from the Slovenian Ministry of 
Finance (hereinafter the ‘Ministry’) for an opi nion on the draft law amending the Law on banking 
(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 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 Banka Slovenije and to rules applicable 
to financial institutions insofar as they materially influence the stability of financial institutions and 
markets. In accordance with the firs t 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 main aims of the draft law are: (a) to allow for systemically important banks to achieve at least 
9% capital adequacy measured with  the core capital of the highest  quality, in accordance with the 
recommendations of the European Banking Authority (EBA); (b) to allow banks to increase their 
capital by way of issuing contingent convertible bonds, given the substantial decrease in the bank 
shareholders’ financial power whic h makes a recapitalisation signifi cantly more difficult; and (c) to 
ensure appropriate capital adequacy of the banki ng system which is key to maintaining an 
appropriate state rating. 
1.2 In order to achieve the aims set out in paragr aph 1.1 above, the draft law provides for the following 
key solutions.  
1.2.1  A share capital increase with non-cash contribut ions is now also permitted, provided that the share 
capital increase is based on an additional measure of Banka Slovenije
2. 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2  See Article 2 of the draft law amending Article 43(8) and (9) of the Law on banking. 
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2 1.2.2 General restrictions on the am ount of a bank’s share capital increa se do not apply (a) in the case of 
a conditional share capital increase, and (b) with re spect to the management board’s authority to 
increase the share capital on the b asis of the authorised capital3.  
1.2.3 Special rules on the acquisition of bank shares and the submission of an obligatory takeover bid are 
put in place4. 
1.2.4 Additional exemptions from the obligation to  submit a takeover bid are provided for bank 
shareholders who have obtained their shares in  the process of a bank’s share capital increase5.  
1.2.5 A special sanctioning regime now applies when  shares are acquired and (a) the takeover threshold 
is exceeded, and (b) a takeover bid is not submitted6.  
  
2. Duty to consult the ECB 2.1 The ECB notes that the Slovenian government e ndorsed the draft law with additional changes on 
7 June 2012 and forwarded it to the Parliament for a doption in an urgent procedure. In this case, the 
ECB appreciated the need for a swift adoption of the draft law and thus also accepted the short deadline of 10 working days set by the Ministry for the submission of this opinion. The draft law was adopted by the Slovenian parliament on 15 June 2012. The ECB would like to draw the 
Ministry’s attention to the proper procedure for its consultations as set out below
7. 
2.2 The second sentence of Article 4 of Decision 98/415/EC states that the ECB must be consulted ‘at 
an appropriate stage’ in the legislative process. Th is implies that the consultation should take place 
at a point in the legislative process which affo rds the ECB sufficient tim e to examine the draft 
legislative provisions (and where necessary transl ate them) and to adopt its opinion in all required 
language versions, and which also enables the re levant national authorities to take the ECB’s 
opinion into consideration before the provisions ar e adopted. Where draft legislative provisions are 
prepared by an authority other than the adopting authority, it can be derived from Article 4 of Decision 98/415/EC that consultation on such provis ions must take place at a time which enables 
the authority initiating the draft legislative provisi ons to consider whether they should be amended 
in order to accommodate the ECB’s opinion, i.e.  before transmission of the provisions to the 
adopting authority. The timetable should also fact or in a reasonable period for the ECB to examine 
the consultation dossier and deliver its opinion . Article 4 does not preclude national authorities 
from taking steps in accordance with their legislativ e procedures that do not affect the substance of 
the draft legislative provisions.  
2.3 It follows from the wording of Article 3(4) of  Decision 98/415/EC that Member States are obliged 
to suspend the process for adoption of the draf t legislative provision pending submission of the 
                                                 
3  See Article 43a in the Law on banking as inserted by Article 3 of the draft law. 
4  See Article 45c in the Law on banking as inserted by Article 4 of the draft law. 
5  See Article 45d in the Law on banking as inserted by Article 4 of the draft law. 
6 See Article 45e in the Law on banking as inserted by Article 4 of the draft law. 
7 See Title IV, Section I of the Guide to consultation of the European Central Bank by national authorities regarding draft 
legislative provisions, available on th e ECB’s website at www.ecb.europa.eu. 
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3 ECB’s opinion. This does not mean that the w hole national legislative process (for example, 
preparatory work of parliamentary standing committees, discussion of other opinions submitted by national authorities, etc.) should be suspended pending delivery of the ECB’s opinion. Rather it 
means that the adopting authority has to have the opportunity meaningfully to deliberate the ECB’s 
opinion prior to taking its decision on the substance.  If a time limit has been set for submission of 
the ECB opinion and this time limit has expired, the national authority concerned may restart the 
adoption process. But even in such a case, and as lo ng as the legislation has not yet been adopted, 
the national authorities continue to be obliged to take the ECB’s opinion into consideration. 
 3. General observations  The ECB generally welcomes the draft law proposed  in the context of the EBA capital adequacy 
requirements for the Slovenian banking sector
8. The EBA’s measures were part of the broader 
European package, agreed by the European Council on 26 October 2011 and confirmed during the ECOFIN Council on 30 November 2011. This package aims to address the current situation in the 
Union by restoring stability and confidence in the markets. The ECB has c onsistently stressed the 
importance of bank recapitalisation as an essential condition for financial and systemic stability, as 
well as a condition precedent to the preservation, by Eurosystem counterparties, of their eligible 
counterparty status, within the meaning of Secti on 2.1 of Annex I to the Guideline ECB/2011/14 of 
the European Central Bank of 20 September 2011 on  monetary policy instruments and procedures 
of the Eurosystem
9.  
 
4. Specific observations 
 While the ECB welcomes the initiative of th e Slovenian authorities to introduce measures 
facilitating bank recapitalisation, it has the following specific observations on the draft law.  
4.1 Bank share capital increase against non-cash contributions  
4.1.1 Article 43(8), point 2 of the Law on banking as am ended by Article 2 of the draft law provides for 
an exemption from the general requirement for bank  shares to be paid in money. This exemption 
provides that the bank share capital may be increased  by non-cash contributions if such increase is 
based on an additional measure of Banka Sloveni je. Instead of vaguely referring to ‘non-cash 
contributions’, the ECB would recommend specifyin g eligibility criteria fo r non-cash contributions 
that may be used for such an exemption. 
4.1.2 As consistently expressed in its opinions10, the ECB generally prefers issuances of shares against a 
cash contribution for financial stability reasons. Ot her forms of capital injections, for example, 
against government bonds which tend to be rath er volatile in value, might not provide the 
                                                 
8  See EBA Recommendation and figures relating to the recapit alisation needs of European banks published on 8 November 
2011, available on the EBA website at www.eba.europa.eu. 
9  OJ L 331, 14.12.2011, p. 1. 
10  See paragraph 2.2 of Opinion CON/2012/23. 
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4 envisaged additional buffer against unexpected losses,  when this protection is needed most, i.e. 
during times of market stress. Therefore, the issuance  of shares or contingent convertible bonds, i.e. 
debt instruments that convert into shares upon sp ecific trigger events, against non-cash contribution 
should be limited to exceptional circumstances. 
4.1.3 Pursuant to the draft law, banks would be a llowed to issue contingent convertible bonds against 
both cash and non-cash contribution, including gov ernment bonds. The ECB understands that the 
features of these contingent convertible bonds would,  in any case, be aligned with the requirements 
for ‘Buffer Convertible Capital Securities’, as la id down in the EBA Common Term Sheet, in order 
for these instruments to be eligible for the Co re Tier 1 buffer in the context of the EBA 
recapitalisation exercise. As explained in more detail above, issuances of contingent convertible 
bonds against non-cash contribution should be accepted by Banka Slovenije in exceptional 
circumstances only.  
4.2  Recapitalisation versus resolution  
 In view of the fact that the measures under th e draft law aim to address solvency problems at a 
credit institution, the ECB considers that the objectives pursued by the measures may also be 
achieved through bank resolution tools. A fully-fledged bank resolution regime, comprising tools such as bridge banks, asset separation and transfers of business would offer legally sound means of resolving institutions on the brink of insolvency , safeguarding financial stability, whilst addressing 
stakeholder rights
11. 
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 21 June 2012. 
 
[signed] 
 
The Vice-President of the ECB 
Vítor CONSTÂNCIO 
                                                 
11  In this context see the Commission’s Proposal for a Directive of the European Parliament and of the Council establishing 
a framework for the recovery and resolution of credit institu tions and investment firms a nd amending Council Directives 
77/91/EEC and 82/891/EC, Directives 2001/24/EC, 2002/47/ EC, 2004/25/EC, 2005/56/EC, 2007/36/EC and 2011/35/EC 
and Regulation (EU) No 1093/2010 (COM (2012) 280/3).