EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 21 October 2008 
at the request of the Banque de France 
on a draft amending finance law for the financing of the economy 
(CON/2008/56) 
 
Introduction and legal basis  
On 14 October 2008 the European Central Bank (ECB) received a request from the Banque de France, 
acting on behalf of the French Ministry for Economic Affairs, Industry and Employment, for an opinion on a draft amending finance law for the financing of th e economy (hereinafter the ‘draft law’). Given the 
turbulence in the international financial markets, the consulting authority has requested the ECB to 
provide its opinion urgently. 
The ECB’s competence to deliver an  opinion is based on Article 105(4) of the Treaty establishing the 
European Community and on the sixth indent of Article 2(1) of Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Ce ntral Bank by national authorities regarding draft 
legislative provisions
1, as the draft law, and in particular Article 6 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 is motivated by the current fina ncial market crisis. It concerns the provision of 
several State guarantees
2 in the context of the measures ta ken in France in order to restore 
confidence and to create the conditions for the norma l functioning of the system that finances the 
economy3. 
1.2 The first State guarantee4 (hereinafter the ‘first State guarantee’) is an integral part of a measure 
designed to re-inject liquidity into the economy5. The State guarantee may be granted, against 
consideration, to debt securities issued by a refi nancing company whose purpose is to grant loans to 
credit institutions that are authorised and supe rvised under the Monetary and Financial Code 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2  In accordance with Article 34-II-5 of the Organic Law No 2001-692 of 1 August 2001 on finance laws. 
3  See the explanatory memo randum to the draft law. 
4  Article 6-II of the draft law. 
5  See the explanatory memo randum to the draft law. 
2 (hereinafter the ‘refinancing company’). The statut es of the refinancing company will be authorised 
by an order of the Minister for the Economy. On ly credit institutions that satisfy the capital 
requirements under the Monetary and Financial C ode may be granted funds by the refinancing 
company. In addition, the institutions concerne d will enter into an agreement with the State 
specifying the consideration to be provided for th e guarantee. The loans granted by the refinancing 
company will be collateralised in  accordance with the draft law. 
1.3 In addition, a State guarantee (hereinafter the ‘second State guarantee’) may be given in exceptional 
circumstances, in particular in urgent cases, in  relation to securities issued by credit institutions 
against consideration and provided that the Stat e receives collateral se curity (from the credit 
institution) equivalent to that which the refinancing company has6. 
1.4 The third State guarantee7 (hereinafter the ‘third State guarantee’ ) is an integral part of the measure 
designed to reinforce the own funds of financial entities8 in order to guarantee the stability of the 
French financial system9. The State guarantee may be granted to financing raised by a separate 
company whose sole shareholder is the State and w hose aim is to subscribe to securities that have 
been issued by financial entities and which cons titute regulatory own funds (the ‘recapitalisation 
company’). 
1.5 The fourth State guarantee10 (hereinafter the ‘fourth State guarantee’) may be granted, against 
consideration, on financing raised by companie s of the Dexia group from credit institutions and 
institutional depositors, as well as bonds and debt  securities that they issue for institutional 
investors, provided that the financing, bonds or securities have been raised or subscribed for 
between 9 October 2008 and 31 October 2009 incl uded and mature before 31 October 2011. This 
State guarantee will be dependent on a guarantee be ing sought at the same time from Belgium and 
Luxembourg and will be limited to 36.5 % of the eligible amounts. 
 2. General observations 2.1 The draft law was adopted by the Council of Ministers on 13 October 2008, i.e. on the day 
following the summit of Paris of 12 October 2008. The French authorities consulted the ECB on the 
draft law on 14 October 2008. On 15 October 2008, th e French Parliament a dopted the draft law. 
The law was finally published in the Journal officiel de la République française  on 
17 October 2008. The ECB understands that the app lication of an accelerated procedure during the 
preparation and adoption of the draft law did not  leave room for the normal consultation process. 
This does not, however, prejudice the duty under Artic le 105(4) of the Treaty to consult the ECB on 
national draft legislative provisions falling within its  advisory fields of competence. This opinion 
                                                 
6  It is noted that the two categories of State guarantees men tioned in paragraphs 1.2 and 1.3 of this opinion are granted to 
debt securities issued before 31 December 2009 having a maximum duration of five years. 
7   Article 6-III of the draft law. 
8   See the explanatory me morandum to the draft law. 
9   Article 6-III of the draft law. 
10   Article 6-IV of the draft law. 
3 should therefore be taken into account in the c ontext of any further legislative provisions 
complementing or implementing the adopted legislat ion. The ECB will need to be consulted on any 
such draft legislative provisions which substantially affect the adopted legislation and fall within its 
advisory fields of competence. 
2.2 The ECB notes that there is an ongoing discussion at  both the international and European levels 
with a view to coordinating actions of countries aimed at preserving confidence in and stability of 
the international financial markets. More specifi cally, on 12 October 2008 the Heads of States of 
the euro area issued a ‘D eclaration on a concerted European action plan of the euro area countries’ 
(hereinafter the ‘Declaration’)11, in which they confirmed their commitment to act together in a 
decisive and comprehensive way in order to r estore confidence and proper functioning of the 
financial system, aiming at restoring appropria te and efficient financing conditions for the 
economy. They agreed on common principles to be followed by the EU and euro area governments, 
central banks and supervisors to avoid national me asures adversely affecting the functioning of the 
single market and the other Member States. Such  coordinated approach includes initiatives aimed 
at: (i) ensuring appropriate liquidity; (ii) fac ilitating the funding of banks through various means; 
(iii) providing additional capital resources to fina ncial institutions; and (iv) recapitalisation of 
distressed banks. These principles were also e ndorsed by the European Council on 16 October 
2008. The ECB highlights that all the initiatives put in place by national governments to restore the confidence in financial markets should be aimed at  implementing such common principles, in the 
spirit of close cooperation with other Member States and EU institutions. 
2.3 Against this background, the ECB notes that the draft law is aimed at implementing in France 
several of the principles listed in the Declaration.  However, the ECB also notes that the draft law 
provisions relating to the third State guarantee, in or der to be in line with one of the conclusions of 
the Ecofin meeting of 7 October 2008
12, namely that the support should be temporary, should 
contain an expiry date. Although the references in  the explanatory memorandum to the draft law to 
the temporary nature of the measures seems to indi cate that the State guarantee will be provided for 
a limited period of time, a clear time limit in the draft law itself, following the example of the provisions of the draft law relating to the first,  second and fourth State guarantees, would remove 
any expectation that the scheme is permanent. 
 3. Specific comments 3.1 Prohibition of monetary financing   
The ECB reminds the French authorities that comp liance of the State guarantee arrangements with 
the monetary financing prohibition la id down in the Treaty needs to be  ensured. With regard to the 
first State guarantee, the ECB notes that the draft law does not specifically address the legal status 
                                                 
11  The Declaration is available on the French Presidency’s website at www.ue2008.fr. 
12  See the press release of the 2894th Council meeting (13784/08), avai lable on the Council’s website at 
www.consilium.europa.eu. 
4 of the refinancing company and the nature of its shareholding. Should this company be considered 
as a public undertaking within the meaning of Article 101(1) of the Treaty13, the prohibition of 
monetary financing would apply. In the context of the third State guarantee, the prohibition of 
monetary financing applies, since the recapitalisa tion company is an entity whose sole shareholder 
is the State14. 
The ECB notes that, to ensure compliance with  the prohibition of monetary financing, both 
companies cannot benefit from overdraft facilities or any type of credit facility15 with the 
Banque de France (or any other central banks of the European System of Central Banks (ESCB)) 
while ESCB central banks are prohibited from pur chasing debt instruments directly from these 
companies. The ECB also notes that the draft law does not foresee any specific role for the Banque 
de France. However, in case the Banque de France w ould be led to perform certain activities for the 
refinancing company (or the recapitalisation company)  at the request of the State, these activities 
would also need to comply with the above prohibi tion and the relevant provisions of the Statute of 
the Banque de France as regards their remuneration. 
3.2 The scheme’s relationship with the singl e monetary policy of the euro area 
First , the ECB notes that, in line with the Declarati on, Member States must act in a coordinated 
manner to avoid significant differences in national implementation from having a counter-
productive effect and creating distortions in gl obal banking markets. The Declaration acknowledges 
the need to work in cooperati on with the ECB to ensure consistency with the Eurosystem’s 
management of liquidity and compatibility w ith its operational framework. Against this 
background, the ECB notes that uncoordinated d ecisions among Member States should be avoided 
as they may involve a fragmentation of the euro area money market. 
Regarding the first State guarantee, the ECB not es that the refinancing company will acquire from 
financial institutions financial assets and/or will grant loans to credit ins titutions. Although such 
measures should restore confidence in the French  banking system, it is important that the price 
applied by the refinancing company to its transactio ns with credit institutions  be determined in a 
coordinated manner within the euro area and th e EU. The ECB notes the importance of the price 
determination of the transactions conducted by the refinancing company and their potential 
implications on the transmission of the single mo netary policy decisions within the euro area. 
Indeed, uncoordinated price determination between  all euro area Member States could lead to 
possible segmentation of the euro area money mark et. Moreover, the pricing of the transactions 
conducted by the refinancing company should not interfere with the impl ementation and/or the 
transmission of the Eurosystem’s monetary policy. 
 
                                                 
13  In order to qualify as a ‘public undertaking’ within the m eaning of Article 101(1) of the Treaty, the State must exercise 
dominant influence over the company by controlling its fina ncial resources and governing bodies in accordance with 
Article 8(1) of Council Regulation (EC) No 3603/93 of 13 De cember 1993 specifying definitions for the application of 
the prohibitions referred to in Articles 104 and 104b(1) of the Treaty (OJ L 332, 31.12.1993, p. 1). 
14  See Article 6-III of the draft law. 
15  In accordance with Regulation (EC) No 3603/93. 
5  
Second , the ECB considers that extending the guarant ees to cover all interbank deposits should be 
avoided. It could entail a substantial distortion in  the various national segments of the euro area 
money market by potentially increasing short-term debt issuance activity across Member States and 
thereby impairing the implementation of the single monetary policy, which is an exclusive competence of the Eurosystem under Article 105(2) of the Treaty. It also appears crucial to ensure 
the harmonisation of the price determination of such guarantee within the euro area and the EU, as a level-playing-field is of essence. The ECB sh ould be involved in such concertation and 
coordination, and would welcome th e explicit provision for this in s ubsequent legislation. In this 
context, the ECB notes that the fourth State guara ntee as regards financing raised by companies of 
the Dexia group from credit institutions and in stitutional depositors, as well as bonds and debt 
securities that they issue for institutional investor s (to be raised or subscribed for between 9 
October 2008 and 31 October 2009 and mature before  31 October 2011), is an exceptional measure 
that is part of a rescue package arranged with the participation of the French Government, which 
will be assessed by the Commission under the Treaty State aid rules. 
 Third , the ECB understands that under French law, the refinancing company will not be a credit 
institution
16. Therefore, the refinancing company w ill not be an eligible counterparty for 
Eurosystem monetary policy operations. 
Fourth, since it cannot be excluded that  the refinancing company will receive as collateral assets 
that are on the list of the assets eligible as collate ral for Eurosystem monetary policy operations, it 
may be advisable to put in place a mechanism wher eby information can be exchanged in order to 
avoid the risk that collateral is mobilised twice. 
 
3.3 Recapitalisation of credit institutions  
 As regards the third State guarantee, the draft law provides that it may be granted to the debt 
securities issued by the recapitalisation company to s ubscribe to securities that  have been issued by 
financial entities and which constitute regulator y own funds. The ECB draws attention to the 
conclusions adopted by the Declaration which hi ghlighted some common principles so as to guide 
the action of euro area Member States when providing for recapitalisation of relevant financial institutions, in particular stressing the need to en sure that financial institutions to which Member 
States make available additional capital res ources should be obliged to accept additional 
 
                                                 
16  See Article 6-II.A of the draft law. 
6  
restrictions, notably to preclude possible abuse of such arrangements at the expense of non-
beneficiaries. Against this background, the ECB w ould suggest that the specific suggestions set out 
above be included in any sub sequent related legislation. 
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 21 October 2008. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET