EN
OPINION OF THE EUROPEAN CENTRAL BANK
of 11 October 2001
at the request of the Portuguese Ministry of Finance
on a draft decree law amending the legal framework
of credit institutions and financial companies
(CON/2001/32)
1. On 10 July 2001 the European Central Bank (ECB) received a request from the Portuguese
Ministry of Finance for an opini on on a draft decree law (hereinafter referred to as the draft
decree law), which amends the legal framework of credit institutions and financial companies
approved by Decree Law No 298/92 of 31 December ( Regime Geral das Instituições de
Crédito e Sociedades Financeiras ).
2. The ECBs competence to deliver an opinion is based on Article 105(4) of the Treaty
establishing the European Community and the thir d and sixth indents of Article 2(1) of Council
Decision 98/415/EC on the consu ltation of the ECB by national authorities regarding draft
legislative provisions1, as the legislative proposal contains  provisions dealing with national
central banks and with rules applicable to fi nancial institutions which can have a material
influence on the stability of financial institutions  and financial markets. In accordance with the
first sentence of Article 17.5 of the Rules of Procedure of the ECB, this opinion has been
adopted by the Governing Council of the ECB.
3. The draft decree law provides for a comprehensive review of the legal framework of credit
institutions and financial companies in Portug al. The draft decree law addresses five main
aspects. First, it restates the central banking ta sks of the Banco de Portugal within this legal
framework, which are relevant for the surveillance and oversight of markets and marketsinfrastructure. Secondly, it updates the list of  types of credit institutions and financial
companies and introduces the definition of elect ronic money institutions as credit institutions,
which corresponds to a partial implementati on of Directive 2000/28/ EC of the European
Parliament and of the Council of 18 Septem ber 2000 amending Directive 2000/12/EC relating
                                                          
1OJ L 189, 3.7.1998, p. 42.
2to the taking up and pursuit of the business of credit institutions2. Thirdly, the draft decree law
simplifies the authorisation procedures for credit institutions and financial companies,
including the authorisation of subsidiaries of cr edit institutions located in  third countries to the
European Union. Fourthly, the draft decree la w contains a number of  provisions aimed at
enhancing the framework for the conduct of prudential supervision. These include rulesregarding the notification of qualified holding s in credit institutions and the suspension of
voting rights in cases of a failure to notify, the fitness and propriety of holders of such qualified
holdings and also of members of corporate bodies, the superv isory powers of the Banco de
Portugal and, lastly, adjustments relating to prudential ratios and limits. Finally, the draft
decree law modifies certain provisions regardin g the procedures of reorganisation of credit
institutions, in particular by enhancing the scope of the supervisory powers of Banco dePortugal and by assigning a more operational role to the Deposit Guarantee Fund. Thefollowing comments of the ECB regard primarily these aspects of the draft decree law. It may
be recalled that some of the proposed amendmen ts to the legal framework of credit institutions
and financial companies were already consid ered by the ECB in its Opinion CON/99/15 of
27 October 1999 at the request of the Portuguese Ministry of Finance on two draft legislative
provisions amending (i) the legal framework of credit institutions and financial companiesconcerning the Deposit Guarantee Fund and (ii)  the executive order governing the activities of
the Deposit Guarantee Fund.
4. First, in accordance with the proposed Article 92 of the draft decree law, the central banking
tasks of the Banco de Portugal defined in Artic le 13(1), Article 14 and Article 15 of its Organic
Law3 are recalled and reproduced in the legal fra mework of credit institutions and financial
companies under the common heading of Gui dance and surveillance (in the original
Orientação e fiscalização ). The ECB understands that the reference to these functions
(namely of (i) surveillance of the monetary a nd foreign exchange markets; (ii) regulation,
oversight, and promotion of th e smooth operation of payment syst ems; and (iii) collection and
compilation of monetary, financial, foreign exchan ge and balance of payments statistics) in the
context of the legal and supervisory framework of credit institutions and financial companies
does not in any manner imply that they correspond to financial supervision functions. The tasksenumerated in the proposed Article 92 are typi cal central banking tasks and therefore remain
within this sphere. For this reason, the ECB c onsiders that it is unnecessary to maintain the
proposed Article 92 in the draft decree law and suggests the deletion of its contents. The mere
reproduction of central banking tasks assigned to the Banco de Portugal by its Organic Law and
their re-classification and re-ordering unde r the common heading of Guidance and
surveillance does not seem to add value to the legal framework of credit institutions and
financial companies and may not be seen as useful from the central banking perspective.
                                                          
2 OJ L 275, 27.10.2000, p. 37.
3 Law No 5/98 of 31 January, as amended by Decree Law No 118/2001 of 17 April.
35. Secondly, with regard to the introduction of el ectronic money institutions as credit institutions,
the ECB understands that the authorisation a nd the commencement of activities of electronic
money institutions may only be allowed when th e relevant special legislation, implementing
Directive 2000/46/EC of the European Parliame nt and of the Council of 18 September 2000 on
the taking up, pursuit of and prudential superv ision of the business of electronic money
institutions4 has been adopted in Portugal.
6. Thirdly, with regard to the simplification of the authorisation procedures for credit institutions
and financial companies, including the author isation of subsidiaries of credit institutions
located in third countries to the European Un ion, the ECB welcomes the revised procedures,
which are broadly in line with international standards regarding the licensing of credit
institutions.
7. Fourthly, the ECB welcomes the provisions of the draft decree law directed at enhancing and
reinforcing the supervisory framework for cr edit institutions and financial companies. In
particular, the ECB welcomes the revised concept of a qualifying holding, as established in the
proposed Article 13(7) of the draft decree law.  The ECB also welcomes the reinforcement of
notification duties regarding qualified holdings, to gether with the suspension of voting rights in
cases of a failure to notify in the proposed Articles 102 and 105, respectively, since theyprovide for an enhancement of the prudential task s of the Banco de Portugal in this field. The
ECB welcomes the possibility, under the proposed Article 116(2), for the Banco de Portugal torequest special audits to be performed by i ndependent entities. In addition, in accordance with
the proposed Article 120(6), the Banco de Port ugal may also request credit institutions to
present reports on prudential supervision prepar ed by specialised entities. The ECB believes
that these provisions, by providing a certain de gree of flexibility, also enhance the effectiveness
of prudential supervision which may contribute to an increased  integration of financial markets
in Europe, while respecting free competition among credit institutions.
8. The ECB notes that, in accordance with the pr oposed Article 118(2), the Banco de Portugal
will be able to request a credit institution to abstain from engaging in an operation which may
lead to the infringement or increase the gravity  of an infringement of prudential rules or,
alternatively, which may lead to the disregar d of rules of prudent and sound management. The
ECB recognises the need to provide the supe rvisory authority with adequate and flexible
instruments to ensure the observance of prudential rules, with particular regard to institutions in
difficulty. Notwithstanding, the attribution of  such broad supervisory powers may involve
certain risks for the Banco de Portugal itself si nce it may be seen by market participants as
being entitled to oversee the credit instituti ons' managerial decisions. In addition, such
attribution of powers should also  not give rise to uncertainties regarding transactions among
market participants. Therefore, the ECB suggests that the wording of the proposed
                                                          
4 OJ L 275, 27.10.2000, p. 39.
4Article 118(2) might merit some clarificati on in order to reduce the potential scope of
supervisory influence over managerial  decisions and market transactions.
9. The ECB takes note of the proposed Article 117A, according to which the Banco de Portugal
may declare subject to its supervision those en tities that perform activities deemed relevant for
the functioning of payment systems. The ECB unde rstands that the provisions of this Article
will not limit the competences of the Banco de Portugal in its role as the payment system
overseer.
10. Finally, the ECB would like to address the provisions relating to the procedures of
reorganization of a credit institution and the role of Deposit Guarantee Fund, namely theproposed Articles 142, 155, 158, 159 and 167-A. The ma in purpose of these provisions is to
enhance the supervisory powers of the Banco de Portugal relating to corrective action when an
institution fails to meet prudential requirements, to enlarge the scope of activities of the Deposit
Guarantee Fund, allowing for its intervention in s ituations of financial reorganisation of credit
institutions and to provide for co-operation between the Banco de Portugal and the DepositGuarantee Fund in such situations. The ECB w ould like to recall that it has already adopted
Opinion CON/99/15 on the substance of similar draft. The ECB therefore recalls some of the
comments put forward in that opinion, where applicable and with the necessary adaptations. 
11. According to the legal framework of credit ins titutions and financial companies, the Banco de
Portugal may decide to take exceptional meas ures whenever the interests of depositors,
investors and other creditors, or the safeguard of  the normal functioning of the money, financial
and foreign exchange markets, are threatened. Among these measures, the Banco de Portugalmay require the institution concerned to prepar e a reorganisation plan, whose acceptance by the
Banco de Portugal may be made conditional upon a capital reduction or increase, or disposal of
shareholdings and other assets. The draft decr ee law allows the Banco de Portugal, in the
context of its intervention in the institution c oncerned, to invite the Deposit Guarantee Fund to
co-operate in the reorganisation process, partic ularly by granting monetary or financial support
or by participating in possible capital increases. The ECB considers that the amendments in the
proposed Article 142 of the draft decree law achieve this objective. 
12. The ECB notes that, in relation to the amendmen ts to Article 142, the Banco de Portugal will
have an extended role over the financial reor ganisation of a troubled institution. Namely, the
Banco de Portugal may present an interventi on plan defining a capital increase and further
requiring that the capital increase is preceded by the absorption of the institutions losses by the
relevant positive items of own funds. The Banco de Portugal may also invite the DepositGuarantee Fund or other institutions to co-operate  in the reorganisation process, in particular,
by granting adequate monetary or financial suppor t, or through their participation in the capital
increase decided by the Banco de Portugal, which shall be also responsible for guiding anddefining such co-operation in terms of the timeframe. The ECB understands, in accordance
5with the proposed Article 142(7), that such an intervention plan, as decided by the Banco de
Portugal on a capital increase, does not give rise to an obligation for the shareholders of the
institution or for any other investors and ins titutions, including the Deposit Guarantee Fund, to
indeed subscribe to a capital increase. 
13. The ECB notes, in relation to the proposed Artic le 159(2), that the Banco de Portugal will be
able, in an urgent situation and under the conditions laid down in its Organic Law, to granttemporarily to the Deposit Guarantee Fund the fina ncial resources required to meet the latters
immediate needs. The ECB takes note that the financial resources granted by the Banco de
Portugal to the Fund under this provision are gran ted without prejudice to its obligations as part
of the ESCB and based on adequate collateral (s ee Articles 24(1)(c) and Article 25(b) of the
Organic Law of the Banco de Portugal). In th is context, the ECB would like to recall that
according to Article 14.4 of the ESCB Statute,  national central banks may perform functions
other than those specified in the ESCB Statute unless the Gove rning Council of the ECB finds,
by a majority of two-thirds of the votes cast, that these interfere with the objectives and tasks ofthe ESCB. The ECB does not anticipate that th e possibility given to the Banco de Portugal
under Article 159(2) would interfere with the objectives and tasks of the ESCB.
14. The ECB notes, in relation to the proposed Artic le 167A(1) relating to financial support rules,
that the Deposit Guarantee Fund will be able to participate in operations deemed adequate to
put an end to situations of financial distress involving member credit institutions. Moreover, the
proposed Article 167A(2) provides that the F und shall confine its financial support operations
to the cases in which financial distress situations  are likely to come to an end within a short
period of time, the objectives are clearly outlined and defined and the manner in which theFunds support will end is specified. In this re spect, the ECB notes that the wording of the
proposed Article 167A(2), compared  with the previous wording of  this Article as discussed in
ECB Opinion CON/99/15, no longer specifies that the Fund shall confine its financial support
operations to situations which do not involve rec ourse to loans or to special contributions from
member credit institutions. The ECB therefore understands that, under the proposedArticle 159(2), the Banco de Portugal may al so grant financial resources to the Deposit
Guarantee Fund for the purposes foreseen unde r the proposed Article 167A(1), which was not
the case under the previous draft presented for consultation submitted to the ECB for its
opinion. Therefore, the Banco de Portugal may decide to grant financial resources to the
Deposit Guarantee Fund in order to finance an y financial support operation involving credit
institutions to be carried out by the Fund. On th is issue, the ECB cons iders that the possibility
that the Banco de Portugal grants financial resources to the Fund should in practice have a
narrow scope, namely where systemic stability considerations are involved, in view of theresponsibilities of the Banco de Portugal as overs eer of the stability of the Portuguese financial
system, in accordance with Article 12(c) of the Organic Law of the Banco de Portugal. Lastly,the ECB welcomes that the execution of an y financial support operation by the Deposit
6Guarantee Fund is made dependent on the Banco de  Portugals confirmation of the adequacy of
the operation to resolve the situation in question.
15. The ECB would also like to draw attention to  the minimum reserve requirements imposed on
credit institutions by Regulation ECB/1998/ 15 of 1 December 1998 on the application of
minimum reserves5, as amended by Regulation ECB/2000/86, and to the statistical reporting
requirements imposed on monetary financial institutions by Regulation ECB/1998/167 of 1
December 1998 concerning the consolidated balance sheet of the monetary financialinstitutions sector, as amended by Regulation ECB/2000/8. According to the present wording of
Regulation ECB/1998/15, the ECB may exempt from minimum reserve requirements an
institution subject to winding-up pro ceedings or reorganisation measures
8. In case a credit
institution continues to hold its authorisation wh ile being subject to reorganisation measures, its
obligations as a reporting monetary financial institution (MFI) continue.
16. The ECB confirms that it has no objection to publication of this opinion by the competent
national authorities at their discretion.
Done at Frankfurt am Main on 11 October 2001.
The President of the ECB
[signed]
Willem F. DUISENBERG
                                                          
5OJ L 356, 30.12.1998, p. 1.
6OJ L 229, 9.9.2000, p. 34.
7OJ L 356, 30.12.1998, p. 7.
8It is noted that Regulation ECB/1998/15 is currently under review.