Opinion of the European Central Bank at the request of the French Ministry of Economics, Finance and Industry under Articles 109l (2) and 109f (6) of the Treaty establishing the European Community and Article 5.3 of the Statute of the European Monetary Institute on a draft law concerning savings and financial security (CON/98/46)
Date: 1998-10-16
Institutions: European Central Bank
Subjects: France, bank deposit, financial stability, financial supervision, guarantee, national law

OPINION OF THE EUROPEAN CENTRAL BANK

at the request of the French Ministry of Economics, Finance and Industry under Articles 109l

(2) and 109f (6) of the Treaty establishing the European Community and Article 5.3 of the

Statute of the European Monetary Institute on a draft law concerning savings and financial

security

1.

On 16 September 1998 the European Central Bank (ECB) received a request from the French

Ministry  of  Economics,  Finance  and  Industry  for  an  ECB  Opinion  on  a  draft  law  concerning

savings and financial security (hereinafter referred to as the “Law”).

2.

In  accordance  with  Article  1091(2)  of  the  Treaty  establishing  the  European  Community

(hereinafter referred to as the “Treaty”), the ECB has taken over the advisory functions of the

European Monetary Institute (EMI), which went into liquidation upon the establishment of the

ECB on 1 June 1998. The ECB’s competence to deliver an opinion is based on Article 1.1, fifth

indent, of the Council Decision (93/717/EC) of 22 November 1993 on the consultation of the

EMI by the authorities of the Member States on draft legislative provisions, as the Law contains

provisions  concerning  the  safety  and  soundness  of  financial  institutions  and  markets.  In

accordance with Article 17.5, first sentence, of the Rules of Procedure of the ECB, this ECB

Opinion has been adopted by the Governing Council of the ECB. 

3. 

The ECB notes that the objective of the Law is to foster the trust of the general public in the

financial sector through a number of specific measures. Such measures relate to 1) the conduct

of  prudential  supervision  and  in  particular  cross-sectoral  and  international  supervisory  co-

operation  and  flows  of  information,  2)  the  protection  of  depositors,  investors  and  insured

persons, and 3) disciplinary and redress measures to be taken vis-à-vis financial institutions. 

A  number  of  the  provisions  of  the  Law  specifically  purport  to  strengthen  the  stability  of  the

financial system and to improve the financial supervisory framework in France.

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The  enlargement  of  the  set  of  preventive  actions  that  can  be  taken  by  the  “Commission

bancaire”  (cf.  Article  31  of  the  Law)  as  well  as  the  option  available  to  the  “Commission

bancaire”  to  limit  or  even  prohibit  the  disbursement  of  dividends  to  shareholders  of  a  credit

institution  or  investment  firm  (cf.  Article  35  of  the  Law)  are  likely  to  increase  both  the

possibility  of  and  the  choice  of  method  available  regarding  early  intervention  of  such

supervisory authority. Early intervention is understood to be  an  effective  tool  for  reducing  or

avoiding the cost of failures and market exits of credit institutions.

A committee, comprising supervisory authorities from different sectors of the financial industry

(“collège  des  autorités  de  contrôle  des  entreprises  du  secteur  financier”),  is  established  (cf.

Article  40  of  the  Law)  with  a  view  to  1)  facilitating  the  exchange  of  information  among

supervisory  authorities  of  financial  conglomerates  involved  in  credit,  investment  and/or

insurance activities, and 2) raising issues of common interest pertaining to the co-ordination of

control  of  such  financial  conglomerates.  The  ECB  notes  that  the  establishment  of  this

committee  is  in  line  with  the  studies  of  several  international  fora  regarding  the  ways  of

improving the prudential supervision of financial conglomerates.

Article  42  of  the  Law  sets  out  the  relationship  between  the  “Commission  bancaire”  and

supervisory  authorities  of  other  countries.  As  such,  the  “Commission  bancaire”  and  the

supervisory authorities of the EEA may 1) ask one another for any information  necessary  for

the execution of their mission, or 2) arrange for a third party supervisory authority to carry out,

or themselves carry  out,  on-site  examinations  of  subsidiaries  and  branches,  established  in  the

EEA, of credit institutions or  investment  firms  subject  to  their  control.  The  new  Article  42-2

introduces  means  for  the  exchange  and  verification  of  information,  as  well  as  for  on-site

examinations  of  subsidiaries  and  branches  located  outside  the  EEA,  which  are  similar  to  the

ones  described  above,  but  subject  to  the  condition  that  an  agreement  must  be  entered  into  to

provide  for  reciprocity  between  the  “Commission  bancaire”  and  the  relevant  prudential

supervisor.

The  ECB  takes  note  that  the  Law  also  lays  down  an  enhanced  and  streamlined  structure  of

deposit insurance and investor protection. For the further organisation planned for the deposit

insurance and funding of the scheme, the introduction of risk-based premia (according to which

poorly managed and more risky institutions would have to pay higher insurance premia) could

be considered in order to provide an incentive for credit institutions to move towards safe and

sound management. As for the scope of the scheme, the ECB considers as a desirable objective

that the funds received against the issuance of electronic money be covered in principle by the

deposit guarantee scheme. The ECB was informed by the Banque de France that such is already

the case, according to the texts presently applicable in France.

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As a general assessment, the ECB welcomes the new measures of intervention in cases of credit

institutions or investment firms experiencing financial difficulties. Such measures are likely to

prove helpful in facilitating orderly market exits of financial institutions. To the extent that the

Law  relates  to  the  implementation  of  EU  Directives,  the  ECB  has  not  investigated  the

compatibility of the draft provisions with such Directives.

4.

The  ECB  confirms  that  it  has  no  objection  to  this  ECB  Opinion  being  made  public  by  the

competent national authorities at their discretion.

Done at Frankfurt am Main on 16 October 1998.

The President of the ECB

[signed]

Willem F. Duisenberg