Opinion of the European Central Bank of 21 September 2001 at the request of the Finnish Ministry of Finance on a draft proposal concerning legislation on the reorganisation and winding-up of credit institutions (CON/2001/27)
Date: 2001-09-21
Institutions: European Central Bank
Subjects: Finland, company in difficulties, credit institution, economic stabilisation, financial stability, liquidation, national law

EN

OPINION OF THE EUROPEAN CENTRAL BANK

of 21 September 2001

at the request of the Finnish Ministry of Finance

on a draft proposal concerning legislation

on the reorganisation and winding-up of credit institutions

(CON/2001/27)

1.

On  21  May  2001  the  European  Central  Bank  (ECB)  received  a  request  from  the  Finnish

Ministry of Finance  for  an  opinion  on  a draft  Government  proposal  concerning  legislation  on

the  reorganisation  and  winding  up  of  credit  institutions  (hereinafter  referred  to  as  the

“proposal”).  The  proposal  contains  three  different  elements.  First,  it  intends  to  introduce  in

Finland a new Law on the temporary suspension of the activities of a deposit bank (hereinafter

to as the  “draft  law”). Secondly,  it  intends  to  amend  certain related  provisions  in  the  existing

laws governing the different legal forms of credit institutions in Finland as well as in a number

of other related laws. Thirdly, the proposal also consolidates the existing laws on the different

legal forms of credit institutions, i.e. the laws on commercial banks and other credit institutions

in  the  form  of  a  limited  company,  on  cooperative  banks  and  other  cooperative-based  credit

institutions, and on saving banks. 

2. 

The  ECB’s  competence  to  deliver  an  opinion  is  based  on  Article 105(4)  of  the  Treaty

establishing the European Community (hereinafter referred to as the “Treaty”) and the fifth and

sixth indents of Article 2(1) of Council Decision 98/415/EC of 29 June 1998 on the consultation
of  the  ECB  by  national  authorities  regarding  draft  legislative  provisions1,  as  the  proposal

contains  provisions  concerning  payment  systems  and  rules  applicable  to  financial  institutions

which  could  materially  influence  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, this opinion has been adopted by the Governing Council of the ECB. 

1 

OJ L 189, 3.7.1998, p. 42.

                                                     
3. 

The  proposal  mainly  intends  to  complement  Finnish  legislation  concerning  the  voluntary

reorganisation measures in the Finnish banking sector by extending the  application  of  general

company law provisions on voluntary reorganisation measures, such as mergers, divisions and

transfers of business, to cover also all credit institutions in Finland. However, in order to take

into account the specific features of the banking sector, the proposal introduces the draft law. In

addition,  the  proposal  will  harmonise  the  rules  applied  to  different  legal  forms  of  credit

institutions with regard to their reorganisation and winding-up. These uniform rules will ensure

that the same principles for safeguarding the rights of creditors will apply to all such measures,

and  that  they  will  be  equal  irrespective  of  the  legal  form  of  credit  institution  concerned.  The

rights of depositors in Finland are safeguarded by specific legislation on the Deposit Guarantee

Fund. The proposal does not intend to change this legislation. The ECB welcomes the proposal

in general as it aims to facilitate through voluntary reorganisation measures the developments in

the banking sector and in general in the financial markets.

4. 

The  ECB  notes  that  according  to  the  Finnish  legislation  currently  in  force,  the  voluntary

reorganisation  measures  concerning  credit  institutions  require  the  authorisation  of  the  Finnish

Ministry of Finance. As the preconditions for granting such an authorisation are at the moment

not  covered  by  legislation,  the  Ministry  of  Finance  has  until  now  had  a  wide  discretionary

power  in  considering  the  authorisation  and  safeguarding  the  creditors’  rights  in  different

reorganisation measures. The proposal intends to abolish this role of the Ministry of Finance. As

a  result,  the  existing  control  exercised  by  the  Ministry  of  Finance  in  safeguarding  creditors’

rights  would  be  replaced  by  a  procedure  for  creditor  consultation  following  the  provisions  of

general company law in Finland. These provisions provide the creditors with the right to oppose

the  planned  reorganisation  measures.  The  Finnish  Trade  Register  Authority  approves  the

execution  of  the  planned  reorganisation  measures  only  if  none  of  the  creditors  opposes  the

measures.  The  ECB  welcomes  the  fact  that  in  such  a  consultation  procedure  the  Finnish

Financial  Supervisory  Authority  (FSA)  will  also  be  consulted  in  order  to  ensure  that  the

conditions regarding the authorisation of a credit institution are not endangered. The FSA would

have  the  right  to  oppose  the  reorganisation  measures  if  it  considers  that  the  measures  would

have  negative  effects  on  such  conditions,  inter  alia,  as  liquidity,  solvency,  or  procedures  for

controlling the risk exposure of the credit institution concerned. In such case, the Finnish Trade

Register  Authority  cannot  approve  the  execution  of  the  planned  reorganisation  measures.  If

there were appeals against the opposition of the FSA, the Supreme Administrative Court would

take the final decision.

5. 

The ECB would like to recall that the Treaty and the Statute of the European System of Central

Banks  and  of  the  European  Central  Bank  (hereinafter  referred  to  as  the  “Statute”)  entrust  the
Eurosystem2 and Suomen Pankki, as a component member of the Eurosystem, with, inter alia,

2 

The  Eurosystem  comprises  the  ECB  and  the  national  central  banks  of  the  Member  States  which  have  adopted  the
euro as their single currency.

2

                                                     
the  tasks  of  defining  and  implementing  the  monetary  policy  of  the  Community.  Furthermore,

the Treaty and the Statute entrust the Eurosystem with the task of overseeing payment systems

in order to promote the smooth operation of payment systems and thus contribute to financial

stability. The Eurosystem may provide facilities, and the ECB may make regulations, to ensure

efficient  and  sound  clearing  and  payment  systems  within  the  Community  and  with  other

countries.

The  ECB  observes  that  all  reorganisation  measures,  as  well  as  the  winding-up  of  credit

institutions in Finland, would affect the role of Suomen Pankki, as a component member of the

Eurosystem,  in  assessing  the  risks  involved  when  undertaking  credit  operations,  both  in  the

context  of  implementing  monetary  policy  as  well  as  in  providing  intraday  credit  for  payment

system purposes. Furthermore, such measures may have an impact on the smooth functioning of

payment systems, and thus affect Suomen Pankki in its roles of both payment systems overseer

and provider of payment services.

Therefore,  the  ECB  submits  that  the  proposal  and  the  draft  law  should  enhance  and  ensure

transparency  vis-à-vis  Suomen  Pankki,  which  should  be  adequately  informed  of  all  measures

involved in the reorganisation and winding-up of credit institutions, and should have the right to

request  all  information  needed  in  fulfilling  its  tasks  under  the  Treaty  and  the  Statute  as  a

component member of the Eurosystem.

6. 

The  ECB  notes  that,  according  to  the  draft  law  concerning  the  temporary  suspension  of  the

activities of a deposit bank, if the liquidity of a deposit bank is impaired to the extent that it may

be  unable  to  fulfil  its  obligations,  the  role  of  the  Ministry  of  Finance  would  remain  strong

compared to its role in voluntary reorganisation and the winding-up of credit institutions. The

Ministry of Finance would assess whether the liquidation of a deposit bank can be avoided, in

particular if the stability of the financial market requires the continuation of the activities of the

bank  concerned.  The  draft  law  lays  down  the  conditions  according  to  which  the  Ministry  of

Finance  can  order a  temporary  suspension. The  activities  of a  deposit  bank  would  have  to  be

suspended  when  its  financial  position  is  weakened  to  the  extent  that  the  continuation  of  its

activities would jeopardize the position of the depositors and other creditors or the stability of

the financial market, or otherwise cause severe distortions to the financial markets. The aim of

the suspension is to prevent the bankruptcy of a deposit bank and provide for the continuation of

its  activities  in  the  future,  if  the  adequate  reorganisation  measures  are  feasible.  If  the

reorganisation measures are not deemed possible, the suspension aims to prepare the liquidation

of  the  bank  in  a  controlled  way.  The  activities  of  a  deposit  bank  may  be  suspended  for  a

maximum  period  of  six  months.  The  ECB  welcomes  the  possibility  for  the  Ministry  to

temporarily suspend the activities of a deposit bank, as it could help prevent disturbance to the

stability of financial markets due to temporary problems within the bank. Moreover, the  ECB

welcomes  the  obligation  for  the  Ministry  to  consult  Suomen  Pankki  before  adopting  the

decision  to  order  the  temporary  suspension.  This  will  allow  Suomen  Pankki  to  provide  the

3

process  with  a  central  banking  perspective,  in  particular  on  the  basis  of  financial  stability

concerns.

7. 

The intended legal effects of the suspension procedure of a deposit bank correspond to a large

extent  to  the  legal  effects  of  the  company  reorganisation  measures  provided  in  the  Finnish

Company  Reorganisation  Law  No  47/1993  (Company  Reorganisation  Law).  Both  the

suspension of the activities of a deposit bank, and the reorganisation measures according to the

Company  Reorganisation  Law,  aim  at  a  continuation  of  the  business  by  impacting  on  the

position of the creditors  to  the  least  possible extent. Therefore, according  to  the  draft  law  the

provisions  of  the  Company  Reorganisation  Law  would  apply,  with  certain  restrictions,  to  the

legal effects of initiating the suspension of activities of a deposit bank and control of its assets

during the suspension period.

According to the draft law, and the applicable provisions of the Company Reorganisation Law,

during the suspension the bank is not allowed to take deposits or other refundable assets from

the  public  without  the  permission  of  the  Ministry  of  Finance.  Furthermore,  the  bank  is  not

allowed  to  grant or  otherwise  obtain  new  loans,  or  to  enter  into  or  otherwise  obtain  financial

agreements.  Moreover,  during  the  suspension  the  liabilities  of  the  bank  are  frozen,  the

fulfilment of its obligations towards the depositors and other creditors is prevented, the bank is

not allowed to provide any additional collateral and the creditors are not allowed to realise the

collateral  already  provided.  These  measures  are  established  in  order  to  secure  the  equal

treatment of the creditors irrespective of the outcome of the suspension procedure. In addition,

they will help to avoid the risk of sudden large-scale withdrawal of deposits.

8. 

The ECB notes that the principles of the Finnish Company Reorganisation Law intend to lead to

the  restructuring  of  viable  enterprises  and  the  avoidance  of  unnecessary  bankruptcies.  Such  a

restructuring  procedure  is  a  long-term  process  lasting  possibly  several  years.  Instead,  the

principal aim of a temporary suspension of the activities of a deposit bank should be to ensure

the continued smooth and stable functioning and operation of financial markets. The temporary

suspension of the activities of a deposit bank should be an extreme measure by the authorities in

order  to  safeguard  the  stability  of  financial  markets.  Such  a  suspension  should  therefore  be  a

short-term measure.

Furthermore  the  ECB  notes  the  differences  between  the  nature  of  activities  of  a  credit

institution, on the one hand, and the nature of activities of companies in general, on the other

hand. In particular, the debt structure of a credit institution is by definition of a special nature

compared  to  any  other  company  in  general.  The  ECB  understands  that  the  Company

Reorganisation Law does not take into account the special features, as a consequence  of such

differences, inherent in  the  resolution  of  financial  problems  of  credit institutions,  and  that the

Company  Reorganisation  Law  is  therefore  designed  to  govern  general  company  restructuring

measures and procedures.

4

Therefore,  the  ECB  considers  that  the  application  of  the  Company  Reorganisation  Law  with

regard to  the  temporary  suspension  of  the  activities  of  credit institutions  pursuant  to  the  draft

law might be problematic. 

9. 

The  ECB  would  see  the  need  for  the  draft  law  to  better  take  into  account  the  role  of  the

Eurosystem,  and  in  particular  the  role  of  Suomen  Pankki  as  a  component  member  of  the

Eurosystem, on certain issues, as addressed below.

The ECB would like to point out that the Statute requires that all credit operations extended by

the ECB or the national central banks of the Eurosystem to credit institutions and other market

participants be based on adequate collateral. Following this primary law requirement, Article 9

of  Directive  98/26/EC  of  the  European  Parliament  and  of  the  Council  of  19  May  1998  on
settlement  finality  in  payment  and  securities  settlement  systems3  (the  Settlement  Finality

Directive, SFD) provides that the rights of a national central bank of the Member States or of

the  ECB  to  collateral  security  provided  to  them  “shall  not  be  affected  by  insolvency

proceedings” against the credit institution or another market participant which has provided the

collateral security. Such collateral may always be realised for the satisfaction of these rights.

The  ECB  notes  that  this  provision  of  Community  law  has  been  implemented  in  Finland  by  a

specific  law  on  netting  in  clearing  and  settlement  systems  (Laki  eräistä  arvopaperi-  ja

valuuttakaupan  sekä  selvitysjärjestelmän  ehdoista  1084/1999)  (the  Netting  law).  Section  10

provides that the rights relating to the collateral provided to the central bank in connection with

central  bank  operations  may  be  realised  notwithstanding  the  initiation  of  an  insolvency

procedure  or  any  other  comparable  procedure  thereto.  However,  in  order  to  avoid  any

misunderstandings with regard to the application of this provision also to all cases of temporary

suspension of the activities of a deposit bank in Finland, as well as any reorganisation procedure

started as a consequence of such suspension, the ECB considers it essential that the priority of

the provision of Section 10 of the Netting law over the rules of the draft law be guaranteed by

necessary clarifications in the proposal.

Furthermore, the ECB submits that in order to be in line with the above, the draft law should

also  entitle  Suomen  Pankki  to  require  additional  collateral  according  to  the  risk  management

provisions of the Eurosystem or to call in its credit contracts irrespective of the rules of the draft

law.

10.  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  reserves4,  as  amended  by  Regulation  ECB/2000/85,  and  to  the  statistical  reporting

requirements  imposed  on  monetary  financial  institutions  by  Regulation  ECB/1998/16  of

3
4
5

OJ L 166, 11.6.1998, p. 45.
OJ L 356, 30.12.1998, p. 1.
OJ L 229, 9.9.2000, p. 34.

5

                                                     
1 December  1998  concerning  the  consolidated  balance  sheet  of  the  monetary  financial
institutions sector, as amended by Regulation ECB/2000/86. The ECB’s statistical requirements

will need to be fulfilled also during a temporary suspension of the activities of a deposit bank, in

case a bank continues to hold its authorisation to act as a deposit bank. According to Regulation

ECB/1998/15, the ECB may exempt from minimum reserve requirements an institution subject

to winding-up proceedings or reorganisation measures.

11.  Regarding the draft amendment of the Credit Institution Act No 1607/1993, the ECB notes that

the Ministry of Finance, when granting authorisation to a credit institution, will provide this new

authorisation  for  registration  to  the  Finnish  Trade  Register  and  for  information  to  the  FSA.

Since the new credit institution would be entitled to become a monetary policy counterparty and

participate in payment systems, it would be preferable that also Suomen Pankki, as the monetary

policy and payment systems oversight authority in Finland, be promptly informed thereof. 

12.  Finally, the ECB recalls Directive 2001/24/EC of the European Parliament and of the Council of
4 April  2001  on  the  reorganisation  and  winding  up  of  credit  institutions7,  which  provides  for

mutual  recognition  of  such  proceedings.  While  the  national  implementation  of  this  Directive

does  not  need  to  take  place  before  May  2004,  the  ECB  suggests,  without  having  made  an

assessment in this regard, that the proposal should already now be brought broadly in line with

the provisions of this Directive in order to avoid any abrupt regime changes when the Directive

is formally implemented in Finnish law.

13.  The  ECB  confirms  that  it  has  no  objection  to  the  competent  national  authorities  making  this

opinion publicly available at their discretion.

Done at Frankfurt am Main on 21 September 2001.

The President of the ECB

[signed]

Willem F. DUISENBERG

6
7

OJ L 229, 9.9.2000, p. 34.
OJ L 125, 5.5.2001, p. 15.

6