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)
Date: 2008-10-21
Institutions: European Central Bank
Subjects: France, State aid, financial stability, guarantee, national law

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 the 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  Central  Bank  by  national  authorities  regarding  draft 
legislative provisions1, as the draft law, and in particular Article 6 thereof, relates to rules applicable to 

financial institutions insofar as they 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, the Governing Council has adopted this opinion. 

1.  

Purpose of the draft law 

1.1  The  draft  law  is  motivated  by  the  current  financial  market  crisis.  It  concerns  the  provision  of 
several  State  guarantees2  in  the  context  of  the  measures  taken  in  France  in  order  to  restore 

confidence and to create the conditions for the normal 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 refinancing company whose purpose is to grant loans to 

credit  institutions  that  are  authorised  and  supervised  under  the  Monetary  and  Financial  Code 

1  
2  
3  
4  
5  

OJ L 189, 3.7.1998, p. 42.  
In accordance with Article 34-II-5 of the Organic Law No 2001-692 of 1 August 2001 on finance laws. 
See the explanatory memorandum to the draft law. 
Article 6-II of the draft law. 
See the explanatory memorandum to the draft law. 

 
 
 
 
                                                 
(hereinafter the ‘refinancing company’). The statutes of the refinancing company will be authorised 

by  an  order  of  the  Minister  for  the  Economy.  Only  credit  institutions  that  satisfy  the  capital 

requirements  under  the  Monetary  and  Financial  Code  may  be  granted  funds  by  the  refinancing 

company.  In  addition,  the  institutions  concerned  will  enter  into  an  agreement  with  the  State 

specifying the consideration to be provided for the 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  State  receives  collateral  security  (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 whose aim is to subscribe to securities that have 

been  issued  by  financial  entities  and  which  constitute  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  companies  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 included and mature before 31 October 2011. This 

State guarantee will be dependent on a guarantee being 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, the French Parliament adopted 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 application 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 Article 105(4) of the Treaty to consult the ECB on 

national draft legislative provisions falling within its advisory fields of competence. This opinion 

6  

7  
8  
9  
10  

It is noted that the two categories of State guarantees mentioned 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. 
 Article 6-III of the draft law. 
 See the explanatory memorandum to the draft law. 
 Article 6-III of the draft law. 
 Article 6-IV of the draft law. 

2 

 
                                                 
should  therefore  be  taken  into  account  in  the  context  of  any  further  legislative  provisions 

complementing or implementing the adopted legislation. 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 specifically, on 12 October 2008 the Heads of States of 

the euro area issued a ‘Declaration 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  restore  confidence  and  proper  functioning  of  the 

financial  system,  aiming  at  restoring  appropriate  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 measures 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) facilitating the funding of banks through various means; 

(iii)  providing  additional  capital  resources  to  financial  institutions;  and  (iv)  recapitalisation  of 

distressed  banks.  These  principles  were  also  endorsed  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 order to be in line with one of the conclusions of 
the  Ecofin  meeting  of  7  October  200812,  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 indicate 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 compliance of the State guarantee arrangements with 

the monetary financing prohibition laid 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  
12  

The Declaration is available on the French Presidency’s website at www.ue2008.fr. 
See  the  press  release  of  the  2894th  Council  meeting  (13784/08),  available  on  the  Council’s  website  at 
www.consilium.europa.eu. 

3 

 
                                                 
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 recapitalisation 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  purchasing  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 would 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 prohibition and the relevant provisions of the Statute of 

the Banque de France as regards their remuneration. 

3.2  The scheme’s relationship with the single monetary policy of the euro area 

First,  the  ECB  notes  that,  in  line  with  the  Declaration,  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 global banking markets. The Declaration acknowledges 

the  need  to  work  in  cooperation  with  the  ECB  to  ensure  consistency  with  the  Eurosystem’s 

management  of  liquidity  and  compatibility  with  its  operational  framework.  Against  this 

background, the ECB notes that uncoordinated decisions 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 notes that the refinancing company will acquire from 

financial  institutions  financial  assets  and/or  will  grant  loans  to  credit  institutions.  Although  such 

measures  should  restore  confidence  in  the  French  banking  system,  it  is  important  that  the  price 

applied  by  the  refinancing  company  to  its  transactions  with  credit  institutions  be  determined  in  a 

coordinated manner within the euro area and the 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  monetary  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  market.  Moreover,  the  pricing  of  the  transactions 

conducted  by  the  refinancing  company  should  not  interfere  with  the  implementation  and/or  the 

transmission of the Eurosystem’s monetary policy. 

13  

14  
15  

In order to qualify as a ‘public undertaking’ within the meaning of Article 101(1) of the Treaty, the State must exercise 
dominant  influence  over  the  company  by  controlling  its  financial  resources  and  governing  bodies  in  accordance  with 
Article 8(1) of Council Regulation (EC) No 3603/93 of 13 December 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). 
See Article 6-III of the draft law. 
In accordance with Regulation (EC) No 3603/93. 

4 

 
                                                 
Second, the ECB considers that extending the guarantees 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  should  be  involved  in  such  concertation  and 

coordination,  and  would  welcome  the  explicit  provision  for  this  in  subsequent  legislation.  In  this 

context, the ECB notes that the fourth State guarantee as regards financing raised by companies of 

the  Dexia  group  from  credit  institutions  and  institutional  depositors,  as  well  as  bonds  and  debt 

securities  that  they  issue  for  institutional  investors  (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 
institution16.  Therefore,  the  refinancing  company  will  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 collateral for Eurosystem monetary policy operations, it 

may be advisable to put in place a mechanism whereby 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 subscribe to securities that have been issued by 

financial  entities  and  which  constitute  regulatory  own  funds.  The  ECB  draws  attention  to  the 

conclusions adopted by the Declaration which highlighted 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  ensure  that  financial  institutions  to  which  Member 

States  make  available  additional  capital  resources  should  be  obliged  to  accept  additional 

16  

See Article 6-II.A of the draft law. 

5 

 
 
 
 
 
                                                 
restrictions,  notably  to  preclude  possible  abuse  of  such  arrangements  at  the  expense  of  non-

beneficiaries. Against this background, the ECB would suggest that the specific suggestions set out 

above be included in any subsequent 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 

6