Opinion of the European Central Bank of 23 October 2008 at the request of the Banca d’Italia on behalf of the Italian Ministry for Economic Affairs and Finance on two Decree-Laws containing urgent measures to guarantee the stability of the banking system and the continuity of the provision of credit (CON/2008/58)
Date: 2008-10-23
Institutions: European Central Bank
Subjects: Italy, State aid, bank, capital increase, financial stability, guarantee, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 23 October 2008 

at the request of the Banca d’Italia on behalf of  the Italian Ministry for Economic Affairs and 

Finance on two Decree-Laws containing urgent measures to guarantee the stability of the 

banking system and the continuity of the provision of credit 

(CON/2008/58) 

Introduction and legal basis 

On  16  October  2008  the  European  Central  Bank  (ECB)  received  a  request  from  the  Banca  d’Italia  on 

behalf of the Italian Ministry for Economic Affairs and Finance (hereinafter the ‘MEF’) for an opinion on 

Decree-Law  No  155  of  9  October  2008  containing  urgent  measures  to  guarantee  the  stability  of  the 

banking system and the continuity of the provision of credit to businesses and consumers, presented to the 
Parliament  on  the  same  date  for  discussion  and  conversion  into  law1,  and  Decree-Law  No  157  of 

13 October  2008  containing  further  urgent  measures  to  guarantee  the  stability  of  the  banking  system, 
presented to the Parliament on the same date for discussion and conversion into law2, (hereinafter jointly 

the ‘Decree-Laws’). 

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

European Community and the third and sixth indents 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 provisions3, as the Decree-Laws relate to the Banca d’Italia and 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 Decree-Laws 

1.1  Objectives and nature of the Decree-Laws 

In the context of the current international crisis of the financial markets and in the framework of the 

coordinated  approach  of  the  euro  area  Member  States  and  in  particular  in  the  light  of  the 

conclusions of the Ecofin meeting of 7 October 2008, the Italian Government urgently adopted two 

Decree-Laws aimed at guaranteeing the stability of the financial markets and of the banking system 

and the continuity of the credit flows to businesses and consumers. As mentioned in the explanatory 

1  
2  
3  

Atto Camera No 1762. 
Atto Camera No 1774. 
OJ L 189, 3.7.1998, p. 42.  

 
 
 
 
                                                 
memorandum  to  Decree-Law  No  155/2008,  the  national  legal  basis  is  found  in  Article  47  of  the 

Italian Constitution which provides, inter alia, that the Republic encourages and protects savings in 

all  its  forms  and  regulates,  coordinates  and  controls  the  provision  of  credit.  In  accordance  with, 

Article  77  of  the  Italian  Constitution,  the  Decree-Laws  were  adopted  on  an  urgent  basis  and 

immediately  published  in  the  Gazzetta  ufficiale  della  Repubblica  italiana,  entering  into  force  on 
their respective dates of publication4. Thereafter, the Decree-Laws were presented to the Parliament 

for  discussion  and  conversion  into  law  within  60  days  of  publication,  with  the  possibility  of 

amendments to the original texts. 

1.2   Main features of Decree-Law No 155/2008  

Under Decree-Law No 155/20085, the MEF is authorized to subscribe or guarantee the subscription 

of  capital  raisings  of  banks  incorporated  in  Italy,  provided  that:  (i)  the  Banca  d’Italia  has 

ascertained the capital inadequacy of the concerned bank; (ii) a stabilisation and reinforcement plan 

having a minimum duration of 36 months has been presented by the bank and assessed as adequate 

by  the  Banca  d’Italia;  and  (iii)  the  Banca  d’Italia  has  assessed  as  adequate  the  dividend  policy 

approved by the bank for the period of duration of the guarantee. As long as the MEF continues to 

hold equity in the bank, any substantial change in the bank’s stabilisation and reinforcement plan is 

subject to prior approval by the MEF in consultation with the Banca d’Italia. For the entire holding 

period,  the  equity  held  by  the  MEF  will  be  in  the  form  of  preferred  shares,  which  are  privileged 

over all other categories of shares as regards the distribution of dividends.  

Moreover, Decree-Law No 155/20086 provides for an extraordinary administration procedure in the 

case of illiquidity of solvent banks, whose ‘serious crisis situation’ poses a threat to the stability of 

the financial system. In such case, the management of the bank involved is replaced by temporary 

commissioners appointed by the MEF, which is allowed to subscribe to the capital raising of banks 

under extraordinary administration, even where such procedure is still pending. 

Furthermore,  it  is  foreseen  that  in  order  to  deal  with  serious  liquidity  crises  (i.e.  ‘emergency 

liquidity assistance’ (ELA)), the MEF may issue a  guarantee for any refinancing provided by the 
Banca d’Italia to banks incorporated in Italy as well as to branches of foreign banks in Italy7. 

Finally, in addition to the guarantee currently provided under the Italian deposit guarantee scheme, 

which covers up to €103,291.38 per bank account, the MEF is entitled to complement the deposit 

guarantee  scheme  by  providing  a  State  guarantee  in  favour  of  depositors  with  Italian  banks  for  a 
period of 36 months from the entry into force of Decree-Law No 155/20088. 

4  

5  
6  
7  
8  

Decree Law No 155/2008, published in the Gazzetta ufficiale della Repubblica italiana No 237 of 9 October 2008, p. 3 
and Decree Law No 157/2008, published in the Gazzetta ufficiale della Repubblica italiana No 240 of 13 October 2008, 
p. 4. 
See Article 1 of Decree Law No 155/2008. 
See Article 2 of Decree Law No 155/2008. 
See Article 3 of Decree Law No 155/2008. 
See Article 4 of Decree Law No 155/2008. 

2 

                                                 
1.3   Main features of Decree-Law No 157/2008 

In  order  to  restore  the  market  for  banks’  medium-term  financing,  it  is  provided  in  Decree-Law 
No 157/20089 that the MEF is authorized until 31 December 2009 (i) to provide a State guarantee, 

at market conditions, for liabilities of Italian banks with a maturity up to 5 years and issued after the 

entry  into  force  of  Decree-Law  No  157/2008;  (ii)  to  enter  into  temporary  swap  arrangements 

between government bonds and financial instruments held by Italian banks or liabilities of Italian 

banks with maturity up to 5 years and issued after the entry into force of this Decree-Law. Charges 

to be applied to banks under these arrangements will be determined according to prevailing market 

conditions.  Finally,  the  MEF  is  authorized  until  31  December  2009  (iii)  to  provide  a  State 

guarantee, at market conditions, with regard to the operations by Italian banks in order to obtain the 

temporary availability of securities eligible for refinancing operations with the Eurosystem. In all 

the abovementioned cases, the guarantee requires an assessment by the Banca d’Italia of the capital 

adequacy of the concerned bank. 

2.  General Observations 

2.1  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 the stability 

of the international financial markets. More specifically, the ECB notes that 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’ (‘the Declaration’)10, in which they confirmed their commitment to act together 

in a decisive and comprehensive way in order to restore confidence and the proper functioning of 

the financial system, with the aim of 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 

ensuring appropriate liquidity; facilitating the funding of banks through various means; providing 

additional capital resources to financial institutions; and recapitalisation of distressed banks. These 

principles were also endorsed by the European Council on 16 October 2008 for all Member States. 

Against  this  background,  the  ECB  highlights  that  all  the  initiatives  put  in  place  by  national 

governments  to  restore  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. 

2.2   The ECB wishes to draw the consulting authority’s attention to the recent ECB opinions issued at 

the  request  of  other  Member  States,  whereby  the  ECB  has  commented  on  legislative  proposals 
sharing  some  of  the  features  of  the  Italian  scheme11.  It  is  the  ECB’s  intention  to  facilitate 

9  
10  
11  

See Article 1 of Decree Law No 157/2008. 
See the Declaration of 12 October 2008, available on the French Presidency’s website at www.ue2008.fr. 
See, for example, ECB Opinion CON/2008/44  of 3 October 2008 at the request of the Irish Minister for Finance on a 
draft Credit Institutions (Financial Support) Bill 2008, ECB Opinion CON/2008/46 of 8 October 2008 at the request of 
the Belgian Ministry of Finance on a preliminary draft law on measures promoting financial stability and in particular 
establishing a State guarantee for the provision of credit in the context of financial stability, ECB Opinion CON/2008/48 

3 

 
                                                 
coordination  of  the  various  national  efforts  addressing  the  current  financial  situation,  inter  alia, 

through the timely adoption and publication of ECB opinions on such draft national legislation.  

2.3  Moreover,  the  ECB  reiterates  the  importance  of  ensuring  that  the  proposed  arrangements  will  be 

applied  in  full  compliance  with  the  relevant  Community  law  provisions,  including  EU  financial 

services  legislation,  the  single  market  principles  and  State-aid  principles,  in  compliance  with  the 
criteria set out in the recently adopted Commission’s guidance12. 

2.4  The  ECB  understands  that  implementing  rules  will  expand  on  the  details  of  the  Decree-Laws13. 

Consequently,  the  ECB  expects  to  be  consulted  on  any  proposed  implementing  legislation  to  be 
adopted in connection with the Decree-Laws on matters within the ECB’s competence14.  

3. 

The relationship with the single monetary policy of the euro area 

3.1   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  lead  to  a 

fragmentation  of  the  euro  area  money  market.  In  this  respect,  the  ECB  makes  the  following 

observations,  which  are  important  from  a  monetary  policy  perspective,  as  regards  the  measures 

contained in Decree-Law No 157/2008. 

3.2   First, the ECB notes that the MEF may issue a State guarantee until 31 December 2009 covering 

new  liabilities  of  Italian  banks  with  a  maturity  up  to  5 years.  The  ECB  thus  understands  that  the 

scheme seeks to implement Article 8 of the Declaration which states, inter alia, that the euro area 

of  15  October  2008  at  the  request  of  the  Irish  Minister  for  Finance  on  a  draft  Credit  Institutions  (Financial  Support) 
Scheme 2008, ECB Opinion CON/2008/50 of 17 October 2008 at the request of the Belgian Ministry of Finance on a 
draft royal decree adopted under Article 117bis of the Law of 2 August 2002 on the supervision of the financial sector 
and on financial services; ECB Opinion CON/2008/52 of 17 October 2008 at the request of the Spanish State Secretary 
for  Economic  Affairs  on  a  Royal  Decree-Law  creating  a  Fund  for  the  acquisition  of  financial  assets  and  on  a  Royal 
Decree-Law adopting urgent financial and economic measures in relation to the concerted European action plan of the 
euro area countries, ECB Opinion CON/2008/54 of 17 October 2008 at the request of the Danish Ministry of Economic 
and Business Affairs on a proposed Law  on financial stability, ECB Opinion CON/2008/56 of 21 October 2008 at the 
request of the Banque de France on a draft amending finance law for the financing of the economy, and ECB Opinion 
CON/2008/57 of 21 October 2008 at the request of the German Ministry of Finance on a Law on the implementation of a 
package of measures to stabilise the financial market and an order on its implementation. All ECB opinions are available 
on the ECB website at www.ecb.europa.eu/ecb/legal/opinions/html/index.en.html. 
See ‘Communication from the Commission – The application of State aid rules to measures taken in relation to financial 
institutions in the context of the current global financial crisis’ of 13 October 2008, which specifies that ‘The eligibility 
criteria of financial institutions … must be objective, taking due account of their role in the relevant banking system and 
the  overall  economy,  and  non-discriminatory  so  as  to  avoid  undue  distortive  effects  on  neighbouring  markets  and  the 
internal  market  as  a  whole.  In  application  of  the  principle  of  non  discrimination  on  the  grounds  of  nationality,  all 
institutions  incorporated  in  the  Member  State  concerned,  including  subsidiaries,  and  with  significant  activities  in  that 
Member  State  should  be  covered  by  the  scheme’;  the  document  is  available  on  the  Commission’s  website  at 
www.ec.europa.eu. 
See  e.g.  the  ‘general  administrative measures’  to  be  adopted  by  the  MEF  under  Article  5,  paragraph  1  of  Decree-Law 
No 155/2008. See also the ‘general administrative measures’ to be adopted by the MEF under Article 2, paragraph 1 of 
Decree-Law No 157/2008. 
See  the  definition  of  ‘draft  legislative  provisions’  under  Article  1(1)  and  also  the  sixth  indent  of  Article  2(1)  of 
Decision 98/415/EC. 

12  

13  

14  

4 

 
                                                                                                                                                             
governments ‘would make available … a Government guarantee … of new medium term (up to 5 

years)  bank  senior  debt  issuance’.  The  ECB  also  understands  that  the  Decree-Law  applies  to  all 

banks’  liabilities.  It  is  the  ECB’s  view  that  the  extension  of  the  State  guarantee  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.  In  this 

context, it is crucial to ensure the coordination of the price determination of such guarantees within 

the euro area and the EU, as a level playing field is of essence. The ECB should be involved in such 

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

3.3   Second,  the  MEF  may  enter  into  temporary  swap  arrangements  between  government  bonds  and 

financial instruments held by Italian banks or liabilities of Italian banks. Although such measures 

should restore confidence in the Italian banking system, it is important that such operations will be 

conducted  at  market  prices,  as  mentioned  in  Decree-Law  No 157/2008.  In  this  respect,  the ECB 

recalls the importance of such transactions and their price determination being conducted within the 

euro area in a coordinated manner between euro area governments.  

3.4  Finally,  the  ECB  welcomes  the  fact  that  the  stabilisation  measures  provided  for  by  Decree-Law 

No 157/2008  are  made  on  the  basis  of  the  Banca  d’Italia’s  evaluation  of  the  banks’  capital 

adequacy.  

4.   Emergency liquidity assistance and the prohibition on monetary financing  

4.1  One  of  the  specific  tools  available  to  central  banks  in  a  crisis  situation  is  the  provision  of 

emergency liquidity assistance to individual banks. This provision of liquidity assistance by central 

banks  consists  in  giving  support  in  exceptional  circumstances  and  on  a  case-by-case  basis  to 
temporarily illiquid but solvent credit institutions15. The 

emergency 

extension 

liquidity 

of 

assistance  falls  within  the  Banca  d’Italia’s  task  of  contributing  to  the  stability  of  the  financial 

system.  

4.2 

It is the ECB’s view that ‘national legislation foreseeing the financing by NCBs [national central 

banks] of credit institutions other than in connection with central banking tasks (such as monetary 

policy,  payment  systems  or  temporary  liquidity  support  operations),  in  particular  to  support 

insolvent  credit  and/or  other  financial  institutions,  is  incompatible  with  the  monetary  financing 
prohibition’16. In this respect, the ECB is of the view that a clarification, which states that a central 

15  

16  

See the ECB Financial Stability Review, December 2006, pp.171-172 and the ECB’s Annual Report 1999, p. 98; see also 
ECB Opinion CON/2008/42 of 10 September 2008 at the request of the Banque centrale du Luxembourg on amendments 
to  the  draft  law  improving  the  legislative  framework  for  Luxembourg  as  a  financial  centre  and  amending  the  Law  of 
23 December  1998  on  monetary  status  and  on  the  Banque  centrale  du  Luxembourg,  paragraph  4.10  (footnote  16)  and 
ECB Opinion CON/2008/46, paragraph 3.1. 
See the ECB’s Convergence Report May 2006, p. 68; the Convergence Report December 2006, p. 30; the Convergence 
Report May 2007, p. 22 and the Convergence Report May 2008, p. 24, all of which are available on the ECB’s website at 
wwe.ecb.europa.eu.  Cf.  paragraph  4.10  of  the  ECB  Opinion  CON/2008/42,  paragraph  4.2  of  the  ECB  Opinion 
CON/2008/46 and paragraph 3.3. of the ECB Opinion CON/2008/54. 

5 

 
                                                 
bank  extension  of  financial  support  to  an  insolvent  financial  institution  must  be  considered  as  a 

form  of  prohibited  monetary  financing,  should  be  explicitly  contained  in  the  Decree-Law 

No 155/2008.  In  the  same  vein,  it  would  be  advisable  to  introduce  into  the  same  Decree-Law  a 

direct  reference  to  the  prohibition  on  monetary  financing  as  defined  in  Community  law  or 

alternatively to Article 101 of the Treaty. 

4.3  Under Article 3.2 of Decree-Law No 155/2008, the MEF may issue a guarantee for any refinancing 

provided by the Banca d’Italia to the banks incorporated in Italy as well as to branches of foreign 
banks  in  Italy,  to  address  serious  liquidity  crisis17.  In  line  with  its  previous  opinions18,  the  ECB 

understands  that  such  refinancing  refers  exclusively  to  ’emergency  liquidity  assistance’  and 

considers that providing such emergency liquidity assistance on the basis of the guarantee provided 

by the State should be an autonomous decision that the Banca d’Italia must be in a position to take 

in complete independence. To this effect, the Decree-Law should stipulate that the same degree of 

independence  is  granted  to  the  Banca  d’Italia  as  regards  the  provision  of  emergency  liquidity 
assistance  as  with  respect  to  the  performance  of  its  ESCB-related  tasks19.  It  follows  that  central 

bank lending to a solvent credit institution on the basis of a State guarantee is, in principle, possible, 

provided  that  the  central  bank’s  compliance  with  the  monetary  financing  prohibition  under 

Article 101  of  the  Treaty  is  ensured.  Specific  criteria  for  such  compliance  must  be  respected  as 

noted  by  the  ECB  in  recent  opinions  issued  with  respect  to  other  EU  jurisdictions  which  have 
legislated in response to the current market turmoil20. 

5. 

Recapitalisation of banks  

The  ECB  notes  that  Article  1  of  Decree-Law  No  155/2008  refers  to  certain  conditions  for  the 

underwriting  of  shares,  to  be  ascertained  by  the  Banca  d’Italia,  including  the  adequacy  of  the  bank’s 

stabilisation and reinforcement plan presented in connection with the approval of the capital increase and 

the dividend policy of the bank. It further specifies that the shares held by the MEF have a privilege in the 

distribution of dividends over all other categories of shares. The ECB recalls the principle contained in 

the  Declaration  that  financial  institutions  to  which  Member  States  make  available  additional  capital 

resources should be obliged to accept additional restrictions, notably to preclude possible abuse of such 

arrangements at the expense of non-beneficiaries. 

17  
18  

19 

20  

Article 3(2) of the Decree-Law No 155/2008. 
See paragraphs 4.9-4.11 of the ECB Opinion CON/2008/42, paragraphs 3.1-3.4 of the ECB Opinion CON/2008/46; and 
paragraphs 3.1-3.3 of the ECB Opinion CON/2008/54. 
Alternatively,  a  reference  to  the  same  level  of  independence  as  provided  for  in  Article  108  of  the  Treaty  could  be 
considered. Cf. paragraph 4.11 of the ECB Opinion CON/2008/42; paragraph 4.2 of the ECB Opinion CON/2008/46. 
See  paragraph  4.3  of  ECB  Opinion  CON/2008/46  and  paragraph  3.9  of  the  ECB  Opinion  CON/2008/48.  These  ECB 
opinions specified the following criteria under which a central bank may engage in lending to a solvent credit institution 
on  the  basis  of  collateral  in  the  form  of  a  State  guarantee:  (i) the  central  bank  needs  to  independently  exercise  full 
discretion regarding the decision whether to extend emergency liquidity assistance; (ii) it should be ensured that the credit 
provided by the central bank is as short term as possible; (iii) there must be systemic stability aspects at stake; (iv) there 
must  be  no  doubts  as  to  the  legal  validity and  enforceability  of the  State  guarantee  under  applicable  national  law;  and 
(v) there must be no doubts as to the economic adequacy of the State guarantee, which should cover both principal and 
interest on the loans, thus fully preserving the financial independence of the central bank. 

6 

 
                                                 
6. 

Deposit guarantee scheme  

The  ECB  notes  that  Article  4  of  Decree-Law  No  155/2008  states  that  the  MEF  may  provide  a  State 

guarantee as a ‘complement to and in addition to’ the existing depositor guarantee scheme in favour of 

depositors with Italian banks for a period of 36 months from the entry into force of the same Decree-Law. 

The ECB notes that, should such additional guarantee be activated, the existing funding mechanism of the 

deposit guarantee scheme should be used to the extent possible; moreover, in line with past opinions, the 

ECB  also  notes  that  appropriate  safeguards  should  be  established  to  ensure  that  the  beneficiary 

institution(s) will not be unfairly advantaged by making undue use of their guaranteed status. Finally, the 

ECB underlines that it is crucial to ensure the coordination of such guarantee within the euro area and the 

EU. 

This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 23 October 2008. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

7