Opinion of the European Central Bank of 13 November 2008 at the request of the Finnish Ministry of Finance on a draft government proposal for laws amending the Law on the Government Guarantee Fund and the Law on credit institutions (CON/2008/68)
Date: 2008-11-13
Institutions: European Central Bank
Subjects: Finland, bank, credit guarantee, credit institution, financial stability, monetary crisis, support policy

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 13 November 2008 

at the request of the Finnish Ministry of Finance 

on a draft government proposal for laws amending the Law on the Government Guarantee 

Fund and the Law on credit institutions 

(CON/2008/68) 

Introduction and legal basis 

On 31 October 2008 the European Central Bank (ECB) received a request from the Finnish Ministry of 

Finance  for  an  opinion  on  draft  government  proposal  for  laws  amending  the  Law  on  the  Government 

Guarantee Fund and the Law on credit institutions (hereinafter the ‘draft legislation’). 

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

European  Community  and  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 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.  

Background and purpose of the draft legislation 

1.1  The draft legislation concerns the Law on the Government Guarantee Fund2, which was originally 

enacted in the context of the banking crisis of early 1990s, with a view to ensuring the stability of 

the  Finnish  banking  system.  At  that  time,  the  major  part  of  the  State’s  support  and  crisis 

management measures were implemented through the Government Guarantee Fund (hereinafter the 

‘Fund’),  which  was  given  authority  to  grant  support  loans  and  guarantees  to  deposit  banks’  own 
guarantee  funds3,  to  support  banks  directly  by  subscribing  for  their  shares  and  to  provide  other 

forms  of  support.  The  Law  on  the  Government  Guarantee  Fund  therefore  lays  down  a  general 

framework for bank support, regulating, inter alia, applicable instruments, conditions, procedures, 

funding  and  management.  The  Fund  is  managed  by  the  Ministry  of  Finance.  The  Parliament 

decides on the allocation of funds from the State Budget to the Fund, and the authority to decide on 

1  
2 
3  

OJ L 189, 3.7.1998, p. 42.  
Law No 379/1992 as amended. 
A bank’s own guarantee funds are provided for in Section 113 of the Law on credit institutions. Membership of such fund 
is nowadays voluntary for deposit banks. The statutory deposit-guarantee scheme is distinct from these funds, which have 
become less important since the introduction of the deposit-guarantee scheme. 

 
 
 
 
                                                 
support measures is assigned to the Council of State. Suomen Pankki and the Financial Supervisory 

Authority are consulted on the Council of State’s decisions concerning support measures. 

1.2  The draft legislation is part of measures taken by the Finnish Government to preserve the stability 

of the financial markets in the context of the global financial crisis, with a view to implementing 
the Declaration on a concerted European action plan of the euro area countries of 12 October 20084 

(hereinafter the ‘Declaration’). In addition to the draft legislation, on 22 October 2008 the Finnish 

Government  requested  Parliament’s  consent  to  State  guarantees  on  debt  instruments  issued  by 

banks  in  accordance  with  the  Government’s  plan  for  stabilisation  of  the  financial  markets  in 
Finland5. 

1.3  The  explanatory  memorandum  to  the  draft  legislation  states  that  the  Law  on  the  Government 

Guarantee  Fund  currently  provides  for  a  wide  legal  framework  allowing  for  various  kinds  of 

support measures to be put in place and that the general conditions applicable to support measures 

are adequate. However, the Law on the Government Guarantee Fund does not allow the authorities 

to  take  the  initiative  at  an  early  stage  to  solve  solvency  problems  entailing  a  systemic  risk  or  to 

intervene in certain situations where the conditions for stable operations are compromised due to 

external factors. 

1.4  The draft legislation would give the Government the power to oblige distressed banks to apply for 

support if: (a) the solvency of a bank has decreased or is expected to decrease in such a way that 

the  bank  does  not  fulfil  the  conditions  to  continue  its  operations  in  accordance  with  its  licence; 

(b) an  acceptable  level  of  solvency  cannot  be  achieved  without  the  State’s  financial  support;  and 

(c) the  liquidation  or  insolvency  of  the  bank  could  lead  to  serious  disturbances  in  the  financial 

markets.  If  the  bank  does  not  apply  for  support,  the  Council  of  State  may  decide  to  purchase  its 

shares  and  capital  loans  or  its  business,  depending  on  the  corporate  form  of  the  bank  concerned. 

Moreover, a bank’s holding company could be subject to such support measures, but funds could 

no longer be channelled via the bank’s own guarantee fund. In addition, the Government would be 

authorised  to  restrict,  for  a  maximum  period  of  six  months,  the  operations  of  deposit  banks  and 

other  financial  market  participants  and  to  decide  on  restrictions  of  procedures  to  be  followed  in 

securities trading. The Council of State may decide on such restrictions provided that it is necessary 

due  to  disturbances  in  the  international  financial  markets  or  due  to  measures  taken  by  foreign 

authorities. 

4  
5  

The Declaration is available on the French Presidency’s website at www.ue2008.fr. 
Government  proposal  HE  181/2008  vp.  Under  Section  82(2)  of  the  Finnish  Constitution,  a  State  security  and  a  State 
guarantee may be given on the basis of the consent of the Parliament. Such guarantees are further based on the Law on 
State  lending  and  State  guarantees  (449/1988)  and  Section  3  of  the  Government  Decree  on  fees  payable  for  State 
guarantees (20/2003, as amended by Decree 109/2008). On the subject of stabilisation of the financial markets in Finland, 
see  also  the  Press  Releases  164/2008  and  168/2008  of  the  Ministry  of  Finance,  available  on  the  Ministry’s  website  at 
www.vm.fi. 

 
                                                 
2. 

General observations 

2.1 

In the wake of the global financial crisis, the ECB has issued several opinions in the field of State 
rescue  measures6,  emphasising  the  importance  of  a  common  approach  aimed  at  restoring 

confidence in the financial markets and compliance with the Declaration. The ECB therefore draws 

the  consulting  authority’s  attention  to  its  recent  opinions  issued  at  the  request  of  other  Member 

States in which it has commented on legislative proposals sharing some of the features of the draft 

legislation.  It  is  the  ECB’s  intention  to  facilitate  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. 

2.2 

In line with its past opinions, the ECB notes that it should be ensured that beneficiary institution(s) 

are  not  unfairly  advantaged  by  making  undue  use  of  their  guaranteed  status.  In  this  respect,  the 

ECB notes that financial support arrangements which may be considered as providing preferential 

treatment to specific credit institutions should be avoided. The ECB notes that in this case, the draft 

legislation extends the applicability of support measures beyond Finnish deposit banks to holding 

companies of deposit banks. Moreover, purchase measures can be applied irrespective of a bank’s 

corporate form. This aspect should be further clarified in the draft legislation. Therefore, the ECB 

also  underlines  the  importance  of  ensuring  that  the  proposed  arrangements  under  the  draft 

legislation, including any implementation measures, should comply with the relevant Community 

law  provisions  and  with  the  criteria  set  out  in  the  Commission’s  Communication  entitled  ‘The 

application of State aid rules to measures taken in relation to financial institutions in the context of 

6  

See  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  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/2008/55  of  20 October  2008 at  the 
request  of  the  Austrian  Ministry  of  Finance  on  draft  legal  measures  to  ensure  the  stability  of  the  Austrian  financial 
market;  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;  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; ECB Opinion CON/2008/58 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; ECB Opinion CON/2008/59 of 
24 October 2008 at the request of the Swedish  Ministry of Finance on a draft proposal on stabilising measures for the 
Swedish financial system; ECB Opinion CON/2008/60 of 27 October 2008 at the request of the Spanish State Secretary 
for Economic Affairs on a draft Order implementing Royal Decree-Law 6/2008 creating the Fund for the acquisition of 
financial  assets  and  on  a  draft  Basic  Agreement  of  the  Fund’s  Executive  Council;  ECB  Opinion  CON/2008/61  of 
28 October  2008  at  the  request  of  the  Belgian  Minister  for  Finance  on  a  draft  royal  decree  implementing  the  Law  of 
15 October  2008  on  measures  promoting  financial  stability  and  in  particular  establishing  a  State  guarantee  for  the 
provision  of  credit  in  the  context  of  financial  stability,  in  relation  to  the  protection  of  deposits  and  life  insurance  and 
amending the Law of 2 August 2002 on the supervision of the financial sector and on financial services; ECB Opinion 
CON/2008/62  of  29 October  2008  at  the  request  of  the  Swedish  Ministry  of  Finance  on  a  draft  ordinance  on  State 
guarantees 
at 
www.ecb.europa.eu/ecb/legal/opinions/html/index.en.html. 

ECB  website 

etc.  All 

available 

opinions 

banks 

ECB 

are 

the 

for 

on 

                                                 
the  current  global  financial  crisis’  (hereinafter  the  ‘Commission  Communication’)7.  For  these 

reasons,  the  ECB  expects  to  be  consulted  on  any  implementation  measures  relating  to  matters 

within its competence. 

3. 

Specific observations 

The draft legislation and euro area monetary policy 

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  of  support  measures  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  Member  States  should  avoid  taking  decisions  in  an 

uncoordinated  way,  as  this  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 laid down in the draft legislation. 

3.2  As regards the conditions applicable to support measures, the ECB notes that the draft legislation 

does not further specify the detailed terms or compensation payable by the supported entity. The 

ECB understands that under Section 14 of the Law on the Government Guarantee Fund, the terms 

for support measures may be laid down separately by the Parliament when deciding on allocation 

of  funds  and/or  by  the  Council  of  State  when  deciding  on  support  measures  in  each  case.  The 

ECB’s specific observations are as follows. 

3.3  First,  the  ECB  notes  that  the  draft  legislation  does  not  provide  for  a  time  limit  as  regards  the 

implementation  of  the  support  measures.  Such  an  ‘open-ended’  scheme  does  not  appear  to  be  in 

line with the Declaration which emphasises the temporary feature of such schemes. 

3.4  Second, in case that the Fund would provide State guarantees as part of measures to implement the 

Declaration, the ECB understands that such guarantees would apply to all liabilities, without limit 

regarding the maturity. In this respect, the ECB would remind the Finnish authorities of Article 8 of 

the  Declaration  which  states,  inter  alia,  that  the  euro  area  governments  will  make  available  a 

Government guarantee of new medium term (up to five years) bank senior debt issuance. The ECB 

also considers that practically, arrangements for granting a State guarantee on bank debt should aim 

at:  (a)  addressing  the  funding  problems  of  liquidity-constrained  solvent  banks  by  improving  the 

functioning of the  market  for bank debt of longer term  maturity; (b) preserving the level-playing 

field  among  financial  institutions  and  avoiding  market  distortions;  and  (c)  ensuring  consistency 

with  the  management  of  liquidity  by  the  Eurosystem.  By  contrast,  it  is  the  ECB’s  view  that  the 

extension  of  a  State  guarantee  to  cover  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 

7  

2008/C 270/02. 

 
                                                 
implementation of the single monetary policy, which is an exclusive competence of the Eurosystem 
under Article 105(2) of the Treaty8. 

3.5  Third,  as  regards  the  price  of  the  State  guarantees  to  be  applied,  the  ECB  notes  that  the  draft 

legislation  does  not  specify  detailed  conditions,  which  could  be  determined  on  a  case-by-case 
basis9. In this context, the ECB would remind the Finnish authorities that it is of crucial importance 

to  ensure  harmonisation  of  the  price  determination  of  such  guarantee  within  the  euro  area  and 

within the EU, as a level-playing-field is also of essence in this respect. It is also important that the 

price  for  the  guarantee  should  be  risk-based  and  market-oriented,  determined  on  the  basis  of  the 

costs of a corresponding guarantee in the market. 

3.6  Fourth,  under  Section  1  of  the  draft  legislation,  the  Fund  may  acquire  shares  and  holdings  from 

financial  institutions.  Although  such  measures  should  restore  confidence  in  the  Finnish  banking 

system, it is also important for the price applied by the Fund to its transactions to be determined in 

a coordinated manner within the euro area and the EU and for the pricing of the purchased assets to 

be determined by the market. The ECB notes the importance of price determination of transactions 

conducted by the Fund and their potential implications for the transmission of the single monetary 

policy decisions within the euro area. In this respect, the ECB emphasises that uncoordinated price 

determination  between  all  euro  area  Member  States  could  lead  to  segmentation  of  the  euro  area 

money  market.  Moreover,  the  transactions  conducted  by  the  Fund  should  not  interfere  with  the 

transmission of the single monetary policy. The ECB should be involved in such concertation and 

coordination, and would welcome explicit provision to this effect in subsequent legislation. 

Suomen Pankki’s role  

3.7  The  ECB  understands  that  the  Government  Guarantee  Fund  will  be  managed  by  the  Ministry  of 

Finance, and that Suomen Pankki’s role in relation to the Fund will be only be limited to providing 

advice  through  consultation  on  support  measures.  The  ECB  appreciates  that  these  provisions 

recognise Suomen Pankki’s expertise in the fields relevant to the Fund’s operation. In this respect, 

the ECB notes that any involvement of Suomen Pankki with the Fund must be compatible with the 

Treaty  provisions.  The  ECB  expects  that  functions  to  be  performed  by  Suomen  Pankki  for  the 

benefit  of  the  Fund  will  be  conducted  in  manner  that  is  fully  compatible  with  Suomen  Pankki’s 

institutional  and  financial  independence to  safeguard the  proper performance  of  its  existing  tasks 

under  the  Treaty  and  the  Statute  of  the  European  System  of  Central  Banks  and  of  the  European 

Central  Bank.  Second,  the  ECB  also  understands  that  the  Fund’s  resources  will  be  exclusively 
financed  from  budgetary  resources10.  It  is  therefore  expected  that  the  involvement  of  Suomen 

Pankki will not go beyond an advisory function and, in particular, that it will fully comply with the 

8  
9  

10  

See ECB Opinion CON/2008/52. 
With regard to the support measures provided for in the Law on the Government Guarantee Fund, the Council of State  
determines,  under  authorisations  granted  in  the  State  budget,  the  consideration  payable,  determined  according  to  the 
liability incurred  by the  State from  the  principal of  various  guarantees,  securities and  commitments  and  its contractual 
obligation. Guarantee payments as referred to in the Law on State lending and State guarantees (449/1988), will not be 
collected for these guarantees or obligations. 
See Section 2 of the Law on the Government Guarantee Fund. 

                                                 
prohibition  on  monetary  financing  laid  down  in  the  Treaty11.  If  Suomen  Pankki  were  to  perform 

certain activities for the Fund at the request of the State, such activities would also need to comply 

with the abovementioned prohibition as regards their remuneration. 

Community rules on State aid and financial services 

3.8  Finally, it should be ensured that any beneficiary institution(s) will not be unfairly advantaged by 
making undue use of their guaranteed status12. In this context, the ECB notes that the explanatory 
memorandum to the draft legislation13 refers to the recently adopted Commission Communication 

regarding compliance with EU State aid rules by financial sector support schemes which include in 

the specific context of the provision of State guarantees detailed rules on setting eligibility criteria 
for  the  beneficiary  institutions14.  In  line  with  its  previous  opinions15,  the  ECB  reiterates  the 

importance of ensuring that the proposed arrangements under the draft legislation are implemented 

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

legislation  and  the  single  market  principles.  It  should  also  be  ensured  that  such  measures  are  in 

accordance  with  the  requirements  of  EC  competition  law,  in  particular  State  aid  rules,  and  that 

State’s role as shareholder is limited in time. 

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

Done at Frankfurt am Main, 13 November 2008. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

11  
12  

13  
14  

15  

Cf. Paragraph 3.2 of ECB Opinion CON/2008/52. 
See e.g. paragraph 3.4 of ECB Opinion CON/2008/48, paragraph 3.1 of ECB Opinion CON/2008/50 and paragraph 3.4 
of ECB Opinion CON/2008/57. 
See point 2.2 of the explanatory memorandum to the draft legislation. 
See paragraph 18 of the Commission Communication, specifying 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’. 
See paragraph 2.3 of ECB Opinion CON/2008/44 and paragraph 3.5 of ECB Opinion CON/2008/48.