Opinion of the European Central Bank of 8 January 2009 at the request of the Slovenian Ministry of Finance on a draft decree laying down criteria and conditions for the implementation of State capital investments and for the conversion of State claims into capital shares under Article 81.a of the Law on public finance (CON/2009/3)
Date: 2009-01-08
Institutions: European Central Bank
Subjects: Slovenia, State aid, credit institution, financial stability, national law, public investment, share

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 8 January 2009 

at the request of the Slovenian Ministry of Finance  

on a draft decree laying down criteria and conditions for the implementation of State capital 

investments and for the conversion of State claims into capital shares under Article 81.a of the Law 

on public finance 

(CON/2009/3) 

Introduction and legal basis 

On 30 December 2008 the European Central Bank (ECB) received a request from the Slovenian Ministry 

of  Finance  (hereinafter  the  ‘Ministry’)  for  an  opinion  on  a  draft  decree  laying  down  criteria  and 

conditions for the implementation of State capital investments and for the conversion of State claims into 

capital shares under Article 81.a of the Law on public finance (hereinafter the ‘draft decree’). 

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  decree  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 decree 

1.1  The  legal  basis  for  the  adoption of  the draft  decree  is  the  Law  on  public  finance  (hereinafter  the 
‘Law’)2 which provides for four categories of measures to limit the effects of the global financial 

crisis  in  Slovenia  and  maintain  the  stability  of  the  domestic  financial  system.  One  of  these 

measures  is  the  implementation  of  State  capital  investments  in  credit  institutions,  insurance 

companies,  reinsurance  companies  and  pension  companies  with  their  seat  in  Slovenia. 

Article 88.a(1)  of  the  Law  requires  the  Government  to  adopt  separate  decrees  for  each  of  these 

measures  setting  out  the  criteria,  conditions  and  charges  for  their  implementation.  This  opinion 

1  
2  

OJ L 189, 3.7.1998, p. 42.  
Law on public finance, published in Uradni list Republike Slovenije No 79/1999.  

 
 
 
 
                                                 
focuses  on  those  aspects  of  the  draft  decree  that  concern  State  capital  investments  in  credit 

institutions. 

1.2  Under the draft decree, the credit institutions  that may obtain State capital investments are  credit 
institutions as defined in the Law on banking3 with their seat in Slovenia, which due to the effects 

of the global financial crisis will probably not be able to fulfil minimum capital requirements under 

the legislation in force without State capital investments. 

1.3  State  capital  investments  will  take  the  form  of  ordinary  or  preference  shares  or  any  other 

instruments with the characteristics of basic capital as defined in the legislation in force. The rights 

to  be  acquired  by  the  State  arising  from  capital  investment  in  the  form  of  preference  shares  (i.e. 

voting rights, rights to a dividend, certain rights in the event of a reduction in the share capital of 

the  credit  institution  in  order  to  cover  losses,  rights  to  a  share  of  the  estate  in  bankruptcy  or 

liquidation) are defined in detail in the draft decree. 

1.4  The  Ministry  will  be  responsible  for  processing  applications  for  State  capital  investments.  If  it 

assesses,  on  the  basis  of  an  assessment  of  the  need  for  and  appropriateness  of  State  capital 

investments  provided  by  Banka  Slovenije  as  the  competent  supervisory  authority,  that  a  credit 

institution  is  entitled  to  obtain  State  capital  investment,  it  can  propose  to  the  Government  that  it 

should  adopt  a  decision  approving  State  capital  investment  in  that  credit  institution.  Terms  and 

conditions  as  well  as  commitments  to  be  accepted  by  the  beneficiary  (e.g.  restrictions  on  the 

income  and  other  benefits  of  the  company’s  management,  including  options  over  the  company’s 

shares,  and  restrictions  with  respect  to  dividend  payments  and  other  shareholder  rights)  will  be 

defined  in  such  Government  decision  and  the  Government  will  notify  Banka  Slovenije  of  the 

adoption of the decision. 

1.5 

In  the  event  of  realisation  of  a  guarantee  granted  to  a  credit  institution  under  Article  86.a  of  the 

Law  or  in  the  event  of  a  State  claim  in  respect  of  a  loan  under  Article  81.a  of  the  Law  arising 

against a credit institution, the Government can adopt a decision to convert State claims into capital 

shares in that credit institution if the State is not otherwise able to enforce them against the credit 

institution. For such a debt to equity swap, the rules on obtaining State capital investments apply 

mutatis mutandis. 

1.6 

In accordance with Article 15 of the draft decree, the decree will apply until 31 December 2010. 

2.  General observations 

It is proposed to adopt the draft decree on the basis of the Law on which the ECB has already issued an 
Opinion, CON/2008/764. As the ECB is now being consulted on legislation implementing the Law, the 

observations made in Opinion CON/2008/76 also apply to the draft decree. 

3  
4  

Law on banking, published in Uradni list Republike Slovenije No 131/2006.  
ECB Opinion CON/2008/76 of 25 November at the request of the Slovenian Ministry of Finance on a draft law amending 
the Law on public finance. All ECB opinions are available on the ECB’s website at www.ecb.europa.eu. 

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3. 

Specific observations 

3.1  Conditions  for  State  capital  investments  and  relationship  with  the  single  monetary  policy  of  the 

euro area 

3.1.1  In line with the ‘Declaration on a concerted European action plan of the euro area countries’ issued 
by the Heads of State of the euro area on 12 October 2008 (hereinafter the ‘Declaration’)5, Member 

States must act in a coordinated manner to avoid significant differences in national implementation 

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  reiterates  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 State capital investments under the draft decree. 

3.1.2  In accordance with Article 5 of the draft decree, State capital investments take the form of ordinary 

or preference shares or any other instruments with the characteristics of basic capital as defined in 

the legislation in force. In this respect the ECB notes that the recapitalisation measures considered 

in Member States are aimed at strengthening the capital position of fundamentally sound financial 

institutions, in order to improve the functioning and stability of the banking system and to ensure 

the proper financing of the economy. In particular, a consistent approach should be used in defining 

the  conditions  for  recapitalisations  and  the  pricing  of  the  instruments  intended  to  provide  Tier 1 

capital  to  financial  institutions.  The  ECB  underlines  the  importance  of  appropriate  pricing  for 

recapitalisations to reflect the goals of enhancing the stability of the financial system, facilitating a 

return to normal market conditions and ensuring the proper financing of the economy. Against this 

background, the ECB has published recommendations of its Governing Council on the pricing of 
recapitalisations  (hereinafter  the  ‘Recommendations’)6.  The  ECB  highlights  that  the  pricing 

conditions for capital support should be risk-based and market-oriented, determined by taking into 

consideration the specific risk of both the specific instrument chosen for injecting capital and the 

institution concerned. Specific features of the instruments for capital injections (such as preference 

shares) should be appropriately chosen so that, while encouraging an early end to the State’s capital 

support of banks, they should not result in an excessive increase in the cost of capital.  

3.1.3  Pursuant to Article 15 of the draft decree,  the decree will apply until 31 December 2010. In line 

with  the  Declaration,  the  ECB  emphasises  that  harmonisation  regarding  the  expiry  of  national 

financial  support  schemes  across  the  EU  and  in  particular  within  the  euro  area  is  of  crucial 

importance. Although Article 1 of the draft decree mentions that capital investments under the Law 

5  
6  

The Declaration is available on the French Presidency’s website at www.ue2008.fr. 
See  the  Recommendations  of  the  Governing  Council  of  the  European  Central  Bank  on  the  pricing  of  recapitalisations 
issued on 20 November 2008, available on the ECB’s website at www.ecb.europa.eu. 

3 

 
                                                 
and the draft decree will be of a temporary nature and introduced in order to limit the effects of the 

global financial crisis as well as to maintain the stability of the financial system, the draft decree 

should  expressly  provide  for  the  temporary  nature  of  the  Slovenian  State’s  intervention. 
Furthermore, in line with previous ECB opinions7, it should be ensured that such measures are in 

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

that  the  State’s  role  as  shareholder  is  limited  in  time.  In  this  respect,  and  in  accordance  with  the 

Recommendations,  the  draft  decree  should  set  out  terms  for  the  redemption  or  conversion  of  the 

instruments either on the basis of a period of time or the development of market conditions. This 

would  serve  to  ensure  the  temporary  nature  of  the  State’s  involvement  and  discourage  financial 

institutions from maintaining such involvement for an extensive period of time.  

3.2  Central bank involvement in the support measures 

3.2.1  The ECB understands that under the draft decree, Banka Slovenije is responsible for assessing the 

need for and appropriateness of State capital investment in a credit institution, indicating whether 

the credit institution concerned fulfils the conditions for State capital investment under the Law and 

the  draft  decree  and  whether  State  capital  investment  is  the  most  appropriate  measure  to  achieve 
the Law’s aims8. 

3.2.2  In  line  with  its  previous  opinions9,  the  ECB  reminds  the  Slovenian  authorities  that  the  tasks 

performed  by  Banka  Slovenije  must  comply  with  the  monetary  financing  prohibition  under 

Article 101  of  the  Treaty  and  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 Treaty10. It is also expected Banka Slovenije will perform any tasks in connection with State 

support  measures  in  a  manner  fully  compatible  with  its  institutional  and  financial  independence 

thereby  safeguarding  the  proper  performance  of  its  tasks  under  the  Treaty  and  the  Statute  of  the 

European System of Central Banks and of the European Central Bank.  

3.2.3  Moreover, the ECB understands that the entire cost of implementing State capital investments will 

be  exclusively  financed  from  State  funds  acquired  by  additional  State  borrowing  in  accordance 

with Article 81.a of the Law. The ECB understands that such additional State borrowing will not 

include  prefinancing  or  refinancing  of  the  State  budget  by  Banka  Slovenije,  e.g.  by  Banka 

Slovenije extending overdraft credit facilities to the Slovenian State or directly acquiring State debt 

instruments. 

7  

8 
9  

10  

See  e.g.  paragraph  3.8  of  ECB  Opinion  CON/2008/68  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. 
See Article 7 of the draft decree. 
See  paragraph  3.3  of  ECB  Opinion  CON/2008/88  of  19  December  2008  at  the  request  of  the  Slovenian  Ministry  of 
Finance on a draft decree laying down criteria and conditions for granting guarantees under Article 86.a of the Law on 
public  finance and  paragraph  3.2  of  ECB  Opinion  CON/2008/92  of  22 December 2008 at  the  request  of  the  Slovenian 
Ministry of Finance on a draft decree laying down criteria and conditions for granting loans under Article 81.a of the Law 
on public finance. 
OJ L 332, 31.12.1993, p. 1. 

4 

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

Done at Frankfurt am Main, 8 January 2009. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

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