Opinion of the European Central Bank of 2 April 2009 at the request of the Lithuanian Ministry of Finance on a draft law on financial sustainability (CON/2009/32)
Date: 2009-04-02
Institutions: European Central Bank
Subjects: Lithuania, State aid, bank, company in difficulties, financial intervention, financial stability, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 2 April 2009  

at the request of the Lithuanian Ministry of Finance 

on a draft law on financial sustainability 

(CON/2009/32) 

Introduction and legal basis 

On 25 March 2009 the European Central Bank (ECB) received a request from the Lithuanian Ministry of 

Finance for an opinion on a draft law on financial sustainability (hereinafter the ‘draft law’). 

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.  

Purpose of the draft law 

1.1  The aim of the draft law is to enable the Lithuanian State to protect essential public interests and to 

take measures to strengthen financial stability and the credibility of the banking system. 

1.2  The  draft  law  provides  for  four  categories  of  measures  to  strengthen  financial  stability:  (a)  State 

guarantees; (b) redemption of bank assets; (c) State involvement in a bank’s capital; and (d) taking 

shares in a bank in the public interest. The draft law is intended to apply to banks and branches of 

foreign banks established in Lithuania. 

1.3  The  draft  law  provides  for  a  general  legal  framework  allowing  the  Government  or  an  institution 

authorised  by  it  to  apply  one  or  several  of  the  new  measures  when  the  conditions  for  their 

application are met. Detailed rules for the implementation of the four categories of measures are to 

be adopted by the Government. 

1.4   The draft law is of a permanent nature – its validity is not limited in time. 

1  

OJ L 189, 3.7.1998, p. 42.  

 
 
 
 
 
                                                 
2. 

General observations  

2.1  The  ECB  has  issued  a  number  of  opinions  at  the  request  of  the  competent  Member  States’ 
authorities  on  national  measures  adopted  in  response  to  the  global  financial  crisis2.  The  ECB 

therefore invites the Ministry of Finance to take into account the relevant observations made in its 

recent opinions on similar draft legislative provisions in other Member States, some of which are 

repeated again below. 

2.2  The  ECB  also  draws  attention  to  the  guidance  provided  by  the  Ecofin  Council  to  the  Member 
States in the conclusions of its Meeting of 7 October 20083 as well as the Declaration issued by the 
Heads of State of the euro area on 12 October 2008 (hereinafter the ‘Declaration’)4. In particular, 

the  ECB  stresses  that  any  initiatives  put  in  place  by  the  competent  national  authorities  to  restore 

confidence  in  the  financial  markets  should  be  coordinated  and  should  aim  to  implement  the 

common principles in question, in a spirit of close cooperation with other Member States and the 
Community  institutions5.  The  principles  contained  in  the  Declaration  as  well  as  the  conclusions 
raised by the Ecofin Council were endorsed by the European Council of 15 to 16 October 20086. 

2.3  As the draft law provides for a general legal framework and the detailed rules of its implementation 

will be laid down by the Government, the ECB expects to be consulted on any new draft legislative 

provisions should they materially influence the stability of financial institutions and markets. 

2.4  With  these  general  observations  in  mind,  and  against  the  background  of  the  guidance  previously 

given  by  the  ECB  and  the  Community  institutions  in  this  regard,  the  ECB  has  the  following 

observations to make on the draft law. 

3. 

Specific comments  

3.1  Entities eligible for the application of the new measures 

3.1.1  As regards the entities to which the measures to strengthen financial stability provided for in the 

draft  law  could  be  applied,  the  ECB  understands  that  subsidiaries  are  also  covered  under  ‘banks 

2  
3  

4  

5  

6   

All ECB opinions are available on the ECB’s website at www.ecb.europa.eu. 
See ‘Immediate Responses to Financial Turmoil’, Ecofin Council Conclusions of 7 October 2008, available on the former 
French  Presidency’s  website  at  www.ue2008.fr.  The  Ecofin  Council  recommended  that:  (i)  interventions  should  be 
timely and the support should in principle be temporary; (ii) the interests of taxpayers should be protected; (iii) existing 
shareholders should bear the due consequences of the intervention; (iv) the Government should be in a position to bring 
about a change of management; (v) management should not retain undue benefits; (vi) governments may have, inter alia, 
the power to intervene in remuneration; (vii) legitimate interests of competitors must be protected, in particular through 
the State aid rules; and (viii) negative spill-over effects should be avoided.  
The text of the Declaration is available on the former French Presidency’s website at www.ue2008.fr. The Member States 
agreed  to:  (i)  ensure  appropriate  liquidity  conditions  for  financial  institutions:  (ii)  facilitate  the  funding  of  banks; 
(iii) provide  financial  institutions  with  additional  capital  resources  to  continue  to  ensure  the  proper  financing  of  the 
economy;  (iv)  allow  for  an  efficient  recapitalisation  of  distressed  banks,  (v)  ensure  sufficient  flexibility  in  the 
implementation of accounting rules; and (vi) enhance cooperation procedures among European countries. 
See  ECB  Opinion  CON/2009/12  of  9  February  2009  at  the  request  of  the  Cypriot  Ministry  of  Finance  on  a  draft  law 
amending the Laws of 2002 and 2004 on the management of revenues and expenditure and on the accounting system of 
the Republic and other related matters. 
See Brussels European Council of 15 to 16 October 2008, paragraph 3 of the Presidency Conclusions. 

2 

 
                                                 
and branches of foreign banks established in Lithuania’7. The ECB emphasises that any distortion 

in the level playing-field as regards the treatment of domestic financial institutions and subsidiaries 
of foreign institutions should be avoided8. 

3.2 

Involvement of Lietuvos bankas 

3.2.1  The ECB understands that the draft law will be implemented and the new measures will be applied 

by  the  Government  or  another  executive  institution  authorised  by  it.  Lietuvos  bankas’s  role  in 

relation  to  the  new  measures  will  only  be  limited  to  a  consultative  one,  i.e.  advising  the 

Government or the institution authorised by it in respect of specific measures and/or providing its 

findings on the situation of a particular bank. 

3.2.2  The  ECB  appreciates  that  these  provisions  recognise  Lietuvos  bankas’s  expertise  in  the  fields 

relevant to the stability of the financial market. In this respect, the ECB notes that any involvement 

of  Lietuvos  bankas  in  application  of  the  measures  to  strengthen  financial  stability  must  be 
compatible with the Treaty provisions9. First, the ECB expects that functions to be performed by 

Lietuvos bankas in the context of implementation of the new measures will be conducted in manner 
that  is  fully  compatible  with  Lietuvos  bankas’s  institutional  and  financial  independence10  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 

expects that Lietuvos bankas’s involvement in the procedure provided for in the draft law will not 

go beyond an advisory function and that it will in other respects comply fully with the prohibition 

on monetary financing laid down in Article 101(1) of the Treaty, read in conjunction with 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) [now Articles 101 and 103(1)] of the Treaty11. 

In  this  respect,  the  ECB  understands  that  the  measures  to  strengthen  financial  stability  will  be 
exclusively  financed  from  budgetary  and  similar  State  resources12.  In  the  same  vein,  this 

observation also concerns Article 3(1)(1) of the draft law, referring to the measures that Lietuvos 

bankas may apply to resolve problems relating to a bank’s liquidity or solvency. In this respect, it is 

noted  that  any  possible  measures  undertaken  by  Lietuvos  bankas  should  only  relate  to  liquidity 

7  
8  

9  

10  

11  

12  

Article 1(2) of the draft law. 
See paragraph 3.1 of 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. 
In this context also see paragraph 3.7 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. 
For  more  information  on  Lietuvos  bankas’  institutional  and  financial  independence  see  recent  ECB  Opinion 
CON/2009/26 of 24 March 2009 at the request of Lietuvos bankas on behalf of the Ministry of Finance of Lithuania on a 
draft law amending the Law on Lietuvos bankas as regards the rules on the distribution of the profits of Lietuvos bankas. 
OJ L 332, 31.12.1993, p. 1. See also paragraph 3.2 of 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 and paragraph 3.7 of ECB Opinion CON/2008/68. 
Articles 10 and 11 of the draft law. 

3 

                                                 
support  provided  to  solvent  institutions  in  order  to  comply  with  the  prohibition  on  monetary 

financing. 

3.3  Circumstances under which the new measures could be applied 

3.3.1  The draft law provides that the measures to strengthen financial stability could be applied when the 

bank concerned ‘faces liquidity problems or is insolvent, or there is a real threat that it will have 

liquidity problems or will become insolvent, and that the measures, which may possibly be applied 

by  Lietuvos  bankas  pursuant  to  legal  acts  are  insufficient  to  resolve  the  problems  related  to  the 
bank’s liquidity or solvency’13. In this context, the ECB would welcome clarification, as, according 

to the guidance previously given by the ECB and the Community institutions in this regard, only 

one  measure  could  be  applied  to  insolvent  banks,  namely  taking  shares  in  a  bank  in  the  public 

interest. 

3.3.2  The  ECB  also  recommends  that  the  consulting  authority  clarifies  the  coverage  of  the  proposed 
measures under the draft law. Indeed, in line with previous opinions14, attention should be drawn to 

the importance of putting a transparent, predictable framework in place, by defining the terms and 

conditions for financial institutions to have recourse to it and the parameters of and limitations to 

the  exercise  by  the  Lithuanian  authorities  of  their  powers  when  deciding  whether  to  activate  the 

support measures contained in the draft law. 

3.4   Relationship of the draft law with monetary policy 

3.4.1  The ECB reminds the consulting authority that, in line with the Declaration, Member States have to 

act in a coordinated manner to avoid that significant differences in national implementation could 

have  a  counter-productive  effect,  creating  distortions  in  global  banking  markets.  Against  this 

background, the ECB has the following remarks. 

3.4.2  First, the ECB understands that State guarantees may be issued to cover all types of liabilities of 

domestic  financial  institutions  and  national  guarantee  schemes.  However,  the  ECB  notes  that  the 

draft  law  does  expressly  exclude  interbank  deposits  from  its  material  scope  of  application.  The 

ECB welcomes this provision as such guarantees could entail a substantial distortion in the various 

segments  of  the  money  market  by  potentially  increasing  short-term  debt  issuance  activity  across 

Member  States,  thus  impairing  the  implementation  of  the  single  monetary  policy  of  Lietuvos 

bankas, and possibly altering the transmission of monetary policy decisions. 

3.4.3  Second, the ECB understands that, by extension, State guarantees may be given for loans taken out 

by  banks.  In  this  respect,  the  ECB  notes  that  such  arrangements  for  the  granting  of  government 

guarantees  on  bank  debt  should,  in  their  practical  implementation,  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 

13  
14  

Article 3(1)(1) of the draft law. 
See  paragraph  3.1.2  of  ECB  Opinion  CON/2009/18  of  9  March  2009  at  the  request  of  Riigikogu  on  a  draft  law  on 
stabilising measures for the Estonian financial system. 

4 

                                                 
institutions and avoiding market distortions; and (c) ensuring consistency with the management of 

liquidity by Lietuvos bankas. In line with the Declaration, the ECB also notes that the governments 

should make available a Government guarantee of new medium term (up to five years) bank senior 

debt  issuance  and  that  guarantees  must  be  limited  in  time.  In  this  respect,  the  ECB  reminds  the 

consulting authority that the draft law should lay down not only the maximum maturity of a bank’s 

liabilities that are guaranteed by the State, but also the minimum maturity, currently recommended 

to be three months. 

3.4.4  Third, as regards the pricing of the State guarantees, the ECB notes that it also appears crucial to 

ensure the harmonisation of the price determination of such guarantees within the euro area and the 

European Union where a level playing-field is of essence. In this respect, the ECB’s contribution to 
the harmonisation and coordination across the EU of the price determination of State guarantees15 

is helpful. In particular, it is important to ensure that the price of the State guarantee is risk-based 

and market-oriented and determined on the basis of the costs of a corresponding guarantee in the 

market. In this respect, the ECB notes that Article 4(3) of the draft law introduces a direct reference 

to  the  ECB’s  recommendations  on  government  guarantees  on  bank  debt.  While  appreciating  that 

the draft law includes such provisions, for reasons of legal certainty, the ECB recommends deleting 

the  specific  reference  to  its  recommendations  on  government  guarantees  on  bank  debt,  which  do 
not constitute a legal act and which may be subject to revision16. 

3.4.5  Fourth,  the  ECB  also  reminds  the  Lithuanian  authorities  that  it  is  important  to  ensure  that  the 

beneficiary financial institutions may not profit from undue use of their guaranteed status to engage 

in  a  heightened  level  of  activities  which  distort  the  market  and  facilitate  abnormal  balance  sheet 

growth.  In  this  regard,  the  ECB  reiterates  the  importance  of  establishing  appropriate  safeguards 

such as limits on the marketing of financial products or on expansion of activities on the basis of 

State guarantees. 

3.4.6  Finally, the draft law provides that the measures to strengthen financial stability must be applied for 

a  ‘limited’  time  and  that,  once  applied,  they  will  have  to  be  reviewed  under  the  procedure  and 
terms  prescribed  by  legislation  regulating  State  aid17.  The  ECB  reminds  the  consulting  authority 

that  open-ended  schemes  are  not  line  with  the  Declaration.  In  particular,  the  Declaration  clearly 

draws attention to the need for any domestic support schemes, and for the framework that provides 
for them, to be temporary in nature, even if these can be extended or renewed18. Accordingly, the 

ECB  recommends  that  more  specific  provisions  on  the  time  limits  of  the  support  measures  are 

15  

16  

17  
18  

The  reference  is  to  the  Recommendations  of  the  Governing  Council  of  the  European  Central  Bank  on  the  government 
guarantees for bank debt of 20 November 2008, available on the ECB’s website at www.ecb.europa.eu. 
See also paragraph 3.2 of ECB Opinion CON/2008/67 of 13 November 2008 at the request of the Spanish Ministry for 
Economic Affairs and Finance on a draft order implementing Royal Decree-Law 7/2008 authorising State guarantees. 
Article 3(2)(4) of the draft law. 
‘… In all cases, these actions will be designed in order to avoid any distortion in the level playing field and possible abuse 
at  the  expense  of  non  beneficiaries  of  these  arrangements.  As  a  consequence  the  scheme  will  be  limited  in  amount, 
temporary  (emphasis  is  ours)  and  will  be  applied  under  close  scrutiny  of  financial  authorities  …’  taken  from  the 
Declaration. 

5 

                                                 
inserted  in  the  draft  law,  as  well  as  provisions  establishing  means  aimed  at  redeeming  the  new 

measures. 

3.5   Conditions for State capital investments 

3.5.1  In line with the Declaration, the ECB reiterates that uncoordinated decisions among Member States 

should  be  avoided  as  they  may  have  a  negative  impact  on  the  integrity  of  financial  markets  and 

lead  to  significant  differences  in  the  treatment  of  financial  institutions  between  Member  States. 

This remark also applies to the measures related to State capital investments. 

3.5.2  The ECB thus takes the opportunity here to reiterate the points made in its previous opinions. 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. Against this background, the ECB has the following observations. 

3.5.3  First, 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  in  terms  of  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  published 

recommendations  of  the  Governing  Council  of  the  ECB  on  the  pricing  of  recapitalisations 
(hereinafter  the  ‘Recommendations  on  recapitalisations’)19.  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. 

3.5.4  Second, as far as the redemption of bank assets is concerned, the ECB reiterates that this measure 

should  not  be  applied  to  the  insolvent  banks.  The  ECB  also  draws  attention  to  the  fact  that  a 

mechanism  for  fixing  a  fair  price  for  the  assets  should  be  established  for  this  measure,  in 
accordance with the guidance provided by the European Commission20 and by the ECB21. 

3.5.5  Third, as regards taking shares in a bank in the public interest, the ECB understands that no limits 

are  set  with reference to the amount of shares that the Government  may take  and, therefore, that 

such a measure could also result in the takeover of a credit institution. Furthermore, the ECB also 
notes  that  the  adoption  of  such  a  measure  is  provided  for  ‘solely  in  exceptional  cases’22.  In  line 

19  

20  

21  

22  

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. 
See the Communication from the Commission ‘On the Treatment of Impaired Assets in the Community Banking Sector’, 
available on the Commission’s website at www.ec.europa.eu. 
See  the  ECB’s  ‘Guiding  principles  for  bank  asset  support  schemes’,  available  on  the  ECB’s  website  at 
www.ecb.europa.eu. 
Article 8(1) of the draft law. 

6 

                                                 
with  previous  opinions23,  the  ECB  stresses  that  due  to  their  far  reaching  effects  on  market 

participants,  it  should  be  ensured  that  such  measures  are  only  used  as  a  last  resort,  that  the 

disturbances to the level playing-field are minimised and that the State’s role is limited in time. 

The ECB also draws particular attention to the appropriate pricing of the shares.  

Moreover,  in  respect  of  an  exit  strategy,  pursuant  to  Article  9  of  the  draft  law,  expropriation  is 

meant  to  be  temporary.  The  ECB  notes  that  the  conditions  for  re-privatisation  provided  in  this 

article  are  unclear.  As  mentioned  in  previous  ECB  opinions,  it  is  important  to  ensure  that  the 

State’s involvement is limited in time and that companies are reprivatised without undue delay as 

soon as they are stabilised and their operations are sustainable. 

3.5.6  Fourth,  in  line  with  the  Declaration,  the  ECB  also  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,  including  for  State  capital  investments  in  financial  institutions.  In  this 

context,  it  is  stressed  that  capital  investments  under  the  draft  law  must  expressly  provide  for  the 

temporary nature of the Lithuanian State’s intervention. More generally, concerning the issue of the 

application of State aid rules to measures taken by the Member States in connection with financial 

institutions  in  the  context  of  the  ongoing  financial  crisis,  the  ECB  also  draws  the  consulting 

authority’s attention to the importance of ensuring that the proposed arrangements comply with the 

relevant Community law provisions and with the criteria recently laid down by the Commission in 
its guidance on compliance by financial sector support schemes with EU State aid rules24 and to the 

need to ensure that the State’s role as shareholder resulting from a possible recapitalisation under 

the draft law is limited in time. In this respect, and in accordance with the Recommendations on 

recapitalisations,  consideration  should  be  given  to  setting  out  terms  for  the  redemption  or 

conversion  of  the  instruments,  either  on  the  basis  of  a  period  of  time  or  development  of  market 

conditions,  in  order  to  retain  the  temporary  nature  of  State  involvement  and  discourage  financial 

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

3.6  Provisions on confidentiality  

3.6.1  Article 12 of the draft law, providing for the protection of the confidential information provided by 

the banks, does not expressly establish a list of subjects to which such an obligation to maintain the 

confidentiality of information is applied. The ECB notes that for the sake of clarity this obligation 

should  also  apply  to  Lietuvos  bankas,  without  prejudice  to  supervisory  information  and  to  the 

extent  what  is  required  under  the  Memorandum  of  Understanding  on  cooperation  between  the 

financial supervisory authorities, central banks and finance ministries of the European Union on 
cross-border financial stability of 1 June 200825. 

23  

24  

25  

See  e.g.  paragraph  3.2.2  of  ECB  Opinion  CON/2009/24  of  17  March  2009  at  the  request  of  the  German  Ministry  of 
Finance on a draft law on the further stabilisation of the financial market. 
 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. 
The text of the Memorandum of Understanding is available on the ECB’s website at www.ecb.europa.eu. 

7 

 
 
                                                 
3.7 

Implementation of ‘EU legal acts’ 

3.7.1  As laid down in its Article 1(4), the draft law is meant to provide for the implementation of two 
‘EU legal  acts’, namely26 the Communication from the Commission on ‘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  and  the  Communication  from  the  Commission  on  ‘The 

recapitalisation  of  financial  institutions  in  the  current  financial  crisis:  limitation  of  aid  to  the 

minimum necessary and safeguards against undue distortions of competition’. 

The  ECB  notes  that  from  a  legal  point  of  view,  the  term  ‘implementation’  does  not  seem 

appropriate  in  respect  of  the  abovementioned  Communications  from  the  Commission,  since  they 

cannot be properly defined as ‘legal acts’ and are not a source of Community law. However, the 

ECB understands that the intention is to follow and respect these documents in the draft law. In this 

context, the ECB draws again attention to the new Communication from the Commission ‘On the 

Treatment  of  Impaired  Assets  in  the  Community  Banking  Sector’,  which  applies  from 

25 February 2009 and which also should be taken into consideration. 

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

Done at Frankfurt am Main, 2 April 2009. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

26  

See the Annex to the draft law. 

8