Opinion of the European Central Bank of 27 May 2009 on measures to mitigate financial turmoil (CON/2009/49)
Date: 2009-05-27
Institutions: European Central Bank
Subjects: Slovakia, State aid, bank, financial intervention, financial stability, monetary crisis, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 27 May 2009  

on measures to mitigate financial turmoil 

(CON/2009/49) 

Introduction and legal basis 

On  12  May  2009  the  European  Central  Bank  (ECB)  received  a  request  from  the  Slovak  Ministry  of 

Finance for an opinion on a draft law on measures to mitigate the effects of the global financial crisis on 

the banking sector and on amendments to certain laws (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  main  purpose  of  the  draft  law  is  to  establish  a  legal  framework  laying  down  the  conditions 

under which aid may be granted to banks to remedy serious shortcomings in the functioning of the 

economy  by  mitigating  the  impact  of  the  global  financial  crisis  on  the  banking  sector  and 

strengthening the conditions for maintaining the stability of the whole financial system. The draft 

law  also  provides  for  the  procedure  to  be  followed  by  national  authorities,  in  particular  by  the 

Slovak Ministry of Finance and Národná banka Slovenska (NBS), when granting such stabilisation 

aid and for checking compliance with the conditions under which it is granted. 

1.2  Article 5(5) of the draft law lays down an enabling provision pursuant to which the details of prices 

and other conditions for State support (e.g. a fee amount or methods for returning the stabilisation 

aid)  will  be  provided  for  in  the  form  of  an  implementing  measure  to  be  adopted  by  the  Slovak 

Ministry of Finance in agreement with NBS. 

1  

OJ L 189, 3.7.1998, p. 42.  

 
 
 
 
                                                 
1.3  Stabilisation aid may be granted to banks with their registered office in Slovakia that perform their 

activities on the basis of a banking licence, including subsidiaries of foreign banks, by virtue of the 
draft  law  and  the  Law  on  banks2.  It  may  take  the  form  of  a  capital  contribution  from  the  State’s 

financial  assets  managed  by  the  Slovak  Ministry  of  Finance  to  the  bank’s  registered  capital  but 

must not exceed 50% of the bank’s own funds requirements. Alternatively it may take the form of a 

special guarantee: (a) for bonds issued by the bank, where the maturity period of the nominal value 

is not less than three months and not more than three years; and/or (b) for a loan with a maturity of 

up to one year provided to the bank by another bank, NBS or another entity. 

1.4  While the final approval of stabilisation aid falls within the competence of the Slovak Government, 

the Slovak Ministry of Finance is responsible for its implementation. Given NBS’s importance and 

its role as the single supervisory authority, implementation of stabilisation aid is subject to NBS’s 

prior consent by means of delivery of its opinion to the Slovak Ministry of Finance. Stabilisation 

aid  may be granted on  more than one occasion  and concurrently. Before stabilisation aid  may be 

granted,  the  parties  must  conclude  a  stabilisation  aid  agreement.  Such  agreements  must  be 

concluded by 31 December 2010 at the latest. 

1.5  The  draft  law  also  amends  eight  other  laws3.  This  opinion  concentrates  on  legislative  provisions 

that  relate  directly  to  the  Slovak  national  rescue  scheme,  and  does  not  fully  assess  the  other 

amendments contained in the draft law.  

2. 

General observations  

2.1  The  ECB  has  issued  a  number  of  opinions  at  the  request  of  the  competent  authorities  of  the 
Member States on national measures adopted in response to the global financial crisis4. The ECB 

therefore  invites  the  Slovak  Ministry  of  Finance  to  take  into  account  the  relevant  observations 

made in its recent opinions on similar draft legislative provisions in other Member States. 

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 20085 as well as the Declaration issued by the 

2  
3  

4  
5  

The Law No 483/2001 Coll. on banks (including amendments to certain laws), as amended.  
The Law No 513/1991 Coll. (the Commercial Code), as amended; the Law No 530/1990 Coll. on bonds, as amended; the 
Law No 483/2001 Coll. on banks (including amendments to certain laws), as amended; the Law No 566/2001 Coll. on 
securities and investment services (including amendments to certain laws), as amended; the Law No 386/2002 Coll. on 
state  debt  and  state  guarantees  (including  amendments  to  certain  laws),  as  amended;  the  Law  No  747/2004  Coll.  on 
financial  market  supervision  (including  amendments  to  certain  laws),  as  amended;  the  Law  No  7/2005  Coll.  on 
bankruptcy  and  restructuring  (including  amendments  to  certain  laws),  as  amended;  and  the  Law  No  8/2008  Coll.  on 
insurance (including amendments to certain laws), as amended. 
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.  

2 

 
                                                 
Heads of State of the euro area on 12 October 2008 (hereinafter the ‘Declaration’)6. In particular, 

the ECB emphasises 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  institutions7.  The  principles  contained  in  the  Declaration  as  well  as  the  conclusions 
raised by the Ecofin Council were endorsed by the European Council of 15 and 16 October 20088. 

Moreover, measures taken by competent national authorities in relation to financial institutions in 

the  context  of  the  current  global  financial  crisis  have  been  object  of  further  coordination  at 
European  Union  level9.  As  a  general  remark  in  this  context,  the  ECB,  in  line  with  its  previous 
opinions10,  notes  the  importance  of  putting  a  transparent  and  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 authorities of their powers when deciding whether to apply 
such aid measures11. 

2.3  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 on the draft law. 

3. 

Specific observations 

Provision of emergency liquidity assistance by NBS 

3.1  The provision of emergency liquidity assistance is a central bank function, which consists in giving 

support in exceptional circumstances and on a case-by-case basis to temporarily illiquid but solvent 

credit  institutions.  One  of  the  specific  tools  available  to  central  banks  in  a  crisis  situation  is  the 
provision of emergency liquidity assistance (ELA) to individual banks12.  

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7  
8   
9  

10  
11   

12  

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. 
See Brussels European Council of 15 to 16 October 2008, paragraph 3 of the Presidency Conclusions. 
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  (OJ  C  270,  25.10.2008,  p.  8);  Communication  from  the 
Commission  —  The  recapitalisation  of  financial  institutions  in  the  current  financial  crisis:  limitation  of  aid  to  the 
minimum  necessary  and  safeguards  against  undue  distortions  of  competition  (OJ  C  10,  15.1.2009,  p.  2);  
Recommendations of the Governing Council of the European Central Bank on government guarantees for bank debt and 
Recommendations of the Governing Council of the European Central Bank on the pricing of recapitalisations, both latter 
documents available on the ECB’s website at www.ecb.europa.eu.  
See paragraph 3.1.2 of ECB Opinion CON/2009/18. 
In this regard the ECB notes that Article 4(5) of the draft law contains a direct reference to the Communication from the 
Commission  —  Community  guidelines  on  State  aid  for  rescuing  and  restructuring  firms  in  difficulty  (OJ  C  244, 
1.10.2004, p. 2) and the obligation of the Slovak Ministry of Finance to report regularly to the European Commission on 
the review of the justification of the State aid scheme established by the draft law pursuant to Article 8(6) thereof. 
See the ECB Financial Stability Review, December 2006, pp. 171-172 and the ECB’s Annual Report 1999, p. 98. 

3 

 
                                                 
3.2  The  extension  of  ELA  falls  within  NBS’s  task  of  contributing  to  the  stability  of  the  financial 
system,  as  set  out  in  Article  24  of  the  Law  on  NBS13.  Under  the  second  subparagraph  of 

Article 2(1)(b) of the draft law, the State will provide a special guarantee for a loan with a maturity 

of up to one year provided to a bank. Since the NBS, as expressly stated in the explanatory notes to 

the  draft  law,  is  potentially  one  of  the  entities  entitled  to  provide  such  a  short-term  loan,  it  is  of 

crucial importance to ensure –that, under Slovak law, the provision of the loan complies with the 

rules on the provision of ELA. In particular, the decision whether to provide ELA against a State 

guarantee must remain at NBS’s discretion and must strictly respect the following criteria in order 

to  comply  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 [now 101] and 104b(1) 
[now 103(1)] of the Treaty14. First, as expressed in previous ECB opinions addressing the provision 
of  ELA  by  a  Eurosystem  central  bank15,  the  ECB  is  of  the  view  that  the  draft  law  should 

unequivocally guarantee NBS’s independence to decide on the provision of ELA. Second, it should 

be  ensured  that  the  credit  provided  by  NBS  is  as  short-term  as  possible.  Third,  there  must  be 

systemic stability aspects at stake for ELA to be granted. Fourth, there must be no doubts as to the 

legal  validity  and  enforceability  of  the  State  guarantee.  Fifth,  there  must  be  no  doubts  as  to  the 

economic adequacy of the State guarantee, which should cover both principal and interest on the 

loans, thereby fully preserving NBS’s financial independence. 

3.3  Against  this  background,  the  ECB  is  of  the  view  that  the  position  in  respect  of  ELA  should  be 

clarified, at least in the explanatory memorandum to the draft law. In particular, the current wording 

of  the  second  subparagraph  of  Article  2(1)(b)  of  the  draft  law  is  unclear,  especially  if  read  in 

conjunction with the explanatory notes, which, as stated above, explain that NBS is potentially one 

of several entities entitled to grant a loan to a bank. In this context, the maturity of the ELA should 

remain  at  the  central  bank’s  discretion.  Similarly,  NBS  may  not  be  involved  in  State  operations 
which are incompatible with the Treaty provision16, and the draft law should be more precise in this 
regard in order to clarify the link to the provisions of the Law on NBS relating to ELA17. 

Prohibition on monetary financing and NBS 

3.4  The  ECB  understands  that,  under  the  draft  law,  NBS  will  be  directly  involved  in  granting 

stabilisation  aid.  In  particular,  NBS  will  be  responsible  for  assessing  the  need  for  and 

appropriateness  of  applying  State  measures  to  a  credit  institution,  indicating  whether  the  credit 

13  
14  
15  
16  

17  

The Law No 566/1992 Coll. on Národná banka Slovenska. 
OJ L 332, 31.12.1993, p. 1.  
See paragraphs 4.9 to 4.11 of ECB Opinion CON/2008/42 . See also ECB Opinion CON/2008/46. 
It  is  the  ECB’s view  that  ‘national  legislation  foreseeing  the  financing  by [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’: see the ECB’s May 2006 Convergence Report, p. 68; the December 2006 Convergence 
Report, p. 30; the May 2007 Convergence Report, p. 22; the May 2008 Convergence Report, p. 24. 
The ECB notes that this could be achieved by inserting a footnote in the second subparagraph of Article 2(1)(b) of the 
draft law referring to Article 24 of the Law on NBS. 

4 

                                                 
institution  concerned  fulfils  the  conditions  set  by  the  State  under  the  law.  In  line  with  previous 

ECB opinions, it is noted that NBS’s involvement in the procedures provided for in the draft law 

will not go beyond the proper performance of its existing tasks and that it will comply fully with 

the prohibition on monetary financing laid down in Article 101(1) of the Treaty.  

NBS’s advisory role 

3.5  As  regards  NBS’s  advisory  role  pursuant  to  the  draft  law,  the  ECB  understands  that  it  will  be 

limited  to  providing  advice  through  consultation  on  stabilisation  aid.  While  the  ECB  appreciates 

that  provisions  of  the  draft  law  recognise  NBS’s  expertise  in  this  field,  the  ECB  restates  that 

functions to be performed by NBS in the context of granting stabilisation aid should be conducted 

in  a  manner  fully  compatible  with  NBS’s  institutional  and  financial  independence  in  order  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 Bank18. 

Selection of beneficiary credit institutions 

3.6  Pursuant to Article 1(1)(a) of the draft law, all credit institutions as defined by the Law on banks 

with their registered office in Slovakia are entitled to benefit from the measures under the draft law. 

The ECB understands, therefore, that the term ‘bank’ applies to any bank with its registered office 

in Slovakia that has been licensed by NBS to provide banking services, including subsidiaries of 

foreign banks but excluding branches of foreign banks. The ECB welcomes the above provisions, 

as they avoid preferring specific credit institutions and distorting the level playing-field as regards 
the  treatment  of  Slovak  financial  institutions  and  subsidiaries  of  foreign  institutions19.  The  ECB 

notes  that,  in  the  specific  context  of  provision  of  State  guarantees,  the  Commission’s  guidance 
includes detailed rules on the eligibility criteria for beneficiary institutions20. 

Interaction of the draft law with the single monetary policy of the euro area 

3.7 

In  line  with  the  Declaration,  Member  States  have  to  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 euro area Heads of State also acknowledged the need to 

cooperate  with  the  ECB  to  ensure  consistency  in  liquidity  management  by  the  Eurosystem  and 

compatibility  with  the  Eurosystem’s  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. The ECB therefore reiterates the points made in its 

previous  opinions.  In  particular,  the  ECB  reminds  the  consulting  authority  of  the  specific 

See paragraph 3.7 of ECB Opinion CON/2008/68. 

18  
19    On  these  aspects  see,  in  particular,  the  following  ECB  Opinions:  CON/2008/44,  CON/2008/48,  CON/2008/52  and 

20  

CON/2008/55. 
See paragraph 18 of the Commission’s guidance, 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’. 

5 

                                                 
recommendations  made  by  the  Governing  Council  in  relation  to government  guarantees  for  bank 
debt21 and in relation to recapitalisations22. In this context, the ECB has the following remarks. 

3.8  Pursuant to Article 5(5) of the draft law the ‘details regarding the determination of, changes to, and 

method of paying the amount of the fee, and details regarding the method of returning stabilisation 

aid,  shall  be  laid  down  in  a  generally  binding  legal  regulation  to  be  issued  by  the  Ministry  of 

Finance  on  agreement  with  Národná  banka  Slovenska’.  The  ECB  would  like  to  emphasise  how 

important  it  is  for  the  pricing  of  stabilisation  aid  and  other  measures  under  the  draft  law  to  be 

harmonised  with  measures  within  both  the  euro  area  and  the  EU  so  as  to  create  the  essential 

conditions  for  a  level  playing-field.  In  particular,  it  is  important  to  ensure  that  the  price  of 

stabilisation aid is risk-based and market-oriented in that it is determined on the basis of the costs 

of a corresponding guarantee in the market. 

3.9  Pursuant to Article 10 of the draft law, the stabilisation aid agreement, which has to be concluded 

before any form of stabilisation aid may be granted, must be concluded by 31 December 2010 at 

the latest. As stated in Article 2(1)(b) of the draft law, stabilisation aid in the form of a special State 

guarantee for a bond issue or for a short-term loan may be granted for up to three years and up to 

one  year  respectively  (i.e.  until  2013  at  the  latest).  Pursuant  to  the  second  subparagraph  of 

Article 2(1)(b) of the draft law, a special State guarantee may be provided for short-term loans with 

maturity  of  up  to  one  year.  As  further  explained  in  the  explanatory  notes  to  the  draft  law,  such 

loans  can  be  provided  by  one  bank  to  another  meaning  that  interbank  deposits  are  potentially 

covered by the draft law. In this respect, the ECB has the following observations. 

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

financial institutions and national guarantee schemes. The ECB therefore understands that the draft 

law does not exclude from its material scope of application, expressly or by implication, interbank 

deposits, subordinated or collateralised liabilities (such as covered bonds). The ECB reiterates that 

State guarantees should not cover interbank deposits, in particular, as this 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. This would impair the implementation of 

the  single  monetary  policy,  which  is  an  exclusive  competence  of  the  Eurosystem  under  Article 
105(2) of the Treaty. It could also affect the transmission of monetary policy decisions 23. 

Second, the ECB understands that, by extension, State guarantees may be issued in respect of loans 

taken  out  by  banks.  In  this  respect,  the  ECB  reminds  the  consulting  authority  that  such 

arrangements  for  the  granting  of  government  guarantees  on  bank  debt  should,  when  practically 

implemented, aim at: (i) addressing the funding problems of liquidity-constrained solvent banks by 

improving the functioning of the market for bank debt of longer term maturity; (ii) preserving the 

21   

22  

23  

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. 
The  reference  is  to  the  Recommendations  of  the  Governing  Council  of  the  European  Central  Bank  on  the  pricing  of 
recapitalisations of 20 November 2008, available on the ECB’s website at www.ecb.europa.eu. 
See paragraph 3.4 of ECB Opinion CON/2008/52. 

6 

 
 
                                                 
level-playing field among financial institutions and avoiding market distortions; and (iii) ensuring 

consistency  with  the  management  of  Eurosystem  liquidity.  In  line  with  its  recommendations,  the 

ECB restates its view that euro area governments should make available a Government guarantee 

of new medium term (up to five years) bank senior debt issuance which must be limited in time. In 

the same vein, government guarantees on short-term bank debt with maturity of three to 12 months 

may be provided in order to revitalise the short-term bank debt market. 

Third, the ECB also reminds the Slovak 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.  

3.10  As regards stabilisation aid in the form of recapitalisation as provided for in Article 2(1)(a) of the 

draft  law,  the  ECB  notes  that  recapitalisation  measures  in  the  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,  there  should  be  a  consistent  approach  to  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 with a 

view  to  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, 
recommendations of the Governing Council of the ECB on the pricing of recapitalisations24 have 

been published. 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.  In  line  with  the  Declaration,  the  ECB  also 

emphasises  that  harmonisation  regarding  the  expiry  of  national  financial  support  schemes 

throughout  the  EU,  and  in  particular  within  the  euro  area,  is  of  crucial  importance,  including  in 

relation  to  State  capital  investments  in  financial  institutions.  Against  this  background,  it  is 

emphasised  that  the  draft  law  does  not  currently  provide  for  an  exit  strategy.  In  this  context,  the 

ECB notes that the Declaration clearly draws attention to the need for any national support scheme 

to be temporary in nature, even if it may be extended or renewed. The ECB therefore recommends 

that  specific  provisions  on  the  time  limits  in  relation  to  the  stabilisation  aid  measures  under  the 
draft law should be adopted25. 

24  

25  

Recommendations of the Governing Council of the European Central Bank on the pricing of recapitalisations, issued on 
20 November 2008 and available on the ECB’s website at www.ecb.europa.eu. 
See paragraph 3.5 of ECB Opinion CON/2008/76 or paragraph 3.2 of ECB Opinion CON/2009/6. 

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

Done at Frankfurt am Main, 27 May 2009. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

8