Opinion of the European Central Bank of 12 November 2009 on conditions and procedures for the application of the measures to strengthen financial stability (CON/2009/93)
Date: 2009-11-12
Institutions: European Central Bank
Subjects: Lithuania, central bank, financial institution, financial stability, financial supervision, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 12 November 2009  

on conditions and procedures for the application of the measures to strengthen financial stability  

(CON/2009/93) 

Introduction and legal basis 

On 19 October 2009 the European Central Bank (ECB) received a request from the Lithuanian Ministry 

of  Finance  for  an  opinion  on  a  draft  Government  resolution  implementing  the  Law  on  financial 

sustainability (hereinafter the ‘draft Government resolution’). 

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  Government  resolution  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 Government resolution  

1.1  The  aim  of  the  draft  Government  resolution  is  to  specify  conditions  and  procedures  for  the 

application  of  measures  to  strengthen  financial  stability  provided  for  by  the  Law  on  financial 

sustainability,  namely:  (a)  State  guarantees;  (b)  subordinated  loans;  and  (c)  redemption  of  bank 

assets. The fourth category of measures to strengthen financial stability, provided for by the Law 

on financial sustainability, i.e. taking shares in a bank in the public interest, is not covered by the 

draft Government resolution.  

1.2   The application of the draft Government resolution is limited in time – the Government may decide 

on the application of any of the three categories of measures to strengthen financial stability during 

a period of six months after the adoption of the draft Government resolution. 

1  

OJ L 189, 3.7.1998, p. 42.  

 
 
 
 
 
                                                 
2. 

General observations  

2.1  On 2 April 2009 the ECB adopted Opinion CON/2009/32 at the request of the Lithuanian Ministry 

of Finance on a draft law on financial sustainability (hereinafter the ‘April draft law’). The April 

draft  law  provided  for  a  general  legal  framework  of  national  measures  to  strengthen  financial 

stability.  

2.1.1  In  Opinion  CON/2009/32  the  ECB  drew  the  consulting  authority’s  attention  to  the  guidance 

provided  by  the  Ecofin  Council  to  the  Member  States  in  the  Conclusions  of  its  Meeting  of 
7 October  20082  and  to  the  Declaration  issued  by  the  Heads  of  State  of  the  euro  area  on 
12 October 2008 (hereinafter the ‘Declaration’)3. In particular, the ECB stressed 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  institutions4.  The  principles 

contained  in  the  Declaration  and  the  Conclusions  of  the  Ecofin  Council  were  endorsed  by  the 
European Council of 15 to 16 October 20085. 

2.1.2  In that opinion the ECB also made specific comments regarding, inter alia, the entities to which the 

new  measures  could  be  applied,  the  involvement  of  Lietuvos  bankas,  the  circumstances  under 

which the new measures could be applied, the relationship of the April draft law to monetary policy 

and the conditions for State capital investments. 

The ECB welcomes that its comments were largely taken into account. 

2.2  However,  the  ECB  notes  that  its  comments  remain  valid  as  regards  the  draft  Government 

resolution.  With  these  general  observations  in  mind,  and  against  the  background  of  the 

abovementioned  guidance  the  ECB  has  the  following  observations  to  make  on  the  draft 

Government resolution. 

2  

3  

4  

5   

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 Opinions CON/2009/12, paragraph 2.2, and CON/2009/32, paragraph 2.2. All ECB opinions are published on 
the ECB’s website at www.ecb.europa.eu. 
Brussels  European  Council  of  15  to  16  October  2008,  paragraph  3  of  the  Presidency  Conclusions,  available  at 
www.europa.eu. 

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3. 

Specific comments  

3.1 

Involvement of Lietuvos bankas 

3.1.1  In its Opinion CON/2009/32 the ECB noted that the April draft law recognised Lietuvos bankas’s 

expertise in the fields relevant to the stability of the financial market. However, the ECB expressed 

its  understanding  that  Lietuvos  bankas’s  role  in  relation  to  the  new  measures  would  only  be  a 

consultative  one,  i.e.  advising  the  Government  or  an  institution  authorised  by  it  in  respect  of 

specific measures and/or providing its findings on the situation of a particular bank. 

3.1.2  The ECB understands from the consulting authority that the draft Government resolution envisages 

Lietuvos bankas’s participation in the application of the measures to strengthen financial stability, 

including the submission of all relevant information to the Ministry of Finance that would allow it 

to  adopt  a  decision  on  the  application  of  a  specific  measure.  It  also  gives  Lietuvos  bankas  an 

important  role  in  the  supervision  of  the  beneficiary  financial  institution  during  the  period  of  its 

application and in monitoring how the beneficiary financial institution fulfils its obligations under 

the  corresponding  legal  arrangement  signed  with  and/or  approved  by  the  Government  or  the 

Ministry of Finance. 

3.1.3  The ECB also understands from the consulting authority that Lietuvos bankas is to be assigned this 

role because it considers Lietuvos bankas best qualified for it considering its expert knowledge, and 

in view of the aim of safeguarding the taxpayers’ interest and ensuring the efficient use of public 

funds. 

3.1.4  The ECB reiterates that any involvement of Lietuvos bankas in the application of the measures to 
strengthen financial stability must be compatible with the Treaty6, i.e. Lietuvos bankas’s functions 

must  be  conducted  in  a  manner  that  is  fully  compatible  with  Lietuvos  bankas’s  institutional  and 
financial independence7 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. In the 

same  vein,  it  should  also  be  borne  in  mind  that  the  involvement  of  Lietuvos  bankas  in  the 

application of the measures contained in the draft Government resolution must fully 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 and 104b(1) [now Articles 101 and 
103(1)] of the Treaty8. 

6  
7  

8  

ECB Opinions CON/2008/68, paragraph 3.7, and CON/2009/32, paragraph 3.2.2. 
See  ECB  Opinion  CON/2009/26,  paragraphs  2.1-2.3,  in  relation  to  Lietuvos  bankas’s  institutional  and  financial 
independence. 
OJ L 332, 31.12.1993, p. 1. See also ECB Opinions CON/2008/52, paragraph 3.2, and CON/2008/68, paragraph 3.7. 

3 

                                                 
3.1.5  The  ECB  notes  that  although  according  to  the  draft  Government  resolution  Lietuvos  bankas 

generally is being given an advisory role in the sense that final decisions on the application of the 

measures to strengthen financial stability will be made by the Government and/or the Ministry of 

Finance on the advice of Lietuvos bankas, certain provisions seem to go beyond such an advisory 

role  and  require  Lietuvos  bankas  to  assume  tasks  which  appear  to  be  more  related  to  the 

administration  of  the  measures  to  strengthen  financial  stability.  The  draft  Government  resolution 

should ensure that these functions will not affect Lietuvos bankas’s ability to carry out its ESCB-

related tasks from an operational and financial point of view. The ECB recalls that the principle of 

financial  independence  implies  that  an  NCB  must  have  sufficient  means  not  only  to  perform 

ESCB-related  tasks  but  also  its  own  national  tasks  (e.g.  financing  its  administration  and  own 
operations)9. 

3.1.6  The ECB  considers that the draft Government  resolution should also be consistent with Lietuvos 

bankas’s overall tasks and functions under the Law on Lietuvos bankas and the Law on financial 

sustainability. In addition, with respect to the Agency Contract which is to be concluded between 

Lietuvos bankas and the Ministry of Finance, the ECB understands that the content of this Contract 

will not go beyond Lietuvos bankas’s tasks and functions under those laws and will be consistent 

with institutional and financial independence. 

3.2 

Solvency of the beneficiary financial institutions 

3.2.1  The  ECB  reiterates  its  remark  made  in  Opinion  CON/2009/32  that,  according  to  the 

abovementioned guidance in this regard, the measures to strengthen financial stability (except for 

taking  shares  in  a  bank  in  the  public  interest,  which  is  not  covered  in  the  draft  Government 

resolution) should not be applied to insolvent banks. It is recalled in particular that any measures 

undertaken  by  Lietuvos  bankas  should  only  relate  to  liquidity  support  provided  to  solvent 

institutions in order to comply with the prohibition on monetary financing. 

3.2.2  In this context, paragraph 3 of the draft rules on State guarantees contained in the draft Government 

resolution  provides  that  ‘The  State  guarantee  for  bank  stability  enhancement  shall  be  issued  if, 

according to the information received from the bank and Lietuvos bankas, it is possible to expect 

that the bank will have sufficient funds to fulfil the State guarantee liabilities’, and in some other 

draft rules contained in the draft Government resolution such a condition is not present at all (for 

example, in the draft rules on redemption of bank assets). The ECB would welcome more explicit 

provisions in this regard in the draft Government resolution. 

3.3  Restrictions as regards undue use of the guaranteed status of beneficiary financial institutions to 

engage in a heightened level of activities 

3.3.1  In  Opinion  CON/2009/32  the  ECB  noted  that  it  is  important  to  ensure  that  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, 

9   

See the ECB’s Convergence Report, May 2008, p. 20. 

4 

                                                 
the  ECB  reiterated  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. 

3.3.2  In  this  context  the  draft  rules  for  the  application  of  the  measures  to  strengthen  financial  stability 

contained  in  the  draft  Government  resolution  (for  example,  paragraph  12.3  of  the  draft  rules  on 

State guarantees and paragraph 12.4 of the draft rules on subordinated loans) provide for a similar 

prohibition on the use by the beneficiary financial institution of the information of the fact that the 

measure to strengthen financial stability has been granted for the marketing of financial activities or 

the expansion of such activities. The ECB notes that, not only information about the measure, but 

also  the  measure  itself  should  not  be  used  for  the  marketing  or  expansion  of  financial  activities. 

Therefore,  the  ECB  would  welcome  an  amendment  to  this  effect  in  the  draft  Government 

resolution. 

3.4  Temporary nature of the measures to strengthen financial stability 

3.4.1  In Opinion CON/2009/32 the ECB noted that 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  they  can  be  extended  or  renewed10.  Accordingly,  the  ECB  recommended  that 

more specific provisions on the time limits of the support measures be inserted in the April draft 

law, and provisions establishing means to redeem the new measures. 

The  ECB  notes  that  this  remark  was  taken  into  account:  Article  4(2)  of  the  Law  on  financial 

stability provides that the measures to strengthen financial stability ‘shall be applied for a limited 

period established by the Government’, and Article 5(2) provides for the maximum and minimum 

maturity (three years and three months respectively) of a bank’s liabilities that are guaranteed by 

the State. 

3.4.2  However,  the  ECB  must  reiterate  its  remarks  as  regards  the  other  two  categories  of  measures  to 

strengthen financial stability, i.e. subordinated loans and redemption of bank assets. Even though 

the application of the draft Government resolution itself is limited in time – the Government can 

decide on the application of any of the three categories of measures for a period of six months after 

adoption  of  the  draft  Government  resolution,  the  draft  rules  on  subordinated  loans  provide  for 
minimum  maturity  of  subordinated  loans  only11,  while  in  the  draft  rules  on  redemption  of  bank 

assets there are no provisions on the temporary nature of this measure or on the exit strategy.  

The ECB understands that the specific term/maturity of the measure could be set in the particular 

legal arrangement signed between the beneficiary financial institution and the Government or the 

Ministry of Finance, and/or approved by the Government or the Ministry of Finance. However, in 

order to ensure that a transparent and predictable legal framework is in place and to facilitate the 

10  

11  

The Declaration states ‘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 [italics  added] and will be applied under close scrutiny of financial authorities’.  
Two years, as laid down in paragraph 3.4 of the draft rules on subordinated loans. 

5 

 
 
                                                 
adoption of individual decisions, the ECB would welcome specification in this regard in the draft 

Government resolution. 

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

Done at Frankfurt am Main, 12 November 2009. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

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