Opinion of the European Central Bank of 26 March 2010 on a draft law on State capital investment in deposit banks (CON/2010/26)
Date: 2010-03-26
Institutions: European Central Bank
Subjects: Finland, State aid, bank, capital increase, financial stability, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 26 March 2010 

on a draft law on State capital investment in deposit banks 

(CON/2010/26) 

Introduction and legal basis 

On  9 March  2010  the  European  Central  Bank  (ECB)  received  a  request  from  the  Finnish  Ministry  of 

Finance  for  an  opinion  on  a  draft  proposal  for  a  law  on  state  capital  investment  in  deposit  banks 

(hereinafter the ‘draft law’), including as an annex a draft decree on State capital investment in deposit 

banks (hereinafter the ‘draft decree’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 

Functioning of the European Union 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 law 

On  24  November  2008,  the  ECB  gave  its  opinion2  on  a  draft  Government  proposal  for  a  law  on  state 

capital investment in deposit banks (hereinafter the ‘original draft proposal’) and a draft decree annexed 

to it. However, the ECB notes that the law which was eventually enacted and which is currently in force 

differs  in  some  respects  from  the  original  draft  proposal  which  had  been  the  subject  of  Opinion 

CON/2008/75. The scheme which was established under the law came into force on 1 January 2010 and 
will operate until 30 April 20103. The main purpose of the scheme is to enable the provision of capital 

support to sound and solvent deposit banks, to ensure the proper financing of the economy. 

The draft law aims at extending the operation of the scheme until the end of 2010, without making any 

further amendments to it. Under the scheme, the State may provide capital support to sound and solvent 

deposit banks by subscribing an unsecured capital loan which will form part of the original own funds of 

the bank referred to in Section 45 of the Law on Credit Institutions (Tier 1 capital). Eligible institutions 

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2  
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OJ L 189, 3.7.1998, p. 42.  
Opinion CON/2008/75. All ECB opinions are available on the ECB’s website at www.ecb.europa.eu. 
Law on State Capital Investment in Deposit Banks, 1171/2009 and Government Decree on State Capital Investment in 
Deposit  Banks,  1749/2009.  The  scheme  was  approved  by  the  European  Commission  on  11  September  2009, 
C(2009)6931. 

 
 
 
 
                                                 
are all Finnish deposit banks authorised by the Financial Supervisory Authority (FSA), including central 

bodies  of  co-operative  banks,  subsidiaries  of  foreign  credit  institutions  and  deposit  banks’  holding 

companies incorporated in Finland. 

Capital  loans  may  be  subscribed  up  to  a  maximum  of  EUR 4 billion  in  total,  and  up  to  25  %  of  each 

supported bank’s minimum own funds. The capital loan principal of a capital loan is only repayable to the 

State after three years from the date of its issue, provided that certain solvency requirements are met and 

that the FSA gives its consent for the repayment. The Government has no right to demand the repayment 

of the capital loan. 

The  interest  rate  on  the  capital  loan  is  based  on  the  reference  rate  determined  on  the  basis  of  the  rate 

applicable to five year Government bonds plus six percentage points. If the issuer does not pay the full 

interest for a calendar year, the Government is entitled to appoint two additional members to the issuer’s 

board of directors. The scheme contains certain restrictions applicable to the issuer of a capital loan, for 

example  with  regard  to  profit  distribution,  business  restructuring,  marketing  and  remuneration  of  the 

management. 

2. 

General observations 

2.1 

In its Opinion CON/2008/75 the ECB emphasised, inter alia, the importance of complying with the 
Declaration on a concerted European action plan of the euro area countries4 of 12 October 2008 and 

referred to the criteria set out in the Commission Communication entitled ‘The application of State 

aid rules to measures taken in relation to financial institutions in the context of the current global 
financial crisis’5. 

2.2  The  ECB  would  like  to  reiterate  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  common  principles  in  a  spirit  of  close  cooperation  with  other  Member  States  and  the 

Union institutions since significant differences in national implementation could create distortions 

in global banking markets. In this regard, the ECB emphasises that it is necessary to coordinate the 

duration of national financial support schemes across the Union in order to ensure a level playing 
field6. In addition, the ECB again underlines the need for national support measures to be temporary 
in  nature7.  The  temporary  nature  of  the  State’s  intervention  should  be  ensured  by  providing 

financial institutions with incentives to redeem such instruments as early as possible after a certain 

period of time. 

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5  
6  

7  

The Declaration is available on the French Presidency’s website at www.ue2008.fr. 
OJ C 270, 25.10.2008, p. 8. 
See, in particular, paragraph 3.1 of Opinion CON/2009/24, paragraph 2.5.2 of Opinion CON/2009/54, and paragraph 3.2 
of Opinion CON/2009/73. 
See,  in  particular,  paragraph  3.2  of  ECB  Opinion  CON/2010/11,  paragraph  2.2  of  CON/2009/24,  paragraph  3.3  of 
CON/2009/62,  paragraph 3.2 of CON/2009/73, and paragraph 3.6 of CON/2009/92. 

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2.3  The  ECB  points  out  that  the  draft  law  should  be  in  line  with  the  guidance  provided  in  the 

abovementioned  documents,  as  well  as  with  the  Commission  Communication  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’8  and  the 
recommendations of the ECB’s Governing Council on the pricing of recapitalisations9. 

3. 

Temporary nature of the scheme 

3.1  The ECB understands that the draft law aims to extend the scheme for a period of eight months, so 

that capital loans could be subscribed until 31 December 2010. The ECB notes that in line with the 

abovementioned  Commission  Communication  on  the  recapitalisation  of  financial  institutions  a 

regular review of the scheme is to be conducted. The continued operation of the scheme in line with 

the State aid rules is dependent on the scheme being notified to and approved by the Commission. 

Such approval is usually provided for six months. Thus, if the Commission so decides, it may be 

necessary to resubmit the scheme for approval for the remaining two months. 

3.2  The  draft  law,  as  with  the  existing  scheme,  requires  from  the  issuer  commitments  related  to 

management remuneration, profit distribution, acquisition of own shares and business restructuring 

until the capital loan has been repaid in full. The ECB notes, however, that the draft law, and hence 

also the existing scheme, differ from the original draft proposal on which the ECB gave its opinion 
in 200810, in that the minimum term for the repayment of the capital loan is three years rather than 

five  and  no  specific  penalties  apply  if  the  capital  loan  principal  is  not  repaid  after  this  period  of 
time11.  Therefore,  there  are  fewer  incentives  than  in  the  original  draft  proposal  for  financial 

institutions to redeem the State capital investment, making it more difficult to ensure the temporary 

nature of the State’s intervention. 

4. 

The appropriate time to consult the ECB 

The  ECB  notes  that  in  cases  of  particular  urgency  that  do  not  allow  for  a  normal  consultation 

period,  the  consulting  authority  may  indicate  urgency  in  the  consultation  request  and  ask  for  a 

shorter  time  limit  for  the  ECB’s  opinion  to  be  adopted.  This  does  not  prejudice  the  national 

authorities’  duty  under  Articles  127(4)  and  282(5)  of  the  Treaty  to  consult  the  ECB  on  national 

draft  legislative  provisions  falling  within  its  fields  of  competence  in  due  course  of  the  national 

legislative  process.  Given  that  the  consulting  authority  has  not  specified  reasons  for  the  extreme 

urgency,  except  that  the  current  scheme  expires  on  30  April  2010,  the  ECB  considers  that  the 

8  
9  

10  
11  

OJ C 10, 15.1.2009, p. 2. 
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. 
CON/2008/75. 
See CON/2008/75. The original draft proposal provided that the principal amount of the loan would be gradually raised 
in the event of non-repayment, but the law that was passed and is currently in force does not contain this penalty. 

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minimum  consultation  period  of  one  month  provided  for  in  Article  3(1)  of  Decision  98/415/EC 

applies. 

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

Done at Frankfurt am Main, 26 March 2010. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

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