Opinion of the European Central Bank of 28 May 2010 on amendments to the financial stability regime (CON/2010/45)
Date: 2010-05-28
Institutions: European Central Bank
Subjects: Denmark, State aid, credit institution, financial stability, guarantee, liquidation, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 28 May 2010  

on amendments to the financial stability regime 

(CON/2010/45) 

Introduction and legal basis 

On  16  April  2010  the  European  Central  Bank  (ECB)  received  a  request  from  the  Danish  Ministry  of 

Economic and Business Affairs for an opinion on a draft law amending the Law on financial stability, the 

Law on a Guarantee Fund for Depositors and Investors, and the Law on payment of State income tax (the 

treatment  of  failing  credit  institutions  after  the  expiry  of  the  general  State  guarantee)  (hereinafter  the 

‘draft law’). 

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  the  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 draft law will establish a new winding-up regime for failing credit institutions from the expiry 

date of the Law on financial stability until the normalisation of conditions in the financial markets.  

1.2.  On 9 October 2008 the ECB was consulted on a draft law on financial stability2, and on 21 January 

2009  it  was  consulted  on  a  draft  law  on  State  investments  in  credit  institutions  and  a  draft  law 
amending the Law on financial stability3. The Law on financial stability established a general State 

guarantee scheme for ordinary individual creditors and depositors, which expires on 30 September 

2010.   

1.3.  As pointed out in the General Comments on the draft law4, the financial crisis has demonstrated to 

all stakeholders the benefits of a controlled winding-up of a failing credit institution compared to 

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OJ L 189, 3.7.1998, p. 42.  
See Opinion CON/2008/54. All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 
See Opinion CON/2009/6. 
See  General  Comments  on  the  draft  law  (available  only  in  Danish),  2  (Background),  and  Comments  on  the  specific 
provisions, Re.: § 1, subsection 1.  

 
 
 
 
                                                 
the  traditional  and  often  lengthy  winding-up  procedures  and  compulsory  sales  in  a  bankruptcy. 

Against  this  background  and  also  in  view  of  the  relatively  large  number  of  smaller  credit 

institutions  in  the  Danish  banking  system,  the  purpose  of  the  draft  law  is  to  provide  for  the 

continuation  of  the  Financial  Stability  Company  (hereinafter  the  ‘Company’),  established  by  the 

Law on financial stability, as a basis for a more permanent and general regime for handling failing 

credit  institutions.  This  will  facilitate  greater  transparency  in  the  market  on  how  to  value  credit 

default  risk  and  also  ensure  that  the  Danish  banking  sector  will  continue  to  benefit  from  the 

accumulated expertise on how to handle failing credit institutions.   

1.4. 

In cases where a credit institution is unable to meet the capital adequacy requirements it will have 

the choice either to transfer its activities to a buyer designated by the Company or to enter normal 

bankruptcy proceedings. In the former case, the Company will set up a new subsidiary to take over 

the activities of the failed credit institution with the clear aim of winding it up and of transferring 

existing customers to other institutions. The Company’s subsidiary will purchase the assets of the 
failed credit institution, at their realisation value5, against payment in the form of the acquisition of 

a proportional share of its unsubordinated unsecured liabilities. The liabilities exceeding the assets 

and,  therefore,  not  taken  over  will  remain  with  the  failed  credit  institution  and  will  be  realised 

according to normal credit institution insolvency rules. Creditors not accepting the change of debtor 

will remain creditors of the failed credit institution, and they will retain the right to set-off assets 

against  liabilities.  The  Company  injects  capital  into  the  new  subsidiary  in  accordance  with  the 

capital  adequacy  requirements  of  the  Law  on  Danish  financial  business.  If  more  liquidity  is 

required  than  can  be  raised  in  the  central  bank’s  regular  market  operations,  the  Company  can 

provide a liquidity facility, to ensure that the liquidity adequacy requirements are met. The injected 

capital  will  earn  a  market  return,  to  be  borne  by  the  subsidiary,  which  will  also  cover  the 

Company’s administration costs.  

1.5.  As  a  second  leg  of  the  new  winding-up  regime,  the  Danish  Guarantee  Fund  for  Depositors  and 

Investors (hereinafter ‘the Fund’) will set up a Winding-Up Department of the Fund, separated by 

Chinese walls from the Fund’s ordinary guarantee obligations. This new Winding-Up Department 

may guarantee loans for the capitalisation and liquidity, and it will bear any losses incurred by the 

winding-up  of  the  Company’s  subsidiary.  The  capital  of  the  Winding-Up  Department  will  be 

provided  through  guarantees  from  Danish  credit  institutions,  amounting  to  DKK  3.2  billion 

(approx. EUR 430 million), and limited to 0.2 percent of the deposits of each institution within one 

financial  year.  In  the  event  that  the  capital  requirements  exceed  the  guarantees,  the  Winding-Up 

Department  can  raise  loans  guaranteed  by  the  State  in  agreement  with  the  Danish  Parliament’s 
Finance Committee6. 

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See the draft law § 1, subsection 3, Re.: § 16g, subsection 3; and Comments on specific provisions of the draft law (only 
in Danish) § 1, subsection 3,Re.: § 16g, paragraph 7.   
According to the existing § 6, subsection 4, of the Law on a Guarantee Fund for Depositors and Investors (the unofficial 
English  version  is  available  on  the  website  of  the  Danish  FSA  at  http://www.ftnet.dk/en/Regler-og-praksis.aspx)  the 
Minister for Economic Affairs may, with the approval of Parliament’s Finance Committee, provide a guarantee for a loan 
made to the Fund to meet its commitments. With the creation of the new and separate winding-up department of the Fund 
a  similar  possibility  of  taking  out  a  loan  with  the  approval  of  the  Finance  Committee  will  also  be  provided  for,  if  the 

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1.6. 

In  order  to  ensure  the  proper  functioning  of  the  new  regime,  the  draft  law  requires  each  credit 

institution to have internal systems in place to enable it to provide within 24 hours all the necessary 

information regarding its deposit and loan accounts in case it should need to be wound up through 
the Company7. 

2.  General observations  

2.1.  The ECB welcomes the fact that the general State guarantee regime will not be extended beyond 

the expiry date and that it will be replaced by a regime which entails the further disengagement of 

the State in the winding-up of failing credit institutions in favour of a regime based primarily on 

financing  by  the  credit  institution  sector  itself.  The  ECB  also  welcomes  the  fact  that,  as  clearly 
stated  in  the  General  Comments  on  the  draft  law8,  a  credit  institution  for  which  the  Financial 

Supervision  Authority  has  set  a  deadline  to  fulfil  the  solvency  criteria  must  first  seek  a  market-

based solution, and that the new winding-up regime under the Company will be available only in 

situations where the credit institution considers that it has lost its capital or either is or must expect 

to be insolvent and only where the credit institution’s own efforts to find a market-based solution 

have proved unsuccessful.  

2.2.  The ECB further welcomes the clear mandate for the Minister for Economic and Business Affairs, 

as set out in the Comments on § 16e, subsection 4, to lay down detailed rules on the conditions for 

the transfer of the assets and the subsequent winding-up of the failed credit institution which will 
follow the European Commission’s guidelines for restructuring measures9, in order to be compliant 

with Article 107(3)(b) of the Treaty, so that domestic support measures to failing credit institutions 

and their terms of application are in accordance with the principle of non discrimination and with 

competition law rules, and in particular State aid rules, of the Union. 

3. 

Specific comments  

3.1.  The ECB notes that § 3, subsection 1, of the draft law lays down that the Fund shall assist in the 

winding-up of credit institutions in financial difficulties under the Law on financial stability. In this 

regard,  §  3,  subsection  3,  of  the  draft  law  states  that  the  Fund  shall  be  divided  up  into  four 

departments,  one  of  which  is  the  Winding-Up  Department.  The  ECB  welcomes  the  further 

clarification  laid  down  in  § 3,  subsections  4  and  6,  of  the  draft  law  according  to  which  the 

Winding-Up Department may not take out loans from the other departments and that it shall have 

its own, separate resources provided by its mandatory contributors. These provisions are important 

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resources of this department should not suffice to cover the winding-up obligations of the Fund. See the Comments on 
specific provisions of the draft law (only in Danish) Re.: § 3, subsection 5, and Re.: §6, subsection 4.  
See the draft law, § 2, subsection 1. 
See the General Comments, 1 (Introduction), 2 (Background) and 3.1.2. According to Danish legal tradition, as is also the 
case  in  the  other  Nordic  countries,  the  Comments  on  a  draft  law  when  adopted  by  Parliament  will  be  binding  on  the 
Executive in its implementation and administration of the law, and will also be of strong interpretive value for the courts. 
See the draft law, paragraph 3.1.2. (available only in Danish) citing also the Commission communication on the return to 
viability and the assessment of restructuring measures in the financial sector in the current crisis under the State aid rules. 
(OJ C 195, 19.8.2009, p. 9) . 

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from  a  legal  certainty  perspective,  as  they  ensure  that  ex  ante  pay-ins  by  credit  institutions  to 

guarantee deposits in case of the insolvency of a credit institution are not used for other purposes 

such as the voluntary winding-up of credit institutions in financial difficulties.  

3.2.  The  ECB  notes  that  in  the  event  that  the  capital  requirements  of  the  Fund’s  Winding-Up 

Department  exceed  the  guarantees  provided,  the  Winding-Up  Department  can  still  raise  loans 

secured  by  State  guarantees  in  agreement  with  the  Parliament’s  Finance  Committee.  The  ECB 

reminds  the  consulting  authority  about  the  importance  of  continuing  vigilance  as  to  the  cost  at 

market  rates  of  this  residual  State  guarantee  to  raise  loans  to  fund  any  additional  capital 

requirements of the Winding-Up Department.   

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

Done at Frankfurt am Main, 28 May 2010. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

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