Opinion of the European Central Bank of 9 July 2010 on the establishment of the Financial Stability Fund (CON/2010/54)
Date: 2010-07-09
Institutions: European Central Bank
Subjects: Greece, capital increase, financial stability, national law, public institution

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

9 July 2010 

on the establishment of the Financial Stability Fund 

(CON/2010/54) 

Introduction and legal basis 

On  29  June  2010  the  European  Central  Bank  (ECB)  received  a  request  from  the  Greek  Ministry  of 

Finance for an opinion on a draft law on the establishment of the Financial Stability Fund (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  third  and  sixth  indents  of  Article 2(1)  of  Council 

Decision 98/415/EC  of  29 June 1998  on  the  consultation  of  the  ECB  by  national  authorities  regarding 
draft legislative provisions1, as the draft law relates to the Bank of Greece (BoG) and 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 ECB, the 

Governing Council has adopted this opinion. 

1.  

Purpose of the draft law 

1.1  Context and objective  

1.1.1  The 

establishment 

of 

the  Financial  Stability  Fund 

(FSF) 

implements  Council 

Decision 2010/320/EC  of  10  May  2010  addressed  to  Greece  with  a  view  to  reinforcing  and 

deepening fiscal surveillance and giving notice to Greece to take measures for the deficit reduction 
judged  necessary  to  remedy  the  situation  of  excessive  deficit2.  In  particular,  Article  2(1)(p) 

prescribes  the  establishment  by  Greece  of  ‘an  independent  financial  stability  fund  to  deal  with 

potential capital shortfalls and preserve the soundness of the financial sector, by providing equity 
support to banks as needed’. Furthermore, as clarified in recital 6 of the Loan Facility Agreement3 

concluded  on  8 May  2010  between  certain  euro  area  Member  States  as  lenders  and  the  Hellenic 

Republic as borrower, the support granted to the borrower is made dependent on its complying with 

measures consistent with Decision 2010/320/EU and laid down, inter alia, in the Memorandum of 

1  
2  
3  

OJ L 189, 3.7.1998, p. 42.  
OJ L 145, 11.6.2010, p. 6. 
Available at http://www.hellenicparliament.gr. 

 
 
 
 
                                                 
Understanding  on  specific  economic  policy  conditionality4  of  3  May  20105.  In  this  respect  the 

establishment  of  the  FSF  is  also  foreseen  in  the  Memorandum  as  part  of  a  set  of  measures  to be 

implemented by the end of June 2010. 

1.1.2  According to the explanatory memorandum to the draft law, the establishment of the FSF aims at 

maintaining the stability of the Greek banking system by means of recapitalisation of Greek credit 

institutions  in  the  light  of  the  paramount  importance  of  the  banking  sector  in  general  economic 

activity.  The  FSF  will  thus  provide  a  safety  net  to  credit  institutions  that  may  be  unable  to  meet 

their capital requirements under the applicable legislation. Finally, the FSF will facilitate strategic 

decision-making in restructuring the Greek banking system to allow it to accomplish its function in 

financing and developing the Greek economy.  

1.2  Main features  

Legal nature, purpose and capital 

1.2.1  The FSF will be governed by private law. It will enjoy administrative and financial independence 
and operate purely in accordance with private economic activity standards6. Its purpose will be to 

safeguard the stability of the Greek banking system by strengthening the capital adequacy of credit 

institutions,  including  credit  institutions  that  are  subsidiaries  of  foreign  credit  institutions  and 
operate in Greece following authorisation by the BoG7. The Greek State will gradually pay up and 

incorporate into securities its capital of EUR 10 billion not transferable before expiry of the FSF’s 
duration8.  The  Minister  for  Finance  will  gradually  deposit  capital  stemming  from  the  financial 

support mechanism to Greece by virtue of Law 3845/2010 in a special interest-bearing account held 
with the BoG for the purpose of the draft law9.  

Eligibility for recapitalisation 

1.2.2  Under  Article  2(1)  of  the  draft  law,  credit  institutions  authorised  by  the  BoG  will  be  eligible  for 

recapitalisation by the FSF. These include authorised credit institutions that are subsidiaries of legal 

entities  with  a  registered  office  abroad,  including  the  branches  of  authorised  Greek  credit 

institutions operating abroad.  

4  

5  

6  
7  

8  
9  

The Memorandum is annexed as Annex IV to Law 3845/2010 on the measures implementing the support mechanism for 
the Greek economy by the euro area Member States and the International Monetary Fund (FEK Α 65 / 6.5.2010).  
Moreover, according to recital 8 of the Loan Facility Agreement, the release of loans subsequent to the first loan will be 
conditional on the lenders deciding favourably following verification that the implementation of the economic policy of 
the borrower complies with the adjustment programme or any other conditions laid down in the Decision 2010/320/EC. 
See also Article 3(5)(c) of the Agreement. 
See Article 1. 
See Article 2. The FSF will manage its capital and assets and exercise the rights deriving from its shareholder capacity 
with a view to preserving the value of such assets, minimising risks to Greek taxpayers and preventing competition in the 
banking sector from being hampered or distorted; moreover, the liquidity support provided under Law 3723/2008 (FEK 
A 250) or as part of the operations of the Eurosystem and/or the BoG will not fall within the purpose of the FSF. 
See Article 3(1). 
See Article 3(2). Such deposits will be remunerated at a rate not more or less than the following: (1) the rate applicable to 
the Eurosystem main refinancing operations; (2) the Eurosystem deposit facility rate; and (3) the EONIA rate. Moreover, 
under Article 3(4), the FSF’s capital and cash may only be invested in such deposits; any other type of investment will be 
prohibited and the FSF may not enter into lending arrangements or issue bonds or other commercial paper. 

2 

 
                                                 
Board of Directors and staff 

1.2.3  The FSF’s Board of Directors (hereinafter the ‘Board’) will have full independence in any matter 

relating to the FSF’s administration, operations, asset management, identification and pursuit of its 
objectives10. Its three executive members will be the President and two Vice-Presidents, and two of 

the four non-executive members shall be ex officio members, namely the Secretary General of the 

Ministry of Finance and the Director of the BoG’s Financial Stability Department. The Minister for 

Finance, after proposal by the BoG’s Governor, will appoint all Board members for a term of five 
years, renewable until 30 June 201711. One representative from each of the European Commission 
and the ECB will be invited to participate in the Board’s meetings without the right to vote12. Board 

members may not be employed by credit institutions for a period of two years after their term of 
office has ended for any reason whatever13. 

1.2.4  Its  staff  must  be  freely  recruited  by  the  Board  under  private  employment  contracts  for  a  fixed 

renewable  term.  The  secondment  of  civil  servants  from  other  Greek  authorities  is  also  possible 

subject  to  a  decision  by  the  relevant  Minister  or  an  act  to  be  adopted  by  the  BoG’s  Governor, 
following a request by the Board’s President14.   

Activation of the FSF 

1.2.5  Under  Article  6(1)  of  the  draft  law,  a  credit  institution  complying  with  Pillar  2  capital 
requirements15 may apply to the FSF for recapitalisation, following an instruction from the BoG or 

on  its  own  initiative,  provided  that  the  following  conditions  are  both  met:  (a)  on  the  basis  of 

conservative  assumptions  by  the  BoG  that  there  is  a  well-founded  risk  that  the  credit  institution 

may not be able to continue to comply with such Pillar 2 requirements; and (b) the credit institution 

has failed to increase its own funds with the participation of its existing or new shareholders.  

1.2.6  Furthermore, under Article 6(2) of the draft law, the BoG may also instruct a credit institution to 
apply to the FSF for recapitalisation, if the credit institution does not comply with either Pillar 116 

or  2  capital  requirements  and,  at  the  same  time,  it  has  failed  to  increase  its  own  funds  with  the 

participation  of  its  existing  or  new  shareholders.  In  these  cases,  if  the  credit  institution  does  not 

10  

11  
12  
13  

14  
15  

16  

See Article 4(1) and Article 4(2)(e). In the performance of their duties Board members will enjoy full independence, may 
not seek or receive instructions from the Greek State or any other government body or official and may not be subject to 
any  influence.  Likewise,  the  Greek  State  and  the  abovementioned  government  bodies  and  officials  must  refrain  from 
giving any instructions to the FSF. 
See Article 4(2)(b). 
See Article 4(2)(c). 
See Article 16(3). The same prohibition will apply to the FSF’s staff for a period of six months from termination of their 
employment contract. 
See Article 5. 
See Article 28 of Law 3601/2007 (FEK A 178 / 1.8.2007) and the BoG’s Governor’s act 2595/20.8.2007 (FEK B 1748 / 
31.8.2007). 
See Article 27 of Law 3601/2007. 

3 

 
                                                 
apply for recapitalisation to the FSF, the BoG will either appoint a Commissioner17 or withdraw the 
credit institution’s authorisation18, or may require removal of the credit institution’s management19.  

1.2.7  The credit institution’s request for recapitalisation may be submitted to the FSF within one month 

from receipt of a BoG instruction and must be accompanied by: (a) a business plan specifying the 

amount of the required capital injection and detailing the measures that the credit institution intends 
to take to safeguard and strengthen its solvency as soon as possible20; and (b) a detailed timetable 

for the implementation of the measures, stating the estimated time by which the credit institution 

should be able to repurchase the preference shares referred to in Article 7 of the draft law. If the 

FSF grants the capital injection requested, in accordance with Article 6(6) of the draft law, it will 

draw up jointly with the credit institution a detailed restructuring plan or amend any plan already 

submitted  to  the  European  Commission,  in  accordance  with  the  applicable  Union  State  aid  rules 
and European Commission practices21. 

Recapitalisation procedure, issuance of shares and related issues 

1.2.8  The  capital  injection  will  be  granted  through  the  FSF’s  participation  in  an  increase  of  the  credit 
institution’s share capital by issuing preference shares22, except if the credit institution fails to meet 
Pillar  1  capital  requirements23,  where  the  capital  increase  will  be  carried  out  by  issuing  ordinary 

shares  to  the  FSF.  The  share  issue  price  must  reflect  the  estimated  fair  value  or  market  price 

disregarding  any  actual  or  potential  support  by  the  Greek  State,  the  FSF  or  the  BoG  outside  the 
framework  of  Eurosystem  operations24.  The  preference  shares  must  be  redeemed  in  their  entirety 

by the credit institution after five years or earlier, on approval by the BoG, at a price to be set at the 

highest  between  the  original  issue  price  (plus  accrued  and  unpaid  dividends) and  the  price  at  the 

time of the decision to convoke the General Meeting of Shareholders for the purposes of the share 

17  

18  
19  
20  

21  

22  
23  
24  

Under  Article  63(2)  of  Law  3601/2007.  Prior  to  the  Commissioner’s  appointment,  the  BoG  will  communicate  in 
writing to the credit institution the verified breach. From the communication of such appointment to the credit institution, 
any act related to the credit institution’s management will be null and void unless approved by the Commissioner. Within 
the time limit specified by the BoG, the Commissioner must report to it on the capital adequacy and the overall financial 
condition and the administrative and organisational structure of the credit institution. If the BoG, on the basis of other 
data  and  information  available  to  it,  judges  that  the  credit  institution’s  operations  cannot  continue  under  the  current 
management,  it  will  decide  to  assign  its  management  to  the  Commissioner.  The  Commissioner  will  be  subject  to  the 
BoG’s control and supervision. The BoG will decide on the fees and overall costs to be paid by the credit institution. The 
BoG may replace or terminate the mandate of the Commissioner. 
Under Article 8 of Law 3601/2007. 
Under Article 5(10)(c)(i) of Law 3601/2007. 
e.g.  by  increasing  its  capital  and/or  restoring  its  profitability  through  cost-cutting,  reducing  risks  or  receiving  support 
from other companies of its group, etc. The plan may also include any prospects of a merger or absorption, or a transfer 
of its activities or units to another credit institution or financial organisation (see Article 6(4)(a)). 
See Article 6(7) to 6(9) also providing for the period for implementation of the restructuring plan and the monitoring and 
assessment of such implementation.  
See Article 7(1). 
See Article 6(2)(b). 
See Article 7(3). For the purposes of determining the issue price, account must be taken of the average of the valuations 
provided by two independent audit firms using commonly accepted methodologies and criteria. Such audit firms will be 
appointed by the FSF and the credit institution. In the event of a deviation of more than 10% between the two valuations, 
a third independent audit firm, appointed jointly by the Minister for Finance and the BoG’s Governor, will determine the 
final  price.  The  appointment  of  the  audit  firms  should  also  include  deadlines  for  their  evaluation  compatible  with  the 
submitted business plan’s timing. In any event, the Union State aid rules and European Commission practices for similar 
valuations must also be observed. 

4 

 
                                                 
redemption25. If five years have lapsed and the redemption of the preference  shares by the credit 

institution  has  not  been  completed,  an  annual  cumulative  surcharge  of  2%  will  be  imposed  on 

annual compensation payable by the credit institution as provided for in Article 10(2) of the draft 
law26.  

1.2.9  The preference shares will be converted into ordinary transferable shares by a decision of the FSF, 

following  a  proposal  by  the  BoG,  in  accordance  with  Article  9  of  the  draft  law.  Moreover,  such 

preference shares may neither be transferable by the FSF to third parties nor tradable on a regulated 
market until the end of the FSF’s duration27. They will, inter alia, confer on the FSF the right to 

participate  in  the  credit  institution’s  Board  of  Directors  with  a  representative  as  an  additional 
member28. In this respect, the FSF ’s representative may, in particular: (a) call a General Meeting of 
Shareholders within the time limits provided29; and (b) veto any decision by the credit institution’s 

Board  of  Directors:  (i)  regarding  the  distribution  of  dividends  and  the  remuneration  policy  in 

relation  to  the  credit  institution’s  senior  executives;  or  (ii)  where  the  decision  in  question  could 

jeopardise  the  interests  of  depositors,  or  seriously  impair  the  credit  institution’s  liquidity  or 

solvency or its overall sound and smooth operation. Moreover, the FSF’s representative will attend 

the General Meeting of ordinary shareholders and have a right to veto any resolution on the issues 
referred to above30.  

1.2.10 The FSF may request, even prior to the request for its activation, all relevant data and information 

from credit institutions through the BoG, as well as on-site inspections to be carried out by the BoG 
with the participation of a FSF representative, expert or external auditor31. 

Financial results and statements, auditing and other provisions 

1.2.11The FSF will establish unrealised revaluation reserve accounts in accordance with the International 
Financial Reporting Standards (IFRS)32. Moreover, provision is made for: (1) the approval of the 

FSF’s  annual  financial  statements  prepared  in  accordance  with  the  IFRS  and  their  submission, 

together  with  other  relevant  reports,  to  the  Greek  authorities  and  the  European  Commission,  the 

ECB  and  the  IMF;  (2)  regular  financial  audits  and  ad  hoc  audits,  the  outcome  of  which  must  be 

submitted  to  the  Greek  Parliament;  (3)  a  comprehensive  internal  audit  mechanism;  and  (4)  FSF 
immunities33.  

25  

26  
27  
28  
29  
30  
31  
32  
33  

See Article 8(1). Partial redemption will not be permitted. The BoG will only approve redemptions that do not jeopardise 
the credit institution’s solvency and financial stability. 
See Article 8(2). 
See Article 10(1). 
See Article 10(3). 
See Article 7(2). 
See Article 10(5). 
See Article 11. 
See Article 12. 
See Articles 13 to 15. 

5 

 
                                                 
2. 

General observations 

2.1  The  ECB  welcomes  the  establishment  of  the  FSF  as  a  means  to  improve  the  safety  net  for  the 

Greek banking system during an economic downturn which could have adverse implications for the 

asset quality of Greek credit institutions. Moreover, it takes note that the FSF is part of a broader 

set  of  measures  under  the  Memorandum  and  its  design  therefore  takes  into  account  the  other 
characteristics  of  the  Programme  plan34.  The  ECB  appreciates  that  the  FSF’s  mandate  is  clearly 

defined.  At  the  same  time,  the  ECB  welcomes  the  FSF’s  role  in  facilitating  strategic  decision-

making  in  terms  of  restructuring  the  Greek  banking  system  and  thus  allowing  it  to  continue  its 

function in extending credit to the Greek economy.  

2.2  The ECB welcomes the scope of the draft law covering subsidiaries operating in Greece of credit 

institutions  having  their  registered  office  abroad  as  well  as  branches  operating  abroad  of  Greek 

credit  institutions.  Moreover,  the  draft  law  does  not  discriminate  between  credit  institutions 
established  in  Greece  in  accordance  with  the  Declaration  of  Paris35,  which  states  that  Member 

States’  actions  taken  to  facilitate  the  funding  of  banks  ‘will  be  designed  in  order  to  avoid  any 

distortion in the level playing field’, a crucial element for the integration of the financial markets in 

Europe.  The  ECB  also  welcomes  the  FSF’s  finite  life,  ending  on  30  June  2017.  Despite  its 

relatively  long  tenure,  this  is  in  line  with  earlier  ECB  opinions  underscoring  the  need  for  any 
national support scheme to be temporary in nature, even if it may be extended or renewed36. The 

ECB also appreciates the clarification in Article 2 of the draft law according to which the liquidity 

provision by the BoG in the context of the Eurosystem’s refinancing operations will not fall within 

the FSF’s purpose, hence respecting the Eurosystem’s exclusive competence under Article 127(2) 

of the Treaty as regards the implementation of the single monetary policy. 

2.3  The ECB welcomes the close link between the activation of the FSF and the supervisory process 

under  Law  3601/2007  on  banking  and  the  relevant  Basel  rules.  Taken  in  conjunction  with  the 

BoG’s  supervisory  powers  over  credit  institutions  under  Law  3601/2007,  the  draft  law  should 

ensure  that  the  capital  adequacy  requirements  of  credit  institutions  are  properly  maintained.  In 

particular, the ECB endorses the need, at the first instance, for the recommendation by the BoG for 

the credit institution to apply to the FSF for a capital injection to be based on a forward-looking 

assessment using conservative assumptions under the Pillar II review process. The ECB notes that 

34  

35  

36  

In  accordance  with  Article  1(3)  of  Law  3845/2010,  Annex  III  (Memorandum  on  economic  and  financial  policy)  and 
Annex  IV  (Memorandum  of  Understanding  on  specific  economic  policy  conditionality)  are  jointly  referred  to  as  the 
‘Programme plan’. The Ministry of Finance drew up the Programme plan with the European Commission, the ECB and 
the  IMF,  to  implement  the  support  mechanism  in  accordance  with  the  Statements  reproduced  in  Annexes  I  and  II  to 
Law 3845/2010 (Statement by the Heads of State and Government of the euro area of 25 March 2010 and Statement on 
the support to Greece by euro area Member States of 11 April 2010). 
The Declaration issued by the Heads of State of the euro area on 12 October 2008. The text of the Declaration is available 
on the former French Presidency’s website at www.ue2008.fr. 
See  paragraph  3.3  in  Opinion  CON/2009/62.  All  ECB  opinions  are  available  on  the  ECB’s  website  at 
www.ecb.europa.eu. 

6 

                                                 
any  recourse  to  the  FSF  may  occur  only  after  the  credit  institution  can  show  that  it  has  failed  to 
increase its own funds with the participation of its existing or new shareholders37.  

2.4  The strong sanctions, including the possibility of appointing a Commissioner or requiring removal 

of the management, or even withdrawing the banking licence, are to be imposed by the BoG on a 

credit  institution  which,  despite  a  recommendation  by  the  BoG  based  on  a  forward-looking 

assessment, fails to enhance its solvency position and whose capital subsequently falls below the 

relevant Pillar I or II limits. Such rules, in conjunction with the quantitative targets for activating 

the FSF, are essential to allow the BoG to exercise its supervisory powers in safeguarding financial 

stability.   

2.5  The  ECB  appreciates  that  any  request  by  a  credit  institution  for  recapitalisation  must  be 

accompanied  by  a  business  plan  and  a  detailed  timetable  for  its  implementation,  even  before  the 

submission of the restructuring plan to be drawn up in line with the requirements of the European 

Commission in the context of Union State aid rules and European Commission practices. The ECB 

notes  that  these  mandatory  rules  go  in  the  direction  of  ensuring  that  the  recapitalised  institutions 

will be subject to a proper viability assessment and will not be unfairly advantaged by recourse to 
the FSF, which is in line with earlier ECB opinions38.  

2.6  The  ECB  notes  that  the  requirement  for  the  pricing  of  the  preference  shares  to  be  issued  or 

redeemed  by  the  credit  institution  in  exchange  for  recapitalisation  funds,  as  well  as  the  pricing 

applied in conversion of the preference shares to ordinary shares on a decision by the FSF, must 

reflect the fair value or market price. As in its previous opinions, the ECB stresses the importance 

of appropriate pricing for recapitalisations to enhance the stability of the financial system, facilitate 

the return to normal market conditions, ensure a level playing field and the proper financing of the 
economy39. The ECB welcomes the time limit of five years for the repurchase of the shares, as this 

significantly contributes to the temporary nature of the FSF support. The ECB also appreciates the 

need  for  the  BoG  to  approve  any  redemption  of  shares,  also  taking  into  account  the  possible 

implications for financial stability.  

2.7  The  ECB  welcomes  the  FSF’s  extensive  powers  over  the  management  and  shareholders  of  the 
credit institutions receiving capital support40. In particular, and in addition to the abovementioned 

requirements  for  the  nature  and  pricing  of  any  capital  injection,  these  rules  ensure  that  existing 
shareholders bear the due consequences of the intervention, in line with previous ECB opinions41. 

The ECB appreciates that the FSF will have access to all relevant data and information from the 

credit institutions through the BoG, even prior to the submission of a request for its activation, as 

37  
38  
39  
40  
41  

See Article 6(1)(b) and Article 6(2)(b). 
See paragraph 3.3 in Opinion CON/2008/57. 
See paragraph 3.2 in Opinion CON/2009/62. 
See Article 10(3) and 10(5) on the rights attached to the preference shares.  
See paragraph 2.2 in Opinion CON/2008/52. 

7 

                                                 
well as on-site inspections. Such access should be subject to the same confidentiality requirements 
imposed on the BoG with respect to information from the credit institutions42. 

2.8  The ECB welcomes the establishment of the FSF as an entity with its own decision-making powers 

independent  of  its  founder,  the  Greek  State.  Under  the  draft  law  the  FSF  will  be  governed  and 

managed  by  a  Board,  which  will  be  its  supreme  decision  making  body  and  will  enjoy  full 

independence  in  deciding  on  any  issue  concerning  the  FSF’s  administration,  operation,  asset 

management,  identification  and  pursuit  of  its  objectives.  The  ECB  understands  that  as  regards 

corporate governance, the FSF’s Board as the FSF’s supreme decision-making body will have the 

powers  that  would  be  assigned  to  the  Board  of  Directors  and  to  the  General  Meeting  of 

shareholders were the entity to be a joint stock company. This decision-making autonomy should 

enable  the  FSF  to  decide  on  recapitalising  particular  credit  institutions  independently  of  outside 

influence. Moreover, the President of the Board will represent the FSF in its relations with judicial 
authorities, other bodies and third parties43. 

3. 

Specific observations 

Role of Governor of Bank of Greece in appointing the FSF Board members 

3.1  The  ECB  notes  that  all  seven  members  of  the  Board  are  to  be  appointed  by  a  decision  of  the 
Minister for Finance on a proposal by the BoG’s Governor44. The formal appointment of members 

of the Board  by the Minister for Finance is important to ensure the democratic legitimacy of the 
FSF,  whose  capital  is  provided  by  the  Greek  State45.That  being  the  case,  the  ECB  notes  that  the 

BoG’s  Governor  will  have  an  initiating  role  in  the  appointment  procedure,  having  the  power  to 
select five Board members following a public call for expressions of interest46.The ECB considers 

that this enhanced role in the appointment procedure is important in view of the BoG’s prudential 

supervision role and the stability of the financial system.  

Presence of ECB observer in FSF Board meetings 

3.2  The  ECB  supports  the  draft  law’s  requirement  for  an  observer  from  the  ECB  to  be  invited  to 
participate  in  the  Board’s  meetings47.  To  facilitate  participation  by  the  ECB  and  Commission 

42  
43  
44  

45  

46  
47  

See Article 11(1)(a).  
See Article 4(3). 
Other Member States have set up domestic funds to recapitalise and restructure banks. Some of these funds have a similar 
procedure for appointing most of the members of the fund’s decision-making body on a proposal by the national central 
bank.  For  example,  in  the  case  of  the  Spanish  Fund  for  Orderly  Bank  Restructuring  (FROB)  set  up  under  the  Royal 
Decree Law 9/2009 of 26 June 2009, Article 3 provides that the Minister for Economic Affairs and Finance appoints all 
members  of  the  Governing  Committee,  the  FROB’s  decision-making  body,  with  five  of  the  eight  members  to  be 
proposed by the Banco de España. The remaining three members are representatives of the bank deposit guarantee funds 
for each of the three Spanish banking sectors. See ECB Opinions CON/2008/52, CON/2008/57 and CON/2009/62. 
Also,  the  Board  assures  the  FSF’s  accountability  to  the  Greek  legislature  and  the  State  authorities  by  having  to  report 
periodically on its activities to the Minister for Finance and the BoG, and to provide detailed information to them through 
its President on request. The Board must also submit bi-annual reports to the Greek Parliament notified to the Ministry of 
Finance,  the  European  Commission,  the  ECB  and  the  International  Monetary  Fund,  as  well  as  to  the  BoG.  See 
Article 4(9). 
See Article 4(2)A. 
Article 4(2)C. 

8 

 
 
                                                 
observers  in  the  Board’s  meetings,  it  would  be  helpful  if  the  draft  law  could  clarify  that  all 

documents going to the Board will be made available in English.  

Impact of FSF account at the BoG on implementation of Eurosystem monetary policy 

3.3  The  recourse  to  a  BoG  deposit  account  for  the  investment  of  the  FSF’s  capital  provides  a  stable 

solution. This does not necessarily raise difficulties for the implementation of the single monetary 

policy  provided  that  even  infrequent  account  movements  are  known  in  advance  and  therefore 

included in liquidity forecasts.    

Prohibition on monetary financing 

3.4  As regards the monetary financing prohibition laid down in Article 123 of the Treaty, as the FSF’s 

capital is to be issued in the form of securities that are wholly owned by the Greek State, the FSF 

should  be  considered  as  a  ‘public  undertaking  of  a  Member  State’  within  the  meaning  of 

Article 123(1)  of 

the  Treaty  and  Article  8  of  Council  Regulation  (EC)  3603/93  of 

13 December 1993  specifying  definitions  for  the  application  of  the  prohibitions  referred  to  in 
Articles 104 and 104b(1) of the Treaty48. Under the draft law the FSF may not enter into any loan 
agreement or issue bonds or commercial paper49. Accordingly there will be no question of the FSF 

being involved in any borrowing from the ECB, the BoG or any other ESCB central bank so that 

the monetary financing prohibition will not be breached.  

3.5  Furthermore, to comply with the monetary financing prohibition, it is essential to specify that the 

remuneration  of  the  account  held  by  the  FSF  at  the  BoG  will  reflect  market  parameters.  In 

particular, it is important to correlate the deposits’ remuneration rate with their maturity. Past ECB 
opinions50 have noted that the prohibition on monetary financing by central banks of government 

activities  is  independent  of  its  form,  e.g.  loans  or  direct,  non-reimbursable  funding  to  the  public 

sector. Interest payments above market rates constitute a de facto advanced distribution of profits. 

This, in turn, implies a de facto intra-year credit, contrary to the objective of the monetary financing 

prohibition.  Therefore,  the  remuneration  for  public  entity  deposits  should  not  go  beyond  the 

remuneration  applied  to  a  similar  deposit  made  by  a  market  counterparty.  If  the  remuneration 

mechanism  for  deposits  of  public  entities  allows  public  sector  entities  to  systematically  steer  the 

remuneration by a national central bank at a rate above the rate at which a similar deposit would be 

remunerated  by  a  market  counterparty,  this  would  contravene  the  objectives  of  the  monetary 

financing  prohibition  under  the  Treaty.  It  may  also  have  undesired  signalling  effects.  Given  the 

purpose  of  the  FSF’s  financial  resources  held  at  the  BoG,  their  maturity  is  very  short  term  to  be 

quickly available. The interest rate at which the BoG should remunerate deposits made by the FSF 

should be at a rate equivalent to, or in a range, the highest and lowest points of which will be set by 

(1) the Eurosystem deposit facility rate and (2) the Euro Overnight Index Average (EONIA) rate. 

The  reference  to  the  rate  applicable  to  the  Eurosystem  main  refinancing  rate  (MRO)  should  be 

48  
49  
50  

OJ L 332, 31.12.1993, p. 1. 
Article 3(4). 
See in particular ECB Opinions CON/2008/10 and CON/2009/69. 

9 

 
 
                                                 
removed as this rate would normally be positioned within the range defined above, but it might, in 

exceptional circumstances, exceed the EONIA rate. 

3.6  The ECB notes the draft law expressly provides that the remuneration of the Board members and 
staff salaries will be payable from the FSF’s budget51. As the FSF will be financially independent52 
and  will  draw  up  its  own  financial  statements53,  this  implies  that  it  will  be  responsible  for  its 

operating costs. Thus there should not be any cause for the FSF to resort to central bank resources 

to finance any of its operations. 

Earmarking of FSF capital 

3.7  Article  3(1)  provides  that  the  FSF’s  capital  ‘stem[s]…..from  the  EU/IMF  financial  support 

mechanism to Greece by virtue of Law 3845/2010’. There may be a need to clarify this in a non-

legislative act instead of in the draft law.  

Conflicts of interest 

3.8  The  ECB  considers  that  the  draft  law  already  deals  with  most  of  the  situations  where  Board 

members’  private  interests  could  conflict  with  those  of  the  FSF.  Nevertheless  there  are  still  a 

number of technical details that could be usefully clarified.  

3.9  First, as regards the second sentence of Article 4(2)(E), the draft law is ambiguous as to whether the 

BoG  officials  may  not  be  subject  to  the  incompatibility  requirements  for  Board  members  in  sub-

paragraph E. This second sentence is understood to mean only that the holding of any office with 

the  BoG  by  a  Board  member  may  not  be  considered  incompatible  with  that  person’s  status  as  a 

Board  member.  If  this  is  what  is  intended,  this  should  be  specified  in  a  separate  clause  and  the 

words ‘with the exception of officials coming from the BoG’ at the end of the second sentence of 

Article  4(2)(E)  should  be  deleted.  Otherwise,  the  current  wording  could  mean  that  the  direct 

shareholding  of  BoG  officials  in  credit  institutions  would  not  be  covered  by  the  incompatibility 

requirements in sub-paragraph E.  

3.10  Second, the fifth sentence of Article 4(2)(E) should clarify that Board members should be obliged 

not  only  to  disclose  any  possible  conflict  of  interest,  but  also  to  abstain  in  any  relevant  Board 

resolution  where  a  matter  is  on  the  agenda  in  which  they  have  an  actual  or  possible  conflict  of 

interest.  

3.11  Third, it is important to clarify that the members of the Board and the staff may not use confidential 

price sensitive market information to which they have access by reason of their position at the FSF 

to carry out private transactions for their or their relatives’ private benefit.  

3.12  Fourth,  in  Article  16(3),  consideration  could  be  given  to  whether  the  cooling  off  period  of  six 

months following the end of the contract should only apply to senior professional staff. 

51  
52  
53  

Article 4(2)(B) and Article 5(1). 
Article 1. 
Article 13. 

10 

 
                                                 
Definition of credit institutions 

3.13  It is understood that the reference to ‘subsidiaries of credit institutions having their registered office 

abroad’ in Article 2, and concerning the types of institutions eligible for a capital injection by the 

FSF to strengthen their capital adequacy, is intended to refer to subsidiaries which are themselves 

credit institutions authorised by the BoG operating in Greece, and not any other type of authorised 

financial institution. This part of the provision could be made clearer for the sake of legal certainty.  

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

Done at Frankfurt am Main, 9 July 2010. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

11