Opinion of the European Central Bank of 13 April 2011 on the legal framework for the Loan and Consignment Fund and on amendments to the enhancement scheme for the Greek economy’s liquidity following the international financial crisis (CON/2011/34)
Date: 2011-04-13
Institutions: European Central Bank
Subjects: Greece, banking, credit institution, financial risk, financial stability, loan, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 13 April 2011 

on the legal framework for the Loan and Consignment Fund and on amendments to the 

enhancement scheme for the Greek economy’s liquidity following the international financial crisis 

(CON/2011/34) 

Introduction and legal basis 

On  23  March  2011,  the  European  Central  Bank  (ECB)  received  a  request  from  the  Greek  Ministry  of 

Finance  for  an  opinion  on  two  sets  of  draft  legislative  provisions  in  relation  to:  (a)  the  Loan  and 

Consignment Fund (LCF) (hereinafter the ‘first set of draft provisions’); and (b) the enhancement of the 

economy’s  liquidity  following  the  international  financial  crisis  (hereinafter  the  ‘second  set  of  draft 

provisions’). Both sets of draft provisions are included in the draft law entitled ‘Reform of the operational 

framework of the Loan and Consignment Fund, the Public Debt Management Agency, public enterprises 

and  bodies,  establishment  of  a  secretariat  general  for  public  property  and  other  provisions’  (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  European  Central  Bank  by  national 
authorities  regarding  draft  legislative  provisions1,  as  the  draft  provisions  relate  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 European Central Bank, the Governing Council has adopted this opinion. 

1.  

Purpose of the draft provisions 

1.1  The first set of draft provisions reform the LCF’s operational framework2. In line with Union law, 

they  introduce  a  prohibition  on  cross-subsidisation  within  the  LCF,  in  particular  subsidisation  of 

the  services  provided  by  the  LCF  in  the  open  market,  e.g.  the  granting  of  loans  to  private 

individuals,  deposit-taking  etc.,  by  activities  related  to  the  LCF’s  reserved  operations  established 
under public law, such as consignment deposits, compulsory deposits etc.3. This is to be achieved 

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OJ L 189, 3.7.1998, p. 42.  
The  LCF,  established  by  Law  1608/1919,  is  a  legal  entity  governed  by  public  law  and  supervised  by  the  Ministry  of 
Finance. 
See Article 2 of the draft law, which also sets out terms and conditions for loans to local authorities and enables the LCF 
to enter into agreements with credit institutions in order for them to take delivery of consignment deposits to be further 
rendered to the LCF. 

 
 
 
 
                                                 
by: (a) an operational division of the LCF’s reserved sector from its commercial activities sector; 

and  (b)  the  establishment  of  a  separate  branch  for  the  latter,  subject  to  separate  accounting 
monitoring  in  line  with  the  International  Financial  Reporting  Standards4.  Furthermore,  while  the 

LCF’s  single  legal  personality  is  preserved,  the  first  set  of  draft  provisions  provides  for  the 
possibility, where necessary5, for the commercial activities branch to be spun-off into an existing 
LCF subsidiary or a new LCF subsidiary to be established for that purpose6. Finally, the Minister 

for Finance is authorised to adopt the LCF’s operational rules to ensure the LCF’s functioning and 
activities comply with Union law7.  

1.2  The  purpose  of  the  second  set  of  draft  provisions,  contained  in  Article  19  of  the  draft  law,  is  to 

provide further financial support in the context of the guarantee scheme adopted under Article 2 of 
Law  3723/20088  through  an  additional  amount  of  EUR  30  billion.  This  is  subject  to  the 

requirement set out in Article 19(2) of the draft law, which provides that each credit institution will 

prepare and implement a plan for medium-term financing needs to be approved by the BoG and the 

ECB, in cooperation with the European Commission and the International Monetary Fund (IMF). 

Furthermore,  Article  19(3)  of  the  draft  law  extends  the  competences  of  the  representative  of  the 

Greek  State  originally  provided  for  in  Law  3723/2008,  with  a  view  to  ensuring  the  efficient 

monitoring  of  the  implementation  of  the  measures  for  enhancing  the  relevant  credit  institutions’ 

liquidity.  Finally,  Article  19(4)  of  the  draft  law  extends  to  the  fiscal  year  2011  the  restriction 

imposed  by  Article  1(3)  of  Law  3723/2008  on  dividend  distribution  by  credit  institutions 

participating  in  the  liquidity  enhancement  scheme.  Distribution  of  dividends  in  this  case  is 

restricted to shares only. 

2. 

Specific observations 

The ECB understands that both sets of draft provisions aim to reflect the contents of the updated 
Economic Adjustment Programme for Greece9, in particular the Memorandum of Understanding on 
Specific  Economic  Policy  Conditionality10  and  the  Memorandum  of  Economic  and  Financial 
Policies (MEFP)11). Under the Programme mentioned above, these sets of provisions are subject to 

a specific timeframe for their implementation.  

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See Article 1 of the draft law. 
See explanatory note to the draft law. 
See Article 3 of the draft law. The terms, the conditions and the procedure for the spin-off, as well as any other related 
detail, will be set out by decision of the Minister for Finance. 
See Article 4 of the draft law. 
Law on the enhancement of liquidity of the economy in response to the impact of the international financial crisis, FEK 
A 250/9.12.2008. 
Third Review - winter 2011. Available on the European Commission’s website at: http://ec.europa.eu. 
See Section 1 (iii) thereof, under ‘Financial Sector Regulation and Supervision’, which provides for the unbundling of the 
LCF’s core consignment activity from deposit-taking and loan distribution as part of the actions to be completed by the 
end of Q1 2011. 
See paragraph 15 thereof, which states that ‘Initiatives underway should help preserve sufficient system liquidity. As a 
temporary measure, the government will put forward for legislative adoption a new tranche of government guarantees for 
uncovered  bank  bonds  (proposed  as  a  structural  benchmark  for  end-March).  The  tranche  will  be  in  an  amount  of  €30 
billion, and the guarantee scheme will be subject to approval by decision of the European Commission. This additional 

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2.1 

In  relation  to  the  first  set  of  draft  provisions,  the  ECB  welcomes  in  principle  the  operational 

segregation of the LCF’s reserved sector from its commercial activities sector. Such segregation of 

the  core  consignment  activity  from  deposit-taking  and  loan  distribution  activities  should  address 

the lack of a level playing field that could arise from cross-subsidisation of the LCF’s commercial 

activities  by  resources  from  its  reserved  sector.  In  this  respect,  however,  the  ECB  notes  that  the 

first set of draft provisions only provides for the spin-off of the commercial activities branch as an 
option12. The ECB takes the view that a segregation could best serve its purpose if followed, in the 

short-term, by an actual spin-off, as a second step completing the procedure. This would, inter alia, 

enhance legal certainty in terms of the structure, governance and operation of the entity that is to 

take up the commercial branch of the LCF’s activities, including its compliance with the regulatory 

and supervisory requirements applicable under national and Union legislation to credit institutions.  

2.2 

In relation to the second set of draft provisions, Article 19(2) of the draft law provides that access 

by domestic credit institutions to the liquidity enhancement provided for in draft Article 19(1) is to 

be  conditional  on  the  submission,  by  each  domestic  credit  institution,  of  a  medium-term  funding 

plan, for the approval of the BoG and the ECB, in cooperation with the European Commission and 

the IMF. Article 19(2) might be seen to establish an automatic outcome between the submission of 

funding  plans  and  the  transformation  into  Eurosystem  collateral  of  the  additional  guarantees 

provided for in Article 19(1); however, this does not reflect the need for the Eurosystem to assess, 

on  a  case-by-case  basis,  the  actual  liquidity  needs  of  individual  banks.  In  fact,  regardless  of  the 

funding plans submitted for approval, such assessment is needed to ascertain the extent to which 

the  submission  of  new  collateral  in  the  form  of  State-guaranteed  uncovered  bank  bonds  is 

warranted. 

2.3  Finally,  the  ECB  considers  that  the  wording  of  Article  19(2)  of  the  draft  law,  in  particular  the 

reference to ‘plan for medium-term financial needs’, should be further clarified. The February 2011 

update of the MEFP introduced the concept of ‘medium-term funding plans’. These plans will aim 

at reducing excesses in banks’ recourse to Eurosystem borrowing and will in particular show how 

banks  will  adjust  their  balance  sheets  to  achieve  that  goal.  The  current  wording  in  the  draft  law 

could be misleading as to the real nature of the envisaged plans. 

liquidity should provide an adequate buffer to address liquidity issue potentially arising from continued market volatility. 
The tranche will be made available on a bank-by-bank basis, conditioned on the adoption and implementation of medium 
term funding plans by banks.’ 
Under Article 3 of the draft law, by virtue of a resolution of the LCF’s Board of Directors, the latter’s commercial branch 
may be separated and transferred to an existing or newly incorporated company. 

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

Done at Frankfurt am Main, 13 April 2011. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

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