Opinion of the European Central Bank of 19 September 2011 on amendments to the Greek resolution regime for credit institutions (CON/2011/72)
Date: 2011-09-19
Institutions: European Central Bank
Subjects: Greece, credit institution, financial control, financial stability, financial supervision, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 19 September 2011 

on amendments to the Greek resolution regime for credit institutions 

(CON/2011/72) 

Introduction and legal basis 

On 5 September 2011, the European Central Bank (ECB) received a request from the Greek Ministry of 

Finance for an opinion on a draft law entitled ‘Enhanced supervisory and resolution measures for credit 

institutions,  regulation  of  financial  issues,  ratification  of  the  European  Financial  Stability  Facility 

Framework  Agreement  and  amendments  thereto  and  other  provisions’  (hereinafter  the  ‘draft  law’).  On 

16 September  2011,  the  Ministry  submitted  another  request  in  relation  to  a  set  of  draft  legislative 

provisions  amending  the  legal  framework  governing  the  Hellenic  Financial  Stability  Fund  (HFSF) 

(hereinafter the ‘draft provisions on the HFSF’), which also form part of 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 and contents of the draft law  

The  purpose  of  the  draft  law  is  to  enhance  the  framework  for  the  supervision  and  control  of  credit 

institutions and to introduce resolution powers to protect financial stability and public confidence in the 

Greek financial system. For this purpose, the draft law will: (i) reinforce the BoG’s supervisory powers in 

addressing  an  actual  or  potential  breach  by  credit  institutions  of  the  draft  law  following  adoption  and 

relevant  BoG  decisions;  (ii)  extend  the  role  and  powers  of  the  Commissioner  appointed  to  manage 

troubled  credit  institutions;  (iii)  empower  the  BoG  to  take  specific  resolution  measures  vis-à-vis  credit 

institutions; and (iv) establish a resolution branch within the Hellenic Deposit and Investment Guarantee 

Fund (HDIGF) to finance the resolution measures in the draft law. 

1  

OJ L 189, 3.7.1998, p. 42.  

 
 
 
 
                                                 
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1.1  Prudential  supervisory  measures:  the  BoG  requires  any  credit  institution  actually  or  potentially 

failing  to  comply  with  the  draft  law  and/or  the  BoG’s  relevant  decisions  to  take  the  necessary 

actions or corrective measures at an early stage to address any possible defects or weaknesses.  

1.2   Appointment of a commissioner: the BoG may appoint a commissioner to a credit institution for a 

renewable term of up to 12 months. The Commissioner will assess the credit institution’s situation 

and take the necessary action for its recovery, preparing it for any of the resolution measures under 

the draft law or putting it into special liquidation. The Commissioner will be subject to the BoG’s 

oversight and report to it.  

1.3  Extension  of  the  time  limit  for  the  fulfilment  of  obligations:  following  the  appointment  of  a 

commissioner, the BoG may extend by up to 20 days the period for the fulfilment of part or all of 

the credit institution’s obligations, if the credit institution’s liquidity is significantly reduced and it 
is likely that its own funds are inadequate2.  

1.4   Resolution  measures  and  their  activation:  the  BoG  may  trigger  certain  resolution  measures  to 

ensure  financial  stability  and  strengthen  public  confidence  in  the  Greek  financial  system.  In 

particular, it may: (a) instruct the Commissioner to decide on a capital increase within a specified 

time  limit,  disapplying  any  pre-emptive  rights  of  the  existing  shareholders;  (b)  oblige  a  credit 

institution to transfer certain assets and liabilities to a transitional credit institution (TCI) to another 

credit institution or entity, against consideration and within a specified time limit; (c) recommend 

that the Minister for Finance establish on grounds of public interest a TCI to which all or part of the 

assets and liabilities of the credit institution will be transferred. The credit institution’s licence will 

be revoked and the credit institution will be placed under special liquidation. The intrinsic value of 

its  shares  will  be  set  to  negative.  Any  rights  emanating  from  the  shares  will  cease  to  apply.  The 

HFSF will pay the TCI’s share capital in full. The TCI will be subject to State control, regardless of 

the mandatory participation of other entities in its share capital or its funding in other ways. 

1.5 

Special liquidation of credit institutions: where a credit institution’s licence is withdrawn, the BoG 

will appoint a special liquidator to manage the credit institution. Following the communication to 

the credit institution of the BoG’s decision placing it under special liquidation, the credit institution 

may not accept deposits, and the BoG may also restrict other operations.  

1.6   Establishment  of  a  resolution  branch  within  the  HDIGF  to  finance  the  resolution  measures:  the 
draft law amends Law No 3746/20003 (hereinafter the ‘Law on the HDIGF’), extending its scope to 

the provision of financial assistance to credit institutions for the purposes of resolution measures. In 

addition to the existing Depositors’ Coverage Branch and the Investors’ Coverage Branch, a new 

2  

3  

Such extension will not apply to the fulfilment of the credit institution’s obligations under proposed Article 63A(2), such 
as transactions in financial instruments carried out on the money or capital markets. 
FEK Vol Α 27/16.2.2009.  

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separate resolution branch4 will be created within the HDIGF and financed by contributions paid by 

credit institutions.  

1.7  The  draft  provisions  on  the  HFSF  empower  the  HFSF  to  provide  capital  support  to  a  TCI 

established  under  proposed  Article  63E  in  the  draft  law.  They  also  specify  and  extend  the 

competence  and  procedure  for  the  HFSF  to  recruit  its  staff  independently,  including  salaried 

lawyers. Further, they amend the provisions activating the HFSF by stating that capital support may 

only be provided to a credit institution, including any TCI, if: (a) there is well founded risk of it not 

being  able  to  continue  to  meet  minimum  capital  requirements  under  Article  27  of  Law  No 
3601/20075  (hereinafter  the  ‘Law  on  banking’),  and  (b)  the  institution’s  efforts  to  increase  its 

capital,  even  at  a  price  significantly  below  the  average  market  price,  have  failed.  The  draft 

provisions on the HFSF also specify that TCIs which have been recapitalised by the HFSF have to 

submit  a  business  plan  guaranteeing  that  they  are  viable,  and  that  the  HFSF  must  approve  the 

business  plan.  Other  important  provisions  state  that  the  HFSF  receives  common  shares  in 

consideration  for  any  capital  increase  in  the  credit  institution  that  it  funds,  and  that  the  HFSF 

appoints at least one member of the board of the credit institution.    

2. 

General observations 

2.1  The  draft  law  is  a  structural  benchmark  under  the  EU/IMF  support  programme  for  Greece6.  It  is 

intended  to  enhance  the  authorities’  powers  of  intervention  in  and  resolution  of  ailing  credit 

institutions.  The  introduction  of  amendments  to  the  legal  framework  governing  the  HFSF,  inter 

alia, to strengthen its role in bank resolution, is another of the structural benchmarks.  

2.2  The  ECB  also  notes  that  one  of  the  guiding  principles  for  implementation  of  the  resolution 

framework should be to resolve ailing institutions without severe systemic disruption and to avoid 

taxpayer exposure to loss.  

2.3  The  ECB  welcomes  the  provisions  specifying  the  conditions  and  objectives  to  be  met  before  the 

BoG  activates  any  of  the  resolution  measures  and  the  BoG’s  enhanced  role  as  the  resolution 

authority for credit institutions. The ECB also understands that, under the draft law, the BoG will 

have  exclusive  responsibility  for  supervision  and  resolution  and  that,  when  taking  any  of  the 

resolution measures under the draft law, the Commissioner will act as the BoG’s agent.   

4    

5  
6 

the 

Economic  Adjustment 

‘Branch’  means  a  separate  operational  unit  within  the  HDGIF  availing  of  a  segregated  account  for  the  purposes  of 
resolution financing as specified in proposed Article 13A of the Law on the HDGIF.   
FEK Vol Α 178/1.8.2007. 
See 
at: 
http://ec.europa.eu/economy_finance/publications/occasional_paper/2011/op82_en.htm. In particular, paragraph 12 of the 
Memorandum of Financial and Economic Policies in the Annex iterates the need, in the context of ongoing initiatives at 
the EU level, to strengthen the resolution framework for problem banks and to  allow timely and effective intervention 
and resolution consistent with EU Treaty rules and international sound practices. In this context, a broad set of tools is to 
be prepared to ensure that a resolution regime for financial institutions is put into place to safeguard financial stability 
and ensure effective depositor protection. 

for  Greece 

Programme 

available 

Review 

Fourth 

– 

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2.4  The ECB considers that the draft provisions on the HFSF are broadly consistent with and reinforce 

the effectiveness of the resolution measures under the draft law. However, there are several areas 

where specific further amendments will be required.  

3. 

Recovery and resolution plans 

The draft law rightly acknowledges the importance of the preparation of recovery and resolution plans as 

a preventive supervisory measure. The ECB underlines that the preparation, submission and approval of 

recovery plans should be an ordinary supervisory measure to be complied with by all credit institutions 
irrespective  of  a  crisis7.  The  draft  law  should  expressly  distinguish  recovery  from  the  resolution  plans. 

Each institution will draw up and maintain recovery plans, whereas the supervisory authority will draw up 
resolution plans on the basis of information provided by the credit institution8.  

4. 

Commissioner  

The  BoG  will  appoint  a  commissioner  from  among  persons  of  recognised  standing  and  professional 

experience  in  banking  matters  to  perform  certain  statutory  duties  on  a  full-time  basis,  subject  to 
confidentiality  requirements9.  To  avoid  conflicts  of  interest,  the  ECB  considers  it  essential  for  the 

Commissioner to also be independent from the credit institution to which it is appointed. The ECB also 

notes  that  the  Commissioner  is  deemed  to  act  as  a  ‘quasi-corporate’  body  when  participating  in  or 

exercising management of the credit institution, and as a public official when exercising BoG supervisory 
activities10. For the sake of legal certainty, the ECB considers that the draft law should ensure there is no 

ambiguity  in  the  Commissioner’s  status,  role  and  powers  under  Greek  law,  and,  in  this  regard,  the 

consulting authority should consider deleting the reference to the dual role of the Commissioner. 

5.    Recapitalisation in resolution  

5.1  Proposed Article 63C in the draft law should be based on the principle that the credit institution’s 

shareholders  and  not  the  taxpayer  bear  the  costs  of  resolution.  The  ECB  notes  that  this  principle 

should apply to all resolution measures. On the draft law’s exclusion of the pre-emption rights of 

existing shareholders in any new share issue by the credit institution in resolution, the ECB notes 

that  proposed  Article  63G  in  the  draft  law  caters  for  the  compensation  of  shareholders  in 

institutions affected by resolution measures.   

7   
8    

9   
10  

See proposed Article 62(2)(i) in the draft law. 
See also DG Internal Market and Services Working document on ‘Technical details of a possible EU framework for bank 
recovery and resolution’, January 2011, available on the European Commission’s website at www.ec.europa.eu.  
See proposed Article 63(4) in the draft law. 
See proposed Article 63(15) in the draft law. 

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5.2 

In the same vein, to prevent banks’ moral hazard and minimise the public sector’s burden from a 

bank  resolution,  the  ECB  invites  the  consulting  authority  to  consider  the  interaction  between 

proposed Article 63C of the Law on banking and the draft provisions on the HFSF. In particular, 

the  ECB  recommends  only  allowing  the  possibility for  an  ailing credit  institution  to  apply to  the 

HFSF by decision of the BoG. Therefore, the application of the last paragraph of Article 7 of the 

draft law on the HFSF should expressly be excluded. 

6. 

Transitional credit institution  

6.1  The  ECB  welcomes  the  proposal  to  establish  a  TCI  as  a  resolution  tool11,  with  the  aim  of 

preserving  the  continuity  of  financial  services,  ensuring  financial  stability  and  protecting 

depositors.  The  ECB  understands  that  the  ‘assets’  to  be  transferred  to  the  TCI  also  extend  to 

liabilities including deposits, which represent an important part of the systemic function of credit 

institutions. Moreover, the ECB understands that the reference to the TCI being controlled by the 

Greek State is to be construed as an indication that the TCI is State-owned. The ECB underlines 

that the proposed Article 63E(3), according to which the share capital of the TCI is entirely to be 
provided  by  the  HFSF,  and  in  Article  1  of  Law  No  3864/201012  (hereinafter  the  ‘Law  on  the 

HFSF’), providing that the HFSF is a private legal entity not forming part of the public sector, may 

not fulfil the requirement that the TCIs  should be State-owned. The ECB takes the view that the 

HFSF  should  finance  the  capital  injection  into  the  TCI,  while  the  shares  corresponding  to  this 

capital  increase  should  only  be  subscribed  by  the  State.  This  is  notably  because  the  voting  and 

other  rights  attaching  to  these  shares  should  belong  to  the  Greek  State  and  be  exercised  in  the 

public interest, and not belong to the HFSF, being a private law entity.  

6.2  Accordingly,  the  ECB  considers  that  the  proposed  Article  63E(3)  should  specify  that  the  State 

should exercise control over the TCI as the TCI’s sole shareholder. The ECB also understands that 

the  HFSF’s  contribution  of  the  entire  capital  to  the  TCI  should  be  exclusively  based  on  the 

Minister’s decision, following a recommendation by the BoG. 

6.3 

In  the  light  of  the  above,  the  ECB  also  notes  that  the  TCI’s  governance  should  be  clarified.  The 

members of the Board of Directors of the TCI appointed by the Minister for Finance must convene 
within 20 days a general shareholders meeting to elect of the new Board of Directors13. Given that 
the HFSF contributes the whole share capital of the TCI14, the ECB understands that the TCI’s new 

Board  of  Directors  will  be  appointed by  and  represent  the  HFSF,  i.e.  a  private  law  entity  legally 

independent  from  the  public  sector.  This  would  contrast  with  the  requirement  for  the  TCI  to  be 

State-owned.   

11      See proposed Article 63E in the draft law. 
12    
13  
14  

FEK Vol A 119/21.7.2010. 
See proposed Article 63E(5) in the draft law. 
See proposed Article 63E(4) in the draft law. 

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6.4  Along the same lines, to ensure the resolution’s efficiency, the ECB notes that the draft law needs 

to clarify the BoG’s relationship as the resolution authority, and/or the Minister, with the HFSF as 

regards the TCI.  

7.   Resolution branch  

7.1  The  ECB  welcomes  the  establishment  of  a  separate  resolution  branch  of  the  HDGIF  to  fund 

resolution measures, in particular the transfer of assets and liabilities to a third party or to the TCI. 

The ECB welcomes the segregation of the Resolution Branch from the Deposit Coverage Fund and 

the Investor Coverage Fund managed by the HDGIF. The ECB notes, however, that to fully satisfy 

the  segregation  requirement,  the  provision  should  also  expressly  prohibit  cross-compensation 

among each of the funds managed by the HDGIF.  

7.2  The  ECB  welcomes  the  banking  sector’s  responsibility  for  funding  the  HDGIF’s  Resolution 
Branch through special levies, distinct from the contributions to the Deposit Coverage Fund15. To 

finance this Resolution Branch, the ECB suggests that the choice of liabilities, net of equity (not to 

discourage the accumulation of internal buffers against unforeseen idiosyncratic shocks) and other 

insured  sources  of  funding,  such  as  insured  deposits  to  avoid  double  imposition  of  levies  in  the 

presence of the deposit coverage part of the HDGIF, appears to be an appropriate basis. The ECB 

notes,  however,  that  during  the  early  stages  of  the  Resolution  Branch,  its  funds  will  consist  of 

public financing by the Greek State, the HFSF or other entities of private or public law guaranteed 
by the State16. 

7.3 

In the same context, the ECB notes that where the Resolution Branch is activated for the purposes 
of the resolution measures17, its claims will be satisfied in absolute priority over any other claims in 
the  event  of  special  liquidation  of  an  ailing  credit  institution18.  The  ECB  understands  that  the 

priority  right  statutorily  established  in  favour  of  the  Resolution  Branch  would  only  be  warranted 

during  the  early  stages  of  its  existence,  when  its  funding  is  to  still  be  provided  by  the  State  or  a 

State-controlled  entity.  Once  the  Resolution  Branch  has  built  up  its  own  funds  through 

contributions by the participating credit institutions, no such priority right would be warranted.  

7.4  Finally,  a  provision  on  the  recovery  by  the  Resolution  Branch  of  any  funds  it  has  granted  for 

resolution purposes could be added to the draft law.  

7.5  The  draft  law  could  also  clarify  the  authority  to  determine  any  funding  gaps  on  transferring  the 

assets and liabilities of the credit institution. Consistently with the rationale of the draft law, such 

authority should be vested in the BoG as the resolution authority. The BoG will take into account, 

15  
16  
17  
18  

See proposed Article 13A in the draft law. 
See proposed Article 13A(3) in the draft law. 
See proposed Article 63(D) and (E) in the draft law. 
See proposed Article 13A(3) and (4) in the draft law. 

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but  should  not  be  bound  by,  the  auditors’  reports  provided  for  in  the  draft  law  as  part  of  the 
statutory valuation process19. 

8. 

Compensation  

Proposed  Article  63G  lays  down  a  ‘no  worse-off’  principle  for  the  compensation  of  stakeholders  in 

institutions affected by resolution measures. The draft law should additionally clarify that compensation 

will be based on an independent valuation, which may result in no compensation being payable, and that 

any  potential  or  actual  financial  assistance  from  the  State  or  support  from  the  central  bank  should  be 

disregarded  when  assessing  the  credit  institution’s  financial  situation.  It  should  also  clarify  that 

compensation claims are to be directed against the Hellenic Republic, rather than the BoG or the TCI.  

9.   Other observations on bank resolution 

9.1    The ECB notes that the protection of creditors and investors20 should not qualify as an objective for 

activating the resolution measures. Moreover, the ECB invites the consulting authority to clarify the 

interaction  between  paragraph  2  of  proposed  Article  63B,  setting  out  the  grounds  for  activating 

resolution  measures,  and  paragraph  3,  setting  out  the  considerations  that  the  BoG  is  to  take  into 

account for the same purpose.  

9.2  The ECB draws the consulting authority’s attention to a possible  inconsistency between the draft 

law  and  the  Greek  transposition  of  Directive  2001/24/EC  of  the  European  Parliament  and  of  the 
Council of 4 April 2001 on the reorganisation and winding up of credit institutions21 as regards the 

qualification of the appointment of the Commissioner as a reorganisation measure.  

9.3  Proposed  Article  62(2)(g)  provides  that  the  BoG  may  authorise  ‘certain  transactions  that  may 

jeopardise the solvency of credit institutions’. The ECB understands that the power in question is to 

be exercised within the bounds of reason and subject to time restrictions.    

10.  Observations on the draft provisions on the HFSF 

10.1  In  order  to  prevent  potentially  high  losses  for  the  HFSF  as  a  result  of  its  participation  in  the 

provision of capital support for recapitalised credit institutions, the draft provisions should make it 

clear that the price at which the HFSF recapitalises credit institutions will be substantially below 

the market price, and specify further how the issue price of the new shares is to be determined. The 

ECB also notes that the title of Article 7 of the Law on the HFSF should also be reworded to match 

its  contents,  referring  to  ‘common’  shares  instead  of  ‘preference’  shares.  Furthermore,  the  law 

should specify clearly how the share price will be determined. 

19  
20  
21  

See proposed Article 63D(4) in the draft law. 
See proposed Article 63B in the draft law. 
OJ L 125, 5.5.2001, p. 125. 

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10.2  In order to provide legal certainty, a sentence  should be added to Article 3(4) of the Law  on the 

HFSF, clarifying that the general prohibition on ‘other investments’ does not include the opening 

of  an  interest-bearing  account  with  a  private  credit  institution  to  settle  the  HFSF’s  day-to-day 

operating  costs.  Such  activities  comprise  in  particular  paying  out  salaries,  purchasing  office 

supplies and other operating costs. The money held in this account should be limited to the amount 

necessary to meet such operating costs and should be earmarked for this purpose.  

10.3  With regard to the proposed Article 7(3) in the draft provisions on the HFSF, which relates to the 

determination  of  the  fair  value,  the  ECB  recommends  that  the  average  value  of  the  two 

assessments, by the two independent auditing firms, should diverge by more than 10%, and not by 

25%, in order for the value to be finally defined by a third independent auditing firm appointed by 

decision of the Minister for Finance, following the recommendation of the BoG. The proposal to 

introduce a trigger of 25% divergence is not supported by any factual evidence. 

10.4  In the proposed Article 7(3)(i) in the draft provisions on the HFSF the ECB recommends that actual 

or potential support by the Greek State is ‘subtracted’ when calculating the fair value. Furthermore, 

the  calculation  in  this  respect  shall  ‘in  addition’  take  into  account  as  a  ceiling  ‘before  the  above 

subtractions’, the average price of the credit institution’s shares. The same criteria and subtractions 

should be followed by the independent auditing firms for the fair-value assessment. Furthermore, 

the words ‘outside Eurosystem operations’ should be replaced by the words ‘or by any Eurosystem 

operations’.  

10.5  In the light of the extension of the scope of the HFSF’s activities, the ECB invites the consulting 

authority  to  consider  enhancing  the  governance  structure  and  effectiveness  of  the  Fund  by,  inter 

alia, increasing the number of members of the board of directors. 

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

Done at Frankfurt am Main, 19 September 2011. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

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