Opinion of the European Central Bank of 24 October 2011 on a State guarantee covering certain loans granted to Dexia SA and Dexia Crédit Local SA (CON/2011/85)
Date: 2011-10-24
Institutions: European Central Bank
Subjects: France, aid for restructuring, credit institution, financial stability, guarantee, national law, securities

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 24 October 2011  

on a State guarantee covering certain loans granted to Dexia SA and Dexia Crédit Local SA  

(CON/2011/85) 

Introduction and legal basis 

On 21 October 2011, the European Central Bank (ECB) received a request from the French Ministry of 

Economic Affairs, Finances and Industry for an opinion on a draft Supplementary Budget Act providing 

for a State guarantee covering certain loans to Dexia SA and Dexia Crédit Local SA (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 on 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, and in particular Article 4 thereof, 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.  

Purpose of the draft law 

1.1  The draft law2 is motivated by the current financial market crisis, and in particular in the context of 

the restructuring plan for the Dexia group, by the need to restore investor confidence and reassure 
Dexia’s  clients  and  creditors  that  Dexia  will  be  able  to  continue  to  meet  its  obligations3.  To  this 

end, the French State will grant two types of guarantees under the draft law covering financing of 
certain entities of the Dexia group4. 

1.2  Under  the  draft  law5,  the  Minister  for  Economic  Affairs  will  be  authorised  to  grant  the  State 

guarantee in return for payment (first guarantee) for: 

(a) 

financing  raised  by  Dexia  SA  and  Dexia  Crédit  Local  from  credit  institutions  and 

institutional depositors, as well as bonds and debt securities that they issue for institutional 

1  
2  
3  
4  
5 

OJ L 189, 3.7.1998, p. 42.  
Draft Law on the budget 2011 No 3804. 
See the explanatory memorandum to the draft law. 
See Article 4 of the draft law.  
In accordance with Article 34-II-5 of Organic Law No 2001-692 of 1 August 2001 on finance laws. 

 
 
 
 
                                                 
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investors, provided that such financing, bonds and securities have been raised or subscribed 

between the date of publication of this draft law once adopted and 31 December 2021; and 

(b) 

debt securities issued by Dexia Crédit Local SA and entered into its balance sheet at the date 

of  publication  of  this  draft  law  once  adopted.  The  guarantee  is  granted  for  a  maximum 

ceiling of EUR 32 850 000 000.  

In the event of a transfer by Dexia SA of direct or indirect control over Dexia Crédit Local SA to a 

third party, the guarantee will cease to apply to financing, bonds and debt securities raised or issued 

after the transfer. 

The  guarantee  is  subject  to  a  joint  call  by  the  beneficiaries  of  the  Belgian  and  Luxembourg 

guarantees granted within the limit of 36.5% of the eligible amounts.  

1.3   Under the draft law, the Minister for Economic Affairs will also be authorised to grant in return for 

payment  the  State  guarantee  (second  guarantee)  to  Dexia  SA  and  Dexia  Crédit  Local  SA  for 

commitments  the  two  entities  took,  with  the  agreement  of  the  French  State,  with  regard  to assets 

entered into the balance sheet of Dexia Municipal Agency on the date of transfer of Dexia Crédit 

Local SA of more than 50% of Dexia Municipal Agency’s capital. This second guarantee is granted 

for a maximum of EUR 10 000 000 000. It will apply above a ceiling of EUR 500 million within a 

limit of 70% of the amounts due and of a total of EUR 6 650 000 000.  

1.4   The conditions under which each of the guarantees mentioned may be called will be defined in one 

or several agreements entered into by the Minister for Economic Affairs with the undertakings in 

question and, as far as the first guarantee is concerned, with the two other States. 

1.5  The draft law further provides that the governing bodies of a credit institution receiving from State 

support may not decide or propose (i) the allocation of stock options or bonus shares to members of 

the governing bodies; (ii) the allocation or payment of variable elements of remuneration based on 

performance  and  the  allocation  or  payment  of  delayed  remuneration;  and  (iii)  the  distribution  of 

dividends by the credit institution to shareholders when its solvency or liquidity is or likely to be 

jeopardised. 

2. 

General observations  

2.1  As  explained  in  the  draft  law6,  the  State  guarantees  supporting  the  Dexia  restructuring  plan  will 

emanate from  Belgium, Luxembourg and France. In this respect, the ECB was also consulted on 

12 October  2011  by  the  Belgian  authorities  regarding  a  draft  royal  decree  granting  a  State 
guarantee  covering  certain  loans  granted  to  Dexia  SA  and  Dexia  Crédit  Local  SA7  and  on  14 

October 2011 by the Luxembourg authorities regarding a draft Grand-Ducal Regulation authorising 

the Government to extend a financial guarantee in  the context of the ordered restructuring of the 
Dexia banking group8. The ECB is unable to fully assess consistency between the legislation due to 

6  
7  
8   

See draft law. 
CON/2011/79. 
CON/2011/82. 

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different  legislative  techniques,  and  considering  that  certain  modalities,  varying  according  to  the 

Member States, still have to be defined in implementing agreements between these States and the 
Dexia entities9. The ECB emphasises the importance of ensuring the utmost consistency between 

the three sets of rules. 

2.2  

It  should  also  be  ensured  that  the  draft  law  and  any  subsequent  implementing  measures  fully 

comply  with  the  relevant  provisions  of  Union  law,  including  competition  and  State  aid  rules.  In 

particular,  national  authorities  should  seek  to  coordinate  their  responses  to  the  current  financial 

situation with their Union partners, to act in a united manner and to avoid that national measures 

adversely affect the functioning of the single market and the other Member States. In this respect, it 

is essential that Member States comply with the guidance given by the European Commission in its 

communications on the application of State aid rules to support measures in favour of banks and 

government guarantee schemes covering bank debt, including with regard to the temporary nature 

of  the  acceptability  of  such  aid  measures  and  the  necessity  for  credit  institutions  receiving  State 
support to submit a restructuring plan10. 

3.  

Interaction of the draft law with the monetary policy of the euro area  

The  draft  law  does  not  define  the  type  of  liabilities  falling  within  the  meaning  of  ‘financing’  under 

Article 4-I  of  the  draft  law.  It  also  does  not  specify  in  detail  the  assets  covered  under  the  second 

guarantee. In this respect, the ECB makes the following observations.  

First, the ECB reminds the consulting authority that government guarantees for bank debt should, when 

implemented:  (i)  address  the  funding  problems  of  liquidity-constrained  solvent  banks  by  improving  the 

functioning  of  the  market  for  bank  debt  of  longer-term  maturity;  (ii)  preserve  the  level  playing  field 

among financial institutions and avoid market distortions; and (iii) ensure consistency in the management 

of Eurosystem liquidity. In this vein, government guarantees for short-term bank debt with a maturity of 
three  to  12  months  may  be  provided  to  revitalise  the  short-term  bank  debt  market11.  In  this  regard,  the 

ECB  reiterates  that  granting  government  guarantees  for  bank  debt  with  a  maturity  of  less  than  three 
months should be avoided to the extent possible12.  

Second, it is also stressed that it is of the utmost importance that support operations conducted by national 

authorities do not in any way affect the conduct and the implementation of monetary policy in the euro 
area13.  In  this  context,  the  ECB  reiterates  its  view  that  the  extension  of  the  State  guarantee  to  cover 

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10  

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12  
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See Article 4-III of the draft law. 
See  notably  the  Communication  from  the  Commission  on  the  application,  from  1  January  2011,  of  State  aid  rules  to 
support measures in favour of banks in the context of the financial crisis, (OJ C 329, 7.12.2010, p. 7); 
Communication  from  the  Commission  –  The  application  of  State  aid  rules  to  measures  taken  in  relation  to  financial 
institutions in the context of the current global financial crisis (OJ C 270, 25.10.2008, p. 8); Commission Communication 
on the treatment of impaired assets in the Community banking sector, 25.2.2009 (OJ C 72, 26.3.2009, p. 1). 
CON/2009/73, paragraph 3.1, CON/2009/12, paragraph 3.3, CON/2009/49, paragraph 3.9. 
CON/2009/92, paragraph 3.5. 
CON/2009/73, paragraph 3.1, and 3.3.2 CON/2009/92, paragraph 3.5. 

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interbank deposits should be avoided14, as this could entail substantial distortion in the various national 

segments of the euro area money market by potentially increasing short-term debt issuance activity across 

Member  States  and  therefore  impairing  the  implementation  of  the  single  monetary  policy,  which  is  an 
exclusive  competence  of  the  Eurosystem  under  Article  127(2)  of  the  Treaty15.  It  could  also  affect  the 
transmission of monetary policy decisions16 and make it difficult to maintain the necessary level playing 

field in the euro area between the financial institutions benefiting from the State guarantee and those not 

benefiting.  

4. 

Temporary nature of the scheme  

In line with the assessment in the Commission’s staff working document17, the ECB notes the need for 
national  support  measures  to  be  temporary  in  nature18.  The  financing  that  will  be  covered  by  the  first 
guarantee may be issued until 31 December 202119. Moreover, the maturity of the financing covered is 

not  defined  in  the  enacting  terms  of  the  draft  law,  and  a  10  years’  maturity  is  only  indicated  in  its 
recitals20.  No  time  restriction  is  specified  for  the  second  guarantee.  Thus,  the  support  scheme  could  be 

considered of a longer-term rather than temporary nature. 

5. 

Pricing of the guarantee 

The explanatory memorandum to the draft law specifies that the remuneration due to the French State for 

the first guarantee will take into account European standards. The ECB takes note of the intention of the 
French State21 to apply the pricing formula recommended by the ECB’s Governing Council22, which is 

also  affirmed  by  the  Commission’s  staff  in  their  assessment  of  the  application  of  State  aid  rules  to 

Government guarantee schemes covering bank debt.  

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17  

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19  
20  
21  
22  

CON/2009/73,  paragraph  3.1,  CON/2009/49,  paragraph  3.9,  CON/2008/50,  paragraph  3.2,  CON/2009/12,  paragraph 
3.3.2. 
CON/2009/73,  paragraph  3.1,  CON/2009/49,  paragraph  3.9,  CON/2009/12,  paragraph  3.3.2  and  CON/2008/48, 
paragraph 3.7. 
CON/2009/73, paragraph 3.1, CON/2009/12, paragraph 3.3.2, CON/2009/49, paragraph 3.9. 
DG Competition Staff Working Document - The application of State aid rules to government guarantee schemes covering 
bank debt to be issued after 30 June 2011, available on the Commission’s website at www.ec.europa.eu. 
CON/2009/73, paragraph 3.2, CON/2009/24, paragraph 3.1, CON/2009/54, paragraph 2.5.2. 
Article 4-I (a) of the draft law. 
See explanatory memorandum. 
See explanatory memorandum: ‘This guarantee will be remunerated according to European standards’. 
Recommendations  of  the  Governing  Council  of  the  European  Central  Bank  on  government  guarantees  for  bank  debt, 
20 October 2008. 

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

Done at Frankfurt am Main, 24 October 2011. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

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