Opinion of the European Central Bank of 28 February 2012 on the recapitalisation and resolution of credit institutions in Greece (CON/2012/14)
Date: 2012-02-28
Institutions: European Central Bank
Subjects: Greece, central bank, credit institution, financial stability, financial supervision, guarantee, institutional activity, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

28 February 2012 

on the recapitalisation and resolution of credit institutions in Greece 

(CON/2012/14) 

Introduction and legal basis 

On 25 February 2012 the European Central Bank (ECB) received a request from the Greek Ministry of 

Finance  for  an  opinion  on  a  draft  law  amending  the  legal  framework  for  the  recapitalisation  and 

resolution of credit institutions in Greece (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 provisions, as the draft law relates to the Bank of Greece 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 law 

1.1   The  draft  law  amends  the  Greek  legal  framework  for  the  recapitalisation  and  resolution  of credit 

institutions. Article 1 amends Law 3864/2010 on the Hellenic Financial Stability Fund (hereinafter 

the ‘Law on the HFSF’). Article 2 amends Law 3601/2007 (hereinafter the ‘Law on banking’) and 

Article  3  amends  Law  3746/2009  on  the  Hellenic  Deposits  and  Investment  Guarantee  Fund 

(hereinafter  the  ‘Law  on  HDIGF’).  These  amendments  are  required  by  the  Memorandum  of 
Economic and Financial Policies1.  

1.2  Amendments to the Law on the Hellenic Financial Stability Fund  

The draft law reforms the governance structure of the Hellenic Financial Stability Fund (HFSF) by 

establishing  a  General  Council  and  an  Executive  Board  and  clarifying  that  the  two  bodies  have 

responsibility  for  different  functions.  Furthermore,  the  draft  law  is  intended  to  improve 

performance by the HFSF of its twofold mandate: management of its ownership interest in credit 

1  

Annex V to Law 4046/2012. FEK A 28/14.2.2012.   

 
 
 
 
 
                                                 
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institutions, on behalf of the Government, and management of transitional credit institutions (TCIs) 

established in accordance with Article 63E of the Law on banking. 

1.3  Amendments to the Law on banking  

The amendments to the Law on banking aim to clarify the procedures and allocation of tasks for 

valuing assets and liabilities and, thus, for the opening balance sheets of TCIs. Future resolutions 

will initially use, as their starting point, conservative asset valuations of failed banks’ assets, based 

on  their  fair  value,  and  subsequently  allow  for  proper  due  diligence  and  revaluation  followed  by 

complementary asset transfers within a specified time period. 

1.4  Amendments to the Law on the Hellenic Deposits and Insurance Guarantee Fund 

The  amendments  to  the  Law  on  the  HDIGF  will  strengthen  the  funding  of  the  HDIGF  depositor 

branch,  inter  alia,  by:  (i)  increasing  fees  if  its  funds  fall  below  a  certain  level  of  coverage  of 

insured  deposits,  taking  due  account  of  developments  in  the  financial  system;  and  (ii)  ensuring 

adequate  diversification  of  re-deposits  of  HDIGF  funds  and  gradually  eliminating  re-deposits  in 

covered  banks,  in  line  with  the  restructuring  of  the  Greek  banking  sector.  The  draft  law  also 

introduces rules on the management of conflicts of interest for HDIGF Board members. 

2. 

General observations 

2.1  The draft law will align the Greek legislative framework for recapitalisation and resolution of credit 

institutions  with  the  financial  sector  objectives  outlined  by  the  Greek  authorities  in  the 

Memorandum  of  Economic  and  Financial  Policies.  Moreover,  the  ECB  understands  that  in 

addition, the national authorities also intend to harmonise the Greek financial legislative framework 

with  other  objectives  in  the  Memorandum  in  accordance  with  the  time  frame  foreseen  therein. 

These  other  objectives  relate,  inter  alia,  to  the  need  to:  (i)  clarify  that  the  HDIGF’s  status  as 

privileged  creditor  does  not  impinge  on  claims  secured  with  financial  collateral  in  the  sense  of 

Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial 
collateral arrangements2 and follows best practice with respect to secured creditors in general; (ii) 

introduce  a  clear  separation  of  the  supervisory  and  resolution  responsibilities  within  the  Bank  of 

Greece; and (iii) reform governance arrangements in the Bank of Greece and revise the structure 

and rights of Bank of Greece shareholders to eliminate possible conflicts of interest in the Bank of 

Greece’s public policy role by end-December 2012. 

2.2  The ECB notes the strengthening of the HFSF’s role and emphasises the need to clearly define its 

responsibilities,  to  ensure  that  the  HFSF  does  not  inadvertently  interfere  with  the  powers  of  the 

Bank  of  Greece  as  supervisory  and  resolution  authority  and  as  guarantor  of  the  stability  of  the 

financial system.  

2  

OJ L 168, 27.6.2002, p. 43. 

2 

 
 
 
                                                 
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3. 

Amendments to the law on the HFSF 

3.1 

In  terms  of  the  HFSF’s  new  dual  governance  structure,  the  ECB  notes  that  to  enable  practical 

decision-making  and  in  line  with  usual  corporate  governance  principles,  it  is  important  for  the 

Executive Board members to be at the same time members of the General Council. In this respect, 

the ECB recommends amending the draft law to enable this governance structure within the HFSF.  

3.2  The ECB welcomes the draft law’s requirement for ECB observers and their alternates to be invited 
to participate without voting rights in the HFSF’s General Council and Executive Board meetings3. 

The  ECB’s  observer  status  in  the  HFSF’s  two  bodies  is  consistent  with  the  rationale  of  Law 

3864/2010 establishing the HFSF, under which an ECB observer was to be invited to participate in 
the Board of Director meetings4.  

3.3 

In view of the Bank of Greece’s role as prudential supervisor and guarantor of the stability of the 

financial system, the ECB also welcomes the fact that the Bank of Greece will appoint one member 

of  the  General  Council  and  will  designate  one  of  the  persons  to be  appointed  as  members  of  the 

Executive  Board  by  the  Minister  for  Finance.  Moreover,  the  ECB  welcomes  that  the  Bank  of 

Greece  will  also  be  represented  in  the  Committee  selecting  the  President  and  members  of  the 
General Council, the Managing Director and the members of the Executive Board5. The ECB notes 

that the draft law does not provide whether the member of the Executive Board designated by the 

Bank of Greece will at the time of appointment be a member of staff or an official of the Bank of 

Greece and suggests clarifying this in the draft law. Moreover, the ECB suggests that the draft law 

could provide for participation in this Selection Committee by a representative from the ECB, in 

addition to one from the European Commission. 

3.4  The  ECB  draws  attention  to  the  fact  that  the  draft  law  should  foster  best  practice  in  terms  of 

decision-making  transparency  and  accountability  within  the  HFSF’s  General  Council  and 

Executive Board. In this respect, the draft law should provide for the HFSF to adopt more detailed 

rules  on  how  its  affairs  are  managed  as  well  as  a  code  of  conduct  for  members  of  the  General 

Council and of the Executive Board. These should regulate, inter alia, procedures for both bodies’ 

meetings  and  the  preparation  of  agendas  and  minutes.  They  should  also  provide  rules  and 

procedures for decision-making in emergency situations. 

3.5  According to Article 1(5) of the draft law, the HFSF may participate in the increase of the share 

capital of credit institutions also through the issuance of contingent convertible bonds. Article 1(7) 

of the draft law, inserting a new Article 7a in Law 3864/2010, provides that, in case of a capital 

increase  of  such  a  credit  institution,  the  voting  rights  attached  to  the  HFSF’s  shares  will  be 

restricted, if the participation of private sector investors in the capital increase is at least 10% of the 

3  
4  
5  

Articles 1(2) and 1(3). 
Article 4(2)C of Law 3864/2010. 
Article 1(2), 1(3) and 1(4). 

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amount of the share capital increase. The ECB understands that the contingent convertible bonds 

eligible  for  the  own  funds  of  the  credit  institution  would  not  be  included  in  the  share  capital 

increase of the bank when determining the Fund’s voting rights unless and until the event for their 

conversion into common shares has been triggered. Furthermore, the ECB considers that the rights 

of  private  investors  could  be  clarified  if  the  10%  threshold  of  private  sector  participation  in  the 

capital increase under proposed Article 7a(3) is not reached. In that case the ECB understands the 

private investors would still be issued certificates representing rights to shares in proportion to their 

percentage  participation  in  the  capital  increase,  but  this  is  not  expressly  stated.  Indeed,  the  first 

sentence  of  proposed  Article  7(1)  suggests the share  certificates  are  only  issued  if  the  10% 

threshold in Article 7a(3) is reached. 

4. 

Amendments to the Law on banking 

4.1  Article  2(4)  of  the  draft  law  amends  Article  63Β(4)  of  Law  3601/2007  on  the  conditions  for 

activating  resolution  measures,  which  will  provide that  the  Bank  of  Greece  will,  at  its  discretion, 

use adequate measures for the resolution of a credit institution, considering, inter alia, the need to 

allocate the eventual losses arising from the resolution of the credit institution to shareholders, to 

unsecured creditors and to depositors not covered by Law 3746/2009. While the ECB understands 

this reflects the need to limit the costs of resolution, it nevertheless notes that this may compromise, 

if not exclude, the transfer of uncovered deposits, which should in any case remain an option.  

4.2  Article 2(6) of the draft law allows the Bank of Greece, within six months from the issuance of a 

decision activating a transfer of assets, to transfer further assets of the credit institution subject to 

the resolution measure or to transfer back to the latter assets that have already been transferred to 

the transferee credit institution. The difference between the value of the transferred liabilities and 

the value of the transferred assets will be adjusted accordingly. The same holds under Article 2(9) 
of the draft law in respect of further transfers to or from the TCI6. The ECB understands that these 

provisions serve the purposes of the resolution procedure, as defined in the Law on banking, and, 

therefore  underlines  that,  for  the  sake  of  efficiency  of  the  procedure  and  legal  certainty,  such 

decisions by the Bank of Greece should be implemented also by the HFSF in a timely and efficient 

manner. 

5. 

Amendments to the Law on the HDIGF 

As  regards  the  regime  on  conflicts  of  interest  for  members  of  the  Executive  Board  of  the  HDIGF, 

Article 3(5) of the draft law, which replaces the last sentence of Article 23(4) of Law 3746/2009, provides 

that ‘the two members of the Executive Board nominated by the Hellenic Banks Association must not be 

6  

Pursuant  to  Article  63E  of  the  Law  on  banking,  the  Minister  for  Finance  may  decide  in  the  public  interest  and  on 
recommendation from the Bank of Greece to establish a TCI to whom the Bank of Greece may compel a credit institution 
to transfer the whole or part of its assets and /or liabilities under the procedure set out in Article 63D. 

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actively involved in the credit institutions participating in the HDIGF and, in relation to these, there must 

be  no  ground  for  conflict  of  interests  stemming,  on  the  one  hand,  from  their  participation  in  HDIGF’s 

Board and, on the other hand, from any relationship they may have with participating credit institutions’. 

The ECB considers the criterion of ‘active involvement in credit institutions participating in the HDIGF’ 

is  too  vague  to  prevent  conflicts  of  interest  in  respect  of  HDIGF  Board  members.  The  regime  for 
members of the Executive Board of the HSFS should also apply to the HDIGF Board7. 

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

Done at Frankfurt am Main, 28 February 2012. 

[signed] 

The President of the ECB 

Mario DRAGHI 

7  

See Article 1(8) of draft law introducing a new Article 16B in the Law on the HSFS. 

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