Opinion of the European Central Bank of 21 June 2012 on bank recapitalisation (CON/2012/48)
Date: 2012-06-21
Institutions: European Central Bank
Subjects: Slovenia, bank, bond, capital increase, financial stability, issue of securities, national law, share

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 21 June 2012  

on bank recapitalisation 

(CON/2012/48) 

Introduction and legal basis 

On  1  June  2012,  the  European  Central  Bank  (ECB)  received  a  request  from  the  Slovenian  Ministry  of 

Finance  (hereinafter  the  ‘Ministry’)  for  an  opinion  on  the  draft  law  amending  the  Law  on  banking 

(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 law relates to Banka Slovenije 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 main aims of the draft law are: (a) to allow for systemically important banks to achieve at least 

9% capital adequacy measured with the core capital of the highest quality, in accordance with the 

recommendations of the European Banking Authority (EBA); (b) to allow banks to increase their 

capital by way of issuing contingent convertible bonds, given the substantial decrease in the bank 

shareholders’ financial power which makes a recapitalisation significantly more difficult; and (c) to 

ensure  appropriate  capital  adequacy  of  the  banking  system  which  is  key  to  maintaining  an 

appropriate state rating. 

1.2 

In order to achieve the aims set out in paragraph 1.1 above, the draft law provides for the following 

key solutions.  

1.2.1  A share capital increase with non-cash contributions is now also permitted, provided that the share 

capital increase is based on an additional measure of Banka Slovenije2. 

1  
2  

OJ L 189, 3.7.1998, p. 42.  
See Article 2 of the draft law amending Article 43(8) and (9) of the Law on banking. 

 
 
 
 
                                                 
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1.2.2  General restrictions on the amount of a bank’s share capital increase do not apply (a) in the case of 

a  conditional  share  capital  increase,  and  (b)  with  respect  to  the  management  board’s  authority  to 
increase the share capital on the basis of the authorised capital3.  

1.2.3  Special rules on the acquisition of bank shares and the submission of an obligatory takeover bid are 

put in place4. 

1.2.4  Additional  exemptions  from  the  obligation  to  submit  a  takeover  bid  are  provided  for  bank 
shareholders who have obtained their shares in the process of a bank’s share capital increase5.  

1.2.5  A special sanctioning regime now applies when shares are acquired and (a) the takeover threshold 

is exceeded, and (b) a takeover bid is not submitted6.  

2. 

Duty to consult the ECB 

2.1  The ECB notes that the Slovenian government endorsed the draft law with additional changes on 

7 June 2012 and forwarded it to the Parliament for adoption in an urgent procedure. In this case, the 

ECB  appreciated  the  need  for  a  swift  adoption  of  the  draft  law  and  thus  also  accepted  the  short 

deadline of 10 working days set by the Ministry for the submission of this opinion. The draft law 

was  adopted  by  the  Slovenian  parliament  on  15  June  2012.  The  ECB  would  like  to  draw  the 
Ministry’s attention to the proper procedure for its consultations as set out below7. 

2.2  The second sentence of Article 4 of Decision 98/415/EC states that the ECB must be consulted ‘at 

an appropriate stage’ in the legislative process. This implies that the consultation should take place 

at  a  point  in  the  legislative  process  which  affords  the  ECB  sufficient  time  to  examine  the  draft 

legislative provisions (and where necessary translate them) and to adopt its opinion in all required 

language  versions,  and  which  also  enables  the  relevant  national  authorities  to  take  the  ECB’s 

opinion into consideration before the provisions are adopted. Where draft legislative provisions are 

prepared  by  an  authority  other  than  the  adopting  authority,  it  can  be  derived  from  Article  4  of 

Decision 98/415/EC that consultation on such provisions must take place at a time which enables 

the authority initiating the draft legislative provisions to consider whether they should be amended 

in  order  to  accommodate  the  ECB’s  opinion,  i.e.  before  transmission  of  the  provisions  to  the 

adopting authority. The timetable should also factor in a reasonable period for the ECB to examine 

the  consultation  dossier  and  deliver  its  opinion.  Article  4  does  not  preclude  national  authorities 

from taking steps in accordance with their legislative procedures that do not affect the substance of 

the draft legislative provisions.  

2.3 

It follows from the wording of Article 3(4) of Decision 98/415/EC that Member States are obliged 

to  suspend  the  process  for  adoption  of  the  draft  legislative  provision  pending  submission  of  the 

3  
4  
5  
6 
7 

See Article 43a in the Law on banking as inserted by Article 3 of the draft law. 
See Article 45c in the Law on banking as inserted by Article 4 of the draft law. 
See Article 45d in the Law on banking as inserted by Article 4 of the draft law. 
See Article 45e in the Law on banking as inserted by Article 4 of the draft law. 
See Title IV, Section I of the Guide to consultation of the European Central Bank by national authorities regarding draft 
legislative provisions, available on the ECB’s website at www.ecb.europa.eu. 

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ECB’s  opinion.  This  does  not  mean  that  the  whole  national  legislative  process  (for  example, 

preparatory work of parliamentary standing committees, discussion of other opinions submitted by 

national  authorities,  etc.)  should  be  suspended  pending  delivery  of  the  ECB’s  opinion.  Rather  it 

means that the adopting authority has to have the opportunity meaningfully to deliberate the ECB’s 

opinion prior to taking its decision on the substance. If a time limit has been set for submission of 

the ECB opinion and this time limit has expired, the national authority concerned may restart the 

adoption process. But even in such a case, and as long as the legislation has not yet been adopted, 

the national authorities continue to be obliged to take the ECB’s opinion into consideration. 

3. 

General observations 

The ECB generally welcomes the draft law proposed in the context of the EBA capital adequacy 
requirements  for  the  Slovenian  banking  sector8.  The  EBA’s  measures  were  part  of  the  broader 

European package, agreed by the European Council on 26 October 2011 and confirmed during the 

ECOFIN Council on 30 November 2011. This package aims to address the current situation in the 

Union by restoring stability and confidence in the markets. The ECB has consistently stressed the 

importance of bank recapitalisation as an essential condition for financial and systemic stability, as 

well  as  a  condition  precedent  to  the  preservation,  by  Eurosystem  counterparties,  of  their  eligible 

counterparty status, within the meaning of Section 2.1 of Annex I to the Guideline ECB/2011/14 of 

the European Central Bank of 20 September 2011 on monetary policy instruments and procedures 
of the Eurosystem9.  

4. 

Specific observations 

While  the  ECB  welcomes  the  initiative  of  the  Slovenian  authorities  to  introduce  measures 

facilitating bank recapitalisation, it has the following specific observations on the draft law. 

4.1  Bank share capital increase against non-cash contributions 

4.1.1  Article 43(8), point 2 of the Law on banking as amended by Article 2 of the draft law provides for 

an exemption from the general requirement for bank shares to be paid in money. This exemption 

provides that the bank share capital may be increased by non-cash contributions if such increase is 

based  on  an  additional  measure  of  Banka  Slovenije.  Instead  of  vaguely  referring  to  ‘non-cash 

contributions’, the ECB would recommend specifying eligibility criteria for non-cash contributions 

that may be used for such an exemption. 

4.1.2  As consistently expressed in its opinions10, the ECB generally prefers issuances of shares against a 

cash  contribution  for  financial  stability  reasons.  Other  forms  of  capital  injections,  for  example, 

against  government  bonds  which  tend  to  be  rather  volatile  in  value,  might  not  provide  the 

8  

9  
10  

See EBA Recommendation and figures relating to the recapitalisation needs of European banks published on 8 November 
2011, available on the EBA website at www.eba.europa.eu. 
OJ L 331, 14.12.2011, p. 1. 
See paragraph 2.2 of Opinion CON/2012/23. 

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envisaged  additional  buffer  against  unexpected  losses,  when  this  protection  is  needed  most,  i.e. 

during times of market stress. Therefore, the issuance of shares or contingent convertible bonds, i.e. 

debt instruments that convert into shares upon specific trigger events, against non-cash contribution 

should be limited to exceptional circumstances. 

4.1.3  Pursuant  to  the  draft  law,  banks  would  be  allowed  to  issue  contingent  convertible  bonds  against 

both cash and non-cash contribution, including government bonds. The ECB understands that the 

features of these contingent convertible bonds would, in any case, be aligned with the requirements 

for ‘Buffer Convertible Capital Securities’, as laid down in the EBA Common Term Sheet, in order 

for  these  instruments  to  be  eligible  for  the  Core  Tier  1  buffer  in  the  context  of  the  EBA 

recapitalisation  exercise.  As  explained  in  more  detail  above,  issuances  of  contingent  convertible 

bonds  against  non-cash  contribution  should  be  accepted  by  Banka  Slovenije  in  exceptional 

circumstances only.  

4.2   Recapitalisation versus resolution  

In  view  of  the  fact  that  the  measures  under  the  draft  law  aim  to  address  solvency  problems  at  a 

credit  institution,  the  ECB  considers  that  the  objectives  pursued  by  the  measures  may  also  be 

achieved through bank resolution tools. A fully-fledged bank resolution regime, comprising tools 

such as bridge banks, asset separation and transfers of business would offer legally sound means of 

resolving institutions on the brink of insolvency, safeguarding financial stability, whilst addressing 
stakeholder rights11. 

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

Done at Frankfurt am Main, 21 June 2012. 

[signed] 

The Vice-President of the ECB 

Vítor CONSTÂNCIO 

11  

In this context see the Commission’s Proposal for a Directive of the European Parliament and of the Council establishing 
a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directives 
77/91/EEC and 82/891/EC, Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC and 2011/35/EC 
and Regulation (EU) No 1093/2010 (COM (2012) 280/3).   

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