Opinion of the European Central Bank of 19 September 2012 on strengthening bank stability (CON/2012/71)
Date: 2012-09-19
Institutions: European Central Bank
Subjects: Eurosystem, Slovenia, bank, banking supervision, capital increase, financial stability, issue of securities, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 19 September 2012  

on strengthening bank stability 

(CON/2012/71) 

Introduction and legal basis 

On  11  September  2012,  the  European  Central  Bank  (ECB)  received  a  request  from  the  Slovenian 

Ministry  of  Finance  for  an  opinion  on  a  draft  law  on  Slovenia’s  measures  to  strengthen  bank  stability 

(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 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 regulates the Bank Assets Management Company (BAMC), the Bank Stability Fund 

(hereinafter  the  ‘Fund’)  and  measures  to  strengthen  the  stability  of  banks  in  Slovenia.  The  main 

purpose of the BAMC and the Fund is to strengthen the stability of banks in order to maintain the 

stability  of  the  financial  system  as  a  whole.  The  BAMC  and  the  Fund  are  established  to: 

(a) minimise the costs of measures under the draft law, (b) recover taxpayers’ funds, (c) accelerate 

lending  to  the  non-financial  sector,  (d)  contribute  to  bank  privatisation,  and  (e)  clarify 

responsibility for the bank bad claims.  

1.2   The BAMC is a joint-stock company fully owned by the State. For the purposes of the stabilisation 

measures under the draft law, it establishes and manages the Fund. The Fund does not have legal 

personality and the BAMC carries out tasks on its behalf. Under the measures in the draft law, the 

BAMC  may,  on  behalf  of  the  Fund,  acquire  or  by  any  other  means  cover  risk  positions,  in 

particular  receivables,  securities,  derivatives,  rights  and  obligations  under  approved  credits  or 

guarantees  and  company  shares,  in  each  case  together  with  the  pertaining  collateral,  acquired  by 

financial  institutions  before  1  September  2012.  The  claims  are  transferred  to  the  Fund  at  a  price 

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OJ L 189, 3.7.1998, p. 42.  

 
 
 
 
                                                 
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reflecting  their  real  long-term  economic  value.  The  BAMC  and  the  Fund  are  established  for  the 

period until 31 December 2017. Thereafter their assets, rights and obligations will be transferred to 

the Slovenian Restitution Fund or its legal successor, the Slovenia Sovereign Holding.  

1.3   Measures to strengthen the stability of banks provided for by the draft law are: (a) State guarantees 

up to a total amount of EUR 4 billion issued for the liabilities acquired by the BAMC and the Fund 

and the liabilities of special purpose vehicles established by banks to assume their risks; and (b) as 

a subsidiary measure, bank recapitalisation by way of the Fund acquiring bank shares or other own 

funds components. An interministerial commission decides on the measures on a proposal by the 

BAMC  considering the importance of a particular bank for financial stability, the urgency of the 

measure and the efficient use of the Fund’s funds. Banks drawing on the measures have to ensure a 

solid  and  prudent  business  policy  and  prepare  a  business  strategy  to  be  assessed  by  the 

abovementioned  interministerial  commission.  The  BAMC  can  impose  limitations  as  regards 

management  remuneration  and  benefits  and  the  distribution  of  dividends  and  other  shareholders’ 

rights in such banks.  

2. 

Duty to consult the ECB 

The draft law is scheduled to be discussed by the Slovenian Government on 20 September 2012. 

The Ministry requested the ECB to deliver its opinion as soon as possible, which effectively means 

that  the  ECB  has  been  given  a  very  short  deadline  of  six  working  days.  The  ECB  would  like  to 

draw  the  Ministry’s  attention  to  the  proper  procedure  for  its  consultations,  in  particular  the 
requirement to afford the ECB sufficient time to prepare its opinion2. 

3. 

Consultation on the implementing acts 

The ECB understands that the draft law only serves as the basis for the operations of the BAMC 

and the Fund and for the implementation of measures for strengthening bank stability in Slovenia. 

More detailed rules will be set out in implementing acts to be adopted by the Government. Such 

implementing  rules  are  of  great  relevance  to  the  Eurosystem,  for  example  as  regards  the  price  at 

which claims are transferred to the Fund and the Fund’s investment strategy and policy. Taking due 

account of the ECB’s fields of competence, the ECB invites the Slovenian authorities to consult it 

on any such implementing acts. The Slovenian authorities should ensure that requests to the ECB to 

issue an opinion on the implementing acts are in sufficient time to be compatible with the deadline 

stipulated  by  the  draft  law  for  the  adoption  of  Government  implementing  acts  (one  month 

following the entry into force of the draft law).  

2 

See the Guide to consultation of the European Central Bank by national authorities regarding draft legislative provisions. 
All  ECB  opinions  and  the  Guide  are  available  on  the  ECB’s  website  at  www.europa.eu.  In  the  context  of  recent 
consultations by Slovenia also referred to in Opinion CON/2012/57 and Opinion CON/2012/48.  

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4. 

Role of Banka Slovenije  

4.1  Banka Slovenije is involved in the activities provided for in the draft law to a limited extent: (a) it 

has  a  consultative  role  in  adopting  the  Statute  of  the  BAMC  and  imposing  limitations  on  banks 

drawing  on  the  measures  under  the  draft  law,  (b)  it  has  the  right  to  propose  one  of  four  non-

executive members of the Management Board of the BAMC, (c) the BAMC can refer to it for the 

purpose of carrying out its activities, as regards the competences under the Law on banking, and 

(d) its representative is one of seven members of the interministerial commission deciding on the 

measures under the draft law. 

4.2  Banka Slovenije as the banking supervisor should be more actively involved in the activities of the 

BAMC,  in  particular  in  any  procedure  identifying  the  banks  drawing  on  the  measures  under  the 

draft law as well as identifying and defining the value of the assets to be transferred to the Fund. 

The draft law could clarify how the measures under the draft law fit into the system of supervisory 

measures  taken  by  Banka  Slovenije  within  its  supervisory  competence  pursuant  to  the  Law  on 

banking.  The  ECB  would therefore  suggest  explicitly  providing  for  an  appropriate  role  of  Banka 
Slovenije either in the draft law or in any other relevant legal act3. 

5. 

Bank recapitalisation by the Fund and eligibility of bonds issued by the BAMC as collateral 

in Eurosystem operations 

5.1 

In accordance with Article 20 of the draft law,  the  Fund can participate in the recapitalisation of 

banks,  in  particular  by  acquiring  shares  and  taking  over  other  own  funds  items.  The  Ministry 

decides on the acquisition and disposal of shares.  

5.2  As consistently expressed in its opinions4, the ECB generally prefers issuances of shares against a 

cash  contribution  for  financial  stability  reasons.  Recapitalisation  against  non-cash  contributions 

may  in  this  case  be  carried  out  only  if  the  bank  share  capital  increase  is  based  on  an  additional 
measure  of  Banka  Slovenije5.  Such  investment  in  banks  of  the  bonds  issued  by  the  State-owned 

BAMC is not desirable from the financial stability perspective as it reinforces the link between the 

State and the banking sector. 

5.3 

In  accordance  with  Article  10  of  the  draft  law,  the  BAMC  may  issue  bonds  and  other  financial 

instruments guaranteed by the State to  finance the purchase of bank bad claims. Such bonds and 

other financial instruments can be paid by a transfer of bank claims to the Fund and according to 

the draft law, they should comply with the ECB’s conditions for financing of financial institutions.  

5.4  The draft law does not fully exclude the bonds and financial instruments issued by the BAMC from 
being used for the purpose of recapitalisation of banks. As stated in previous ECB opinions6, where 

a  recapitalisation  of  a  credit  institution  to  restore  its  solvency  takes  place  by  way  of  direct 

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4  

5  
6  

This view has already been provided in paragraph 4 of CON/2012/57.  
See paragraph 2.2 of Opinion CON/2012/23 and in the context of consultations by Slovenia paragraph 4.1.2 of Opinion 
CON/2012/48 and paragraph 7 of opinion CON/2012/57. 
See Article 43(8), point 2 of the Law on banking. 
See e.g. Opinion CON/2012/64. 

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placement  of  State-issued  debt  instruments,  the  subsequent  use  of  such  bonds  or  financial 

instruments  as  collateral  in  central  bank  liquidity  operations  would  raise  monetary  financing 

concerns in the absence of any alternative market-based funding sources for such State-issued debt 

instruments. The same concerns would arise should the bonds and financial instruments issued by 
the BAMC7 be used for the bank recapitalisation.  

5.5  As regards the provision of the draft law that financial instruments issued by the BAMC will meet 
the ECB’s conditions for financing of financial institutions8, the ECB understands that the BAMC 

is  under  an  obligation  to  shape  the  instruments  it  issues  to  meet  the  requirements  for  eligible 
collateral  for  Eurosystem  monetary  policy  operations9.  The  ECB  emphasises  that  it  is  the 

prerogative  of  the  Eurosystem  to  decide  whether  collateral  fulfils  the  criteria  of  its  collateral 

framework on the basis of any information it may consider relevant.  

6. 

Fiscal implications of the draft law 

6.1  The  draft  law  provides  for  various  sources  of  funding,  including  bond  issuance,  Government 
deposits with banks and State borrowing10. In accordance with Article 12 of the draft law, the State 

can  borrow  additional  funds  to  finance  the  Fund  notwithstanding  the  provisions  of  the  Law  on 

public  finance.  The  draft  law,  however,  does  not  define  under  which  circumstances  and  by  how 

much the State is entitled to borrow additional funds. Thus, the draft law could imply significant 

fiscal  costs,  although  the  draft  law  inter  alia  aims  at  ‘minimising  the  costs  of  measures’  and 
‘recovering taxpayers’ funds’11. 

6.2 

In  this  context,  it  should  be  also  specified  how  to  value  the  transferred  claims  to  the  Fund12  and 

whether a discount factor will be applied, as this determines the required funding and the potential 

fiscal costs. 

6.3 

In addition, to limit the potential fiscal implications the draft law could set out limits regarding the 
recapitalisation of banks in which the Fund could also participate13. While a limit exists for State 
guarantees14, the involvement in bank recapitalisation is not limited.  

7  

8  
9  

10  
11  
12  
13  
14  

According to the draft law, the BAMC is a joint-stock company fully owned by the State. The functions and powers of its 
Assembly are exercised by the Government. The Republic of Slovenia is liable for all obligations of the BAMC arising 
from the performance of activities under the draft law. The BAMC is subject to legal and technical supervision by the 
Ministry of Finance. The Statute of the BAMC is adopted and amended by the Ministry of Finance in consultation with 
Banka Slovenije. 
See Article 10(2) of the draft law. 
See  Annex  I  of  Guideline  ECB/2011/14  of  20  September  2011  on  monetary  policy  instruments  and  procedures  of  the 
Eurosystem (OJ L 331, 14.12.2011, p. 1). 
See Articles 8(3), 10(1) and 12(1) of the draft law. 
See Article 2(2) of the draft law. 
See Article 9(8) of the draft law. 
See Article 20 of the draft law. 
See Article 19(5) of the draft law. 

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7. 

Governance and competences of the BAMC 

7.1 

In  accordance  with  Article  7  of  the  draft  law,  the  BAMC’s  Management  Board  is  composed  of 

seven  directors  appointed  by  the  Government.  It  is  recommended  to  appoint  a  number  of 

independent directors to the Management Board to allow the BAMC to better resist the potential 

pressure from borrowers and prospective purchasers of assets seeking preferential treatment. While 

still possible under the abovementioned provision of the draft law, the appointment of independent 

directors is not expressly stipulated. 

7.2  Article 18(1) of the draft law provides that the interministerial commission decides on the use of 

the  measures  under  the  draft  law.  The  draft  law  could  be  more  explicit  as  to  which  types  of 

decisions would be taken by the interministerial commission and which decisions will be delegated 

to the BAMC Management Board in its day-to-day operations. 

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

Done at Frankfurt am Main, 19 September 2012. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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