Opinion of the European Central Bank of 12 December 2012 on banking and financial stability (CON/2012/106)
Date: 2012-12-12
Institutions: European Central Bank
Subjects: France, banking, financial institution, financial services, financial stability, financial supervision, national law, subsidiary

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 12 December 2012 

on banking and financial stability 

(CON/2012/106) 

Introduction and legal basis 

On  15  November  2012,  the  European  Central  Bank  (ECB)  received  a  request  from  the  Minister  for 

Economic Affairs and Finance for an opinion on a draft law on banking and financial 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  the  Banque  de  France  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 

Structure of banking groups2  

The draft law separates activities that finance the economy from speculative operations. Above an 

exposure threshold defined by order of the Minister for Economic Affairs, speculative operations 

will  have  to  be  ring-fenced  in  dedicated  subsidiaries  in  the  form  of  investment  firms  or 

exceptionally credit institutions. The banking groups will be authorised to keep all trading activities 

relating to  the provision of investment services to clients, financial instruments clearing, hedging 

investment  risks  of  the  credit  institutions  or  group,  market-making,  the  sound  management  of 

group treasury and financial operations between credit institutions and assimilated entities, as well 

as  group  investment  operations.  By  contrast,  proprietary  trading  relating  to  financial  instruments 

without  these  objectives  will  have  to  be  conducted  in  dedicated  subsidiaries,  as  well  as  any 

operation involving unguaranteed counterparty risks towards money  market funds with a gearing 

effect  or  similar  investment  vehicles,  under  criteria  laid  down  by  order  of  the  Minister  for 

Economic  Affairs.  The  subsidiaries  will  not  be  able  to  accept  guaranteed  deposits  or  provide 

payment  services  to  clients  whose  deposits  qualify  for  the  guarantee.  The  Prudential  Control 

1  
2  

OJ L 189, 3.7.1998, p. 42.  
See draft law, Title I. 

 
 
 
 
                                                 
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Authority (Autorité de contrôle prudentiel, ACP) and, if relevant, the Financial Markets Authority 

(Autorité  des  marchés  financiers,  AMF),  should  be  provided  with  an  organisational  chart  of  the 

units in charge of the operations relating to financial instruments, their objectives, the rules of good 

conduct  and  other  applicable  rules.  The  ACP  may  refuse  authorisation  if  the  structure  of  the 

organisation  or  the  internal  control  system  is  not  satisfactory.  The  transfer  of  activities  will  take 

place ipso jure, without the need for any formality. The deadline for identifying the activities to be 

transferred is 1 July 2014 and the deadline for transferring activities is 1 July 2015. 

1.2 

Implementation of a bank resolution scheme3  

First,  the  ACP  becomes  the  Prudential  Control  and  Resolution  Authority  (Autorité  de  contrôle 

prudentiel et de résolution), with a new resolution college and the Deposit Guarantee Fund (Fonds 

de garantie des dépôts) becomes the Deposit Guarantee and Resolution Fund (Fonds de garantie 

des  dépôts  et  de  résolution)  (hereinafter  the  ‘Fund’).  The  Prudential  Control  and  Resolution 

Authority  may  ask  the  Fund  to  intervene  in  a  credit  institution  or  an  assimilated  entity  which  is 

failing and subject to resolution measures. The Fund would intervene according to the procedure 

determined by the Prudential Control and Resolution Authority in accordance with the draft law. In 

particular, the Fund may acquire some or all of the shares in the entity, subscribe to an increase in 

capital  of  the  entity  or  the  bridge  institution  set  up  by  the  Prudential  Control  and  Resolution 

Authority, grant any form of funding to the entity or the bridge institution and assume part of the 

costs required to guarantee the solvency of the entity. The sums paid by the Fund benefit from the 

more  favourable  status  granted  to  any  creditor  providing  new  financing  to  a  bank  or  other 

undertaking subject to safeguard, receivership or winding-up proceedings. The Fund will only be 

liable in defined cases for losses resulting from the assistance granted.  

Second, rules are laid down for the preventive recovery and resolution plans of banks and a bank 

resolution scheme is introduced. In this framework, credit institutions and assimilated entities have 

to  submit  a  preventive  recovery  plan  to  the  Prudential  Control  and  Resolution  Authority  for 

possible modification and adoption. The preventive recovery plan may not involve the possibility 

to  receive  financial  support  from  the  State  or  the  Fund.  The  resolution  college’s  powers  include 

appointing a temporary administrator, removing any manager, deciding that some or all activities 

should automatically be transferred or taken over, writing down or cancelling shares according to 

the  entity’s  losses,  and  setting  up  a  bridge  institution.  The  resolution  college  ensures  that  the 

measures taken guarantee financial stability and help to maintain the continuity of activities while 

limiting exceptional public financial support to the strict minimum. At the same time, the resolution 

college will ensure that no shareholder, member or creditor is worse off than they would have been 

had the institution been liquidated.  

3  

See draft law, Title II. 

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1.3  Macro-prudential supervision4  

The Financial Regulation and Systemic Risk Council (Conseil de régulation financière et du risque 

systémique)  becomes  the  Financial  Stability  Council  (Conseil  de  stabilité  financière).  It  will 

supervise the financial system as a whole and will define macro-prudential policy, with the aim of 

maintaining the stability of the financial system. It will evaluate systemic risks, taking into account 

the  opinions  and  recommendations  of  the  competent  European  institutions,  adopt  opinions  or 

recommendations  it  deems  necessary  to  prevent  any  systemic  risk  and  any  threat  to  financial 

stability and decide to define additional capital requirements at the proposal of the Governor of the 

Banque de France. The Banque de France, in cooperation with the Financial Stability Council, will 

help to maintain the stability of the financial system, identify and monitor risks to it and contribute 

to the implementation of the measures taken by the Financial Stability Council.  

1.4  Enhanced powers of the AMF and of the ACP5 

In particular, the powers of the ACP are strengthened in relation to, inter alia, the nomination of 

managers  and  other  persons  on  the  Board  of  Directors  or  Supervisory  Board  of  inter  alia  credit 

institutions. The  ACP  may  object  to  a nomination if the criteria  of  good repute,  competence  and 

experience required are not met. It may also suspend persons who no longer fulfil the criteria.  

2.   Measures relating to the structure of banking groups 

This  draft  law  arises  in  conjunction  with  the  Report  of  the  European  Commission’s  High-level  Expert 

Group of 2 October 2012 on reforming the structure of the EU banking sector (hereinafter the ‘Liikanen 
report’)6.  The  European  Commission  will  prepare  a  comprehensive  impact  assessment  of  its 

recommendations and will make corresponding legislative proposals as appropriate, to ensure a consistent 

Union  framework.  Given  that  these  measures  primarily  address  internationally  active  banks,  the  ECB 

considers  coordination  and  consistency  to  be  important  at  European  and  international  levels  to  avoid 

regulatory arbitrage.  

More  specifically,  the  draft  law  provides  for  a  mandatory  separation  of  proprietary  and  other  high-risk 

non-client  related  activities  from  the  deposit-taking  institution.  Such  a  separation  would  further  protect 

depositors from being exposed to losses from these high risk activities, reduce complexity and enhance 

resolvability. The ECB also notes that, unlike the Liikanen report, the draft law does not provide for ring-

fencing of market making activities. 

3.  

Prohibition on certain activities 

The draft law prohibits the dedicated subsidiaries, in the form of investment firms or, exceptionally, of 

credit  institutions,  from  carrying  out  high  frequency  trading  (HFT),  dealing  with  financial  instruments 

4  
5  
6  

See draft law, Title III. 
See draft law, Title IV. 
Available  on 
level_expert_group/report_en.pdf. 

the  European  Commission’s  website 

3 

at:  http://ec.europa.eu/internal_market/bank/docs/high-

 
 
                                                 
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where the underlying asset is a raw food material, and the sale and purchase of derivative instruments for 

a credit event affecting a State without connection to the holding of securities issued by this State. In this 

respect,  the  ECB  is  of  the  view  that  less  intrusive  approaches,  in  line  with  international 
recommendations7, might be preferable. In addition, consistency should be ensured at Union level. 

First,  as  regards  HFT,  as  highlighted  in  Opinion  CON/2012/218,  the  ECB  supports  the  Commission’s 

proposal to introduce organisational safeguards for trading venues, such as circuit breakers, minimum tick 

sizes and maximum ratios of unexecuted orders, in line with international recommendations. Further, the 

ECB  considered  that  all  entities  engaged  in  algorithmic  trading  on  a  professional  basis  should  be 

considered  as  falling  within  the  definition  of  investment  firms  and  be  subject  to  supervision  and 

monitoring  of  their  activities  by  competent  authorities.  Finally,  the  ECB  supports  the  empowerment  of 

competent authorities to temporarily prohibit or restrict certain types of financial activity or practices with 

a view to addressing a threat to the orderly functioning of financial markets or the stability of whole or 

part of the financial system. 

Second,  as  regards  the  proposed  prohibition  on  operations  relating  to  financial  instruments  where  the 

underlying asset is a raw food material, Opinion CON/2012/21 supports the empowerment of competent 

authorities to set ex ante position limits for commodity derivatives over a specified period of time, while 

the  European  Securities  and  Market  Authority  will  be  granted  a  coordination  role  of  such  measures  as 
well as specific direct powers in this area9.  

4.  

Financial Stability Council 

The ECB welcomes the extension to the powers of the Financial Regulation and Systemic Risk Council, 

now renamed as a Financial Stability Council. This will enhance its role as a national macro-prudential 
authority in France10.  

The tasks of the Financial Stability Council include: (a) ensuring that the institutions represented on its 

panel cooperate and exchange information, and examine the situation in the financial sector and markets, 

and (b) cooperating with equivalent authorities in the other Member States and the competent European 

authorities.  Moreover,  actions  of  national  macro-prudential  authorities  should  take  account  of  the 

responsibility  of  the  European  Systemic  Risk  Board  (ESRB)  for  macro-prudential  oversight  of  the 

7  

8  

9  
10  

See  IOSCO  Report  ‘Regulatory  Issues  Raised  by  the  Impact  of  Technological  Changes  on  Market  Integrity  and 
Efficiency’,  October  2011,  and  ‘Principles  for  the  Regulation  and  Supervision  of  Commodity  Derivatives  Markets’, 
September 2011. 
Opinion CON/2012/21 of 22 March 2012 on: (i) a proposal for a directive on markets in financial instruments repealing 
Directive  2004/39/EC  of  the  European  Parliament  and  of  the  Council;  (ii)  a  proposal  for  a  regulation  on  markets  in 
financial instruments and amending Regulation (EMIR) on OTC derivatives, central counterparties and trade repositories; 
(iii) a proposal for a directive on criminal sanctions for insider dealing and market manipulation; and (iv) a proposal for a 
regulation  on  insider  dealing  and  market  manipulation  (market  abuse)  (OJ  C  161,  7.6.2012,  p.  3).  Paragraphs  10.1  to 
10.4. 
Paragraph 11.1. 
See  for  example  ECB  Opinion  CON/2012/55.  All  ECB  documents  are  available  on  the  ECB’s  website  at 
www.ecb.europa.eu. 

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financial system within the Union11. The ECB recommends in this respect that the draft law requires the 

Financial Stability Council to inform the ESRB of all actions taken to address systemic risks at national 

level.  Furthermore,  it  should  inform  the  ESRB  prior  to  the  issuance  or  publication  of  its  opinions  and 

recommendations, if significant cross-border effects are to be expected. 

Lastly,  the  Financial  Stability  Council’s  activities  will  have  to  take  account  of  the  ECB’s  macro-

prudential supervisory powers in the context of the single supervisory mechanism. 

5.  

Involvement of the Banque de France in macro-prudential supervision 

The  ECB  supports  the  enhancement  of  the  macro-prudential  functions  performed  by  the  Banque  de 

France  in  cooperation  with  the  Financial  Stability  Council.  The  ECB  understands  that  the  Banque  de 

France  will  contribute  to:  (a)  monitoring  financial  stability  and  systemic  risks,  (b)  ensuring 

implementation  of  the  Financial  Stability  Council’s  recommendations,  (c)  making  proposals  to  the 

Financial Stability Council concerning the application of the specified macro-prudential instruments, such 

as capital or own funds requirements or conditions for lending practices of credit institutions.  

As  stated  in  the  ECB’s  Convergence  Reports12,  the  involvement  of  the  Banque  de  France  in  the 

application of measures to strengthen financial stability must be compatible with the Treaty. A national 

central  bank’s  functions  must  be  performed  in  a  manner  that  is  fully  compatible  with  it  functional, 

institutional and financial independence to safeguard the proper performance of its tasks under the Treaty 

and the Statute of the European System of Central Banks and of the European Central Bank. To the extent 

the role of the Banque de France under the new legislation goes beyond advisory functions and requires it 

to assume additional tasks, it must be ensured that these tasks will not affect the ability of the Banque de 

France to carry out its ESCB-related tasks from an operational and financial point of view.  

Additionally, the inclusion of Banque de France representatives in collegiate decision-making supervisory 

bodies  or  other  authorities  such  as  the  Financial  Stability  Council  or  the  Prudential  Control  and 

Resolution Authority would need to give due consideration to safeguards for the personal independence 
of the members of Banque de France’s decision-making bodies13. 

6.  

Framework for the recovery and resolution of credit institutions and investment firms 

The ECB welcomes the proposed amendments in the draft law. It notes that national legislation will have 

to be brought into line with forthcoming Union legislation, in particular the 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 firms14 (hereinafter the ‘proposed directive’) and the establishment of a 

11  

12  
13  
14  

Article 3(1) of Regulation EU (No) 1092/2010 of the European Parliament and of the Council of 24 November 2010 on 
European  Union  macro-prudential  oversight  of  the  financial  system  and  establishing  a  European  Systemic  Risk  Board 
(OJ L 331, 15.12.2010, p. 1). 

See for example ECB’s Convergence Report 2012, p. 22. 
See for example ECB’s Convergence Report 2012, p. 22. 
COM(2012) 280 final, available on the European Commission’s website at http://ec.europa.eu. 

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single  resolution  mechanism,  focused  on  a  European  Resolution  Authority,  which  the  ECB  fully 
supports15.  

The draft law provides that the Prudential Control and Resolution Authority may, inter alia, write down 

or  cancel  shares.  The  ECB  welcomes  the  development  of  bail-in  as  a  debt  write  down  or  conversion 

mechanism to absorb losses of institutions that are failing or likely to fail. The bail-in mechanism should 
be in line with internationally agreed key attributes for effective resolution16. In particular, the resolution 

authority  should  be  empowered  under  a  resolution  regime  to  bail  in  a  wide  range  of  liabilities  in 

accordance with the creditor hierarchy that would apply in liquidation. The ECB supports the introduction 
of such a bail-in tool by the Member States before 1 January 201817. This would allow for further work 

on bail-in, which may be necessary to assess the possibility of introducing a minimum requirement for a 

targeted level of designated bail-in instruments while still maintaining the overall scope of bail-in and the 

practical implications of bail-in as a resolution tool. 

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

Done at Frankfurt am Main, 12 December 2012. 

[signed] 

The Vice-President of the ECB 

Vítor CONSTÂNCIO  

15  

16  

17  

Paragraph 1.5 of ECB Opinion CON/2012/96 of 27 November 2012 on a proposal for a Council regulation conferring 
specific  tasks  on  the  European  Central  Bank  concerning  policies  relating  to  the  prudential  supervision  of  credit 
institutions  and  a  proposal  for  a  regulation  of  the  European Parliament  and  of  the  Council  amending  Regulation  (EU) 
No 1093/2010  establishing  a  European  Supervisory  Authority  (European  Banking  Authority),  not  yet  published  in  the 
Official Journal.  
See ‘Key Attributes of Effective Resolution Regimes for Financial Institutions’, October 2011, available on the Financial 
Stability Board’s website at www.financialstabilityboard.org. 
See Article 115(1), third paragraph of the proposed directive. See also paragraph 6.1 of ECB Opinion CON/2012/99. 

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