Opinion of the European Central Bank of 6 December 2013 on the recapitalisation of credit institutions (CON/2013/87)
Date: 2013-12-06
Institutions: European Central Bank
Subjects: Portugal, State aid, capital increase, credit institution, financial intervention, financial stability, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 6 December 2013 

on the recapitalisation of credit institutions 

(CON/2013/87) 

Introduction and legal basis 

On 17 October 2013, the European Central Bank (ECB) received a request from the Portuguese Minister 

of State and for Finance for an opinion on a draft law (hereinafter the ‘draft law’) amending Law No 63-

A/2008  of  24 November 2008  establishing  measures  to  strengthen  the  financial  soundness  of  credit 

institutions (hereinafter the ‘Law on recapitalisation’). 

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  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 Banco de Portugal 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 introduces  changes  to  the  Law  on recapitalisation,  as  amended  and  republished  by 
Law  No  48/2013  of  16  July  2013,  on  which  the  ECB  adopted  its  Opinion  CON/2013/192  on 

19 March 2013. The Law on recapitalisation was one of the actions considered necessary under the 

Economic Adjustment Programme for Portugal with a view to restoring confidence in the banking 
sector and financial stability in the economy3. It aims at reinforcing the resilience of the banking 
sector  by  establishing  the  conditions  and  procedures  for  providing  temporary  public  support  to 

viable credit institutions having their head office in Portugal. 

1.2  The Portuguese Government undertook, under Section 2.14 of the Memorandum of Understanding 
on  Specific  Economic  Policy  Conditionality  agreed  after  the  combined  8th  and  9th  Review,  to 

1  
2  

3  

OJ L 189, 3.7.1998, p. 42. 
The  ECB  also  previously  adopted  Opinions  CON/2011/95,  CON/2012/23  and  CON/2013/19  regarding  the  Law  on 
recapitalisation. All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 
Following  the  commitment  to  bolster  the  resilience  of  the  banking  sector  as  agreed  on  September  2011  under  the 
Economic and Financial Adjustment Programme for Portugal (1st Review, MoU, paragraph 2.3 and MEFP, paragraph. 
18),  the  existing  recapitalization  law  was  extensively  amended  in  2011  in  order  to  introduce  a  new  recapitalization 
scheme.  

 
 
 
 
                                                           
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propose amendments to the Law on recapitalisation to reflect the recent Communication from the 

Commission  on  the  application,  from  1  August  2013,  of  State-aid  rules  to  support  measures  in 
favour of banks in the context of the financial crisis (‘Banking Communication’)4. 

1.3  The amendments now introduced by the draft law aim mainly at adapting it to the principles, rules 

and guidelines enshrined in the Banking Communication, in particular regarding: 

(a) 

establishing a plan containing measures that credit institutions may utilise to raise capital, as 

well  as  the  possible  means  for  burden-sharing  among  the  shareholders  and  subordinated 

creditors of a credit institution which applies for State aid; 

(b) 

schemes for the recapitalisation and restructuring of small credit institutions; and 

(c) 

restrictions to the remuneration of staff, including board members and senior management. 

In addition, the draft law contains new criteria for the return on public investment with regard to 

instruments  that  are  eligible  for  inclusion  as  capital  for  purposes  of  the  capital  adequacy 

requirements of the credit institution. 

2. 

General observations 

The ECB welcomes the draft law, which in the context of the current economic and financial crisis 

generally should contribute to reduce the amount of State aid that the beneficiary credit institutions 

may require and more effectively safeguards and protects the taxpayers’ interests. 

3. 

Capital-raising plan and burden-sharing measures 

3.1  The ECB welcomes the fact that the draft law includes measures requiring a thorough asset quality 

review  and  a  forward-looking  capital  adequacy  assessment,  which  are  both  intended  to  reduce  a 

capital  shortfall  with  regard  to  the  capitalisation  of  a  credit  institution  with  access  to  public 

investment. The ECB is of the view that the Banco de Portugal is the institution best placed to: (a) 

assess whether there is a residual shortfall in capital; (b) determine the appropriate mechanisms to 

make  up  for that shortfall;  (c) approve a capital-raising  plan  with  public funds for  a  given  credit 
institution5 that also includes measures relating to burden-sharing; and (d) prevent the outflow of 

funds  prior  to  a  restructuring  decision.  This  includes,  notably,  the  State’s  expected  return  on  its 

investment, in line with Union State Aid rules, and the terms and conditions of public divestiture. 

3.2  The  ECB  also  welcomes  the  new  provisions  in  the  draft  law  establishing  the  burden-sharing 
principle and the ‘no creditor worse off principle’6. These provisions lay down the necessary legal 

framework  to  ensure  that  shareholders  and  subordinated  and  hybrid  debt  holders  of  a  credit 

institution  benefiting  from  public  funds  contribute  appropriately  to  the  rescue  of  such  credit 

4  

5  
6  

Communication from the Commission on the application, from 1 August 2013, of State aid rules to support measures in 
favour of banks in the context of the financial crisis (‘Banking Communication’) (OJ C 216/1, 30.7.2013). 
See Article 8-B(6) of the draft law. 
See section 3.1.2. of the Banking Communication and Articles 8-B(2)(b) and (4), 8-D, 8-I and 16(8)(d) of the draft law. 

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institution. They also aim to protect the integrity of the single market and ensure a level playing 

field as well as the State's fiscal strength. Nevertheless, in order to reflect Union State Aid rules and 

increase legal certainty, the ECB recommends to further clarify the way in which burden-sharing 
measures will be implemented recalling that, according to the Banking Communication7, all capital 

generating  measures  should  be  exhausted  before  the  State  may  recapitalise  a  credit  institution, 

provided that fundamental rights are respected and financial stability is not put at risk. In this vein, 

exceptions  to  such  principles  can  be  made  where  implementing  burden  sharing  and  capital 
generating measures would endanger financial stability or lead to disproportionate results8. 

3.3  Although  the  ECB  supports  the  adoption  of  a  simpler  procedure  regarding  public  investment  for 

small credit institutions with a balance-sheet totalling no more than EUR 100 million, it notes that 
the  draft  law  does  not  set  a  time  limit  for  this  kind  of  public  investment9.  Therefore,  the  ECB 

invites the consulting authority to clarify expressly in the draft law that authorised schemes for the 

recapitalisation and restructuring of small credit institutions are limited to a six-month period. 

4. 

Restrictions to the remuneration of staff 

The  ECB  welcomes  the  changes  introduced  to  the  remuneration  policy  applicable  to  institutions 

that  benefit  from  capitalisation  operations  with  recourse  to  public  investment,  in  particular  those 

provisions that establish a cap on the total remuneration of the members of decision-making and of 

supervisory bodies and senior management, including all possible components of that remuneration 

and of discretionary pension benefits. Furthermore, the ECB supports the fact that, under the draft 

law,  severance  payments  to  employees  of  credit  institutions  should  not  be  in  excess  of  what  is 

required  by  law  or  contract,  that in  no  case  can the total  remuneration  exceed  the  amount  of  the 

public  investment  in  the  credit  institution  at  that  time  and  that  these  restrictions  will  apply  until 

either  the credit institution  has  repaid all  of the  public  investment  or the  end  of  the  restructuring 
period, if later10. 

5. 

Remuneration of the public investment 

The  ECB  welcomes  the  fact  that  the  degree  of  subordination,  in  the  event  of  liquidation,  of  the 

instruments subscribed by the State, and the amount of the increase of capital with a higher degree 
of subordination, are the new criteria11 for the return on the public investment on instruments that  

7 
8 
9 
10 
11 

See paragraph 19 of the Banking Communication. 
See paragraph 45 of the Banking Communication. 
See paragraph 54 of the Banking Communication. 
See Article 15-A(2)(3) of the draft law and paragraphs 38 and 39 of the Banking Communication. 
See Article 4-A(5) of the draft law. 

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are eligible for inclusion as capital. 

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

Done at Frankfurt am Main, 6 December 2013. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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