Opinion of the European Central Bank of 9 December 2013 on measures to strengthen bank stability (CON/2013/86)
Date: 2013-12-09
Institutions: European Central Bank
Subjects: Slovenia, State aid, bank, banking supervision, financial stability, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 9 December 2013  

on measures to strengthen bank stability 

(CON/2013/86) 

Introduction and legal basis 

On 25 November 2013, the European Central Bank (ECB) received a request from the Slovenian Ministry 

of  Finance  for  an  opinion  on  a  draft  regulation  on  the  implementation  of  measures  to  strengthen  bank 

stability (hereinafter the ‘draft regulation’). 

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  regulation  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 regulation 

1.1  The  draft  regulation  implements  the  Law  on  Slovenia’s  measures  to  strengthen  bank  stability2 

(hereinafter  the  ‘Law  on  bank  stability’).  It  replaces  the  Regulation  on  the  implementation  of 
measures  to  strengthen  bank  stability3  which  was  subject  to  earlier  ECB  opinions4,  and  which 

principally  governs  the  detailed  rules  and  procedures  for  the  implementation  of  measures  to 

strengthen  the  stability  of  banks.  These  measures,  as  envisaged  by  the  Law  on  bank  stability, 

include:  (a) the  transfer  of  bank  assets  to  the  State-owned  Bank  Asset  Management  Company 
(BAMC) or to dedicated companies5; (b) the issuance of State guarantees for the liabilities of the 

BAMC  and  of  the  dedicated  companies;  and  (c)  the  recapitalisation  of  banks  by  the  State  or  the 

BAMC  (hereinafter  the  ‘measures’).  While  maintaining  the  general  structure  and  the  majority  of 

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OJ L 189, 3.7.1998, p. 42. 
Zakon o ukrepih Republike Slovenije za krepitev stabilnosti bank (Uradni list Republike Slovenije No 105/2012). 
Uredba o izvajanju ukrepov za krepitev stabilnosti bank (Uradni list Republike Slovenije Nos 22/2013 and 51/2013). 
Opinions  CON/2013/21  and  CON/2013/67.  All  ECB  Opinions  are  published  on 
www.ecb.europa.eu. 
Dedicated companies are companies that take over the risks of banks. They may be established by the banks or by the 
banks together with the BAMC, as joint-stock companies, pursuant to Articles 2 and 21 of the Law on bank stability. 

the  ECB's  website  at 

 
 
 
 
                                                 
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the  provisions  of  the  above-mentioned  Regulation,  the  draft  regulation  contains  several  new  and 

amended provisions, as further described below. 

1.2  According to the explanatory memorandum of the draft regulation, the measures laid down in the 

Law on bank stability may be extended to banks that are not expected to continue to operate in the 

long  term  and  that  will  be  subject  to  supervised  wind-down.  The  draft  regulation  reflects  the 

potential  application  of  the  measures  to  such  banks  and  lays  down,  inter  alia,  the  definition  and 

content of the wind-down plan to be prepared by the bank in question and assessed in the process 
of approving the application of measures by the Government6. 

1.3  The draft regulation lays down an additional condition relating to the application of any measures 

approved  with  respect  to  a  bank  under  the  Law  on  bank  stability,  which  is  that  a  contract  be 

concluded between the bank in question and the State in which the bank agrees, inter alia, to: (a) 

comply with any commitments given by the State to the European Union in accordance with Union 

State  aid  rules;  (b)  provide  the  Ministry  of  Finance  with  any  information  required  to  assess  its 

compliance  with  such  commitments;  and  (c) reimburse  the  State  in  respect  of  any  financial 
penalties imposed on it by Union bodies due to non-compliance with such commitments7. 

1.4  The draft regulation no longer limits the financial amount of State guarantees that may be issued in 
respect of the BAMC’s liabilities to the value of the assets transferred by banks to the BAMC8. 

1.5  A  new  Section  6  has  been  added  governing  the  rules  on  the  BAMC’s  borrowing  and  debt 

management, use of available cash assets and payment of dividends9. 

1.6  The draft regulation no longer stipulates any detailed methodology for assessing the real long-term 
economic value of claims and potential claims to be transferred to the BAMC10. The explanatory 

memorandum states that the current methodology ‘does not meet the requirements of the European 

Commission’.  In  the  context  of  the  valuation  of  assets  for  the  purpose  of  the  measures,  the  draft 

regulation requires the Ministry of Finance to agree with the Commission as to which entity would 
carry out the valuation of assets11. If such a valuation is performed by the Commission, the bank 
subject to the measures would not be required to perform the valuation itself12. 

1.7  To  further  streamline  the  processes  involved  in  the  implementation  of  the  measures,  the  draft 

regulation now allows the results of a bank’s asset quality review performed ‘in accordance with 

instructions’ by the Commission or the ECB to be used in the context of recapitalisation measures, 

in order to determine the value of the relevant bank’s shares, their issue value and the rate of return 
of the bank’s other capital instruments used to increase its capital13. 

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See, in particular, Articles 4(2), 7(4), 8(3) and 9(2) of the draft regulation. 
See Article 12 of the draft regulation. 
The relevant content of Articles 25 and 26 of the Regulation is not included in the draft regulation. 
See Articles 36 to 47 of the draft regulation. 
Annex 2 of the Regulation. 
See Article 18 of the draft regulation. 
See Articles 19(1), 20(4), 21(3), 22(5) and 23(4) of the draft regulation. 
See Article 13(5) and Article 14(2) and (3) of the draft regulation. 

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1.8  As regards the measure under the Law on bank stability relating to the recapitalisation of banks, the 

draft regulation now explicitly includes the possibility for such recapitalisation to be done by non-

cash contributions, subject to the general conditions for such contributions laid down in the Law on 
banking14. 

2.  Monitoring the BAMC and dedicated companies 

The ECB has encouraged the establishment of an independent body that is not involved in the activities of 

asset  management  companies  established  in  other  euro  area  countries  to  which  bank  assets  have  been 

transferred (a) to monitor the operations of the companies concerned; and (b) to have access to relevant 
information15. No such mechanism is envisaged for the BAMC and any dedicated companies that may be 

established. The ECB believes that such arrangements may prove useful to enhance the acceptance of the 

BAMC and its work. The consulting authority should consider establishing such a body under the draft 

regulation or any other appropriate legal act. 

3. 

Financing the BAMC’s operations 

Article  36(1)  of  the  draft  regulation  provides  that  the  BAMC  may  borrow  funds  when  necessary  to 

compensate banks for the assets they have transferred to the BAMC, or to ensure the availability of the 

resources  required  by  the  BAMC  to  carry  on  its  business.  Unlike  the  current  Regulation,  the  draft 

regulation also allows for part of such borrowing that exceeds the value of assets transferred by the banks 

to the BAMC to be backed by State guarantee. 

It is important that the BAMC is provided with sufficient resources to efficiently conduct its operations, 

including  the  maintenance  or  increase  of  the  value  or  marketability  of  the  assumed  assets  before  their 

ultimate  sale.  To  ensure  the  BAMC’s  financial  soundness,  its  capital  should  be  bolstered,  preferably 

through cash contributions. 

4. 

Use of excess cash holdings by the BAMC and dividend payments  

4.1  The ECB notes that Section 6 of the draft regulation aims, inter alia, to follow the ECB’s previous 

recommendation  to  provide  for  the  necessary  legal  arrangements  to  ensure,  in  a  transparent 

manner, the timely redemption of State-guaranteed BAMC bonds, other financial instruments and 

credit claims of transferring banks. As stated in paragraph 6 of Opinion CON/2013/21, this may be 

accomplished by additional provisions that limit dividend payments by the BAMC and by ensuring 

that cash held by the BAMC is, as a priority, used to make timely or early repayment of the State-

guaranteed  bonds,  such  other  financial  instruments  as  may  potentially  have  been  issued  by  the 

BAMC  or  credit  claims  of  the  transferring  banks.  The  ECB  reiterates  its  view  that  such  cash 

protocol  arrangements  should  also  apply  to  any  entity  to  which  the  BAMC’s  liabilities  towards 

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See Article 13(1) of the draft regulation. 
See paragraph 10 of Opinion CON/2013/21. 

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banks,  arising  from  bonds  or  other  potential  financial  instruments  or  credit  claims,  would  be 

transferred  following  expiry  of  the  BAMC’s  term  in  2017,  as  envisaged  by  the  Law  on  bank 

stability. The same requirements should apply in respect of any dedicated companies. 

4.2  Article  38  of  the  draft  regulation  defines  the  content  of  a  financial  plan  to  be  prepared  by  the 

BAMC,  including  a  plan  on  the  use  of  ‘available  cash  assets’,  and  the  draft  regulation  also 

stipulates the manner in which such available cash assets should be calculated. The plan for using 

available cash assets shall stipulate the portion of available cash assets to be transferred to a special 

‘fund  for  payment  of  issued  debt  securities’.  The  assets  held  in  this  fund,  to  be  managed  by  the 

BAMC,  may then be used to  meet obligations due in relation to securities issued by the BAMC. 

They may also be used to redeem issued securities when this is economically justified. However, 
subordinated creditor claims may only be paid when they fall due16. The ECB broadly welcomes 

the introduction of these provisions as they define the basic framework for the redemption of State-

guaranteed BAMC bonds and other financial instruments. 

4.3 

If the BAMC’s liabilities are secured by State guarantee, the financial plan shall be submitted to the 

Ministry  of  Finance,  which  may  propose  amendments  to  it.  If  the  BAMC  does  not  take  such 

proposed  amendments  into  account,  it  shall  provide  reasons  for  such  a  decision.  Otherwise,  the 
BAMC’s  management  board  acts  autonomously  in  adopting  the  financial  plan17,  including  the 

calculation and use of available cash assets, and in deciding on the redemption of issued securities. 

Given the importance of the management board’s decision-making powers in applying the relevant 

provisions,  effective  supervision  of  the  BAMC  and  its  board  is  necessary  to  ensure  that  these 

provisions are applied in line with their underlying purpose. Additionally, the relevant provisions 

should be more precise by defining the notion of ‘excess cash’ to facilitate early repayment of the 

BAMC’s liabilities, specifying clearer criteria for assessing when using such excess cash for early 

repayment  of  the  BAMC’s  liabilities  is  ‘economically  justified’,  and  determining  who  is 
responsible for carrying out such assessment18. 

4.4  Amendment  of  the  financial  plan  is  envisaged  if  substantial  differences  arise  between  actual  and 

planned receivables and expenditure in any given financial year. The ECB considers it important 

that the plan for receivables and expenditure (as part of the financial plan) includes an appropriate 

temporal breakdown so that any departures from the plan can be spotted and addressed quickly. 

4.5  The  ECB  welcomes  the  fact  that,  in  line  with  its  previous  suggestion,  the  provisions  of  the  draft 
regulation  introduce  limitations  on  the  payment  of  dividends  by  the  BAMC19.  The  relevant 

provisions  introduce  a  significant  limitation,  in  particular  by  not  allowing  any  payment  of 

dividends  as  long  as  the  BAMC  continues  to  have  any  liabilities  which  are  backed  by  State 

guarantee. 

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See Articles 37 to 40 and Articles 44 and 45 of the draft regulation. 
See Articles 41 and 42 of the draft regulation. 
See  Articles  40 and  44  of  the  draft  regulation,  and  in  particular the imprecise  criterion  that  ‘it  is  not expected  that the 
BAMC will realise higher returns on investments than the return it has to pay to holders of issued securities’. 
See paragraph 6 of Opinion CON/2013/21. 

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5. 

Other observations 

5.1 

In respect of the fact that the draft regulation explicitly permits the recapitalisation of banks under 

the Law on bank stability using non-cash contributions, subject to the general conditions on such 

contributions laid down in the Law on banking, the ECB, as stated in previous opinions, generally 
prefers that, for reasons of financial stability, shares are issued against cash contributions20. 

5.2  Articles 19 and 20 of the draft regulation envisage cases when the real long-term economic value of 

assets  to  be  transferred  to  the  BAMC  is  to  be  assessed  by  the  transferring  bank,  with  the 

involvement of an independent appraiser, and audited by an independent auditor. It should be clear 

that  any value  assessed  in  this  way  is  merely  a  suggestion  for  real  economic  value  as  eventually 

determined by the Commission in cases expected to involve State aid to the transferring bank. 

5.3  The draft regulation includes several new or amended provisions reflecting the possible application 

of measures to banks subject to supervised wind-down. The ECB takes the view that the consulting 

authority  should  verify  that  all  relevant  provisions  of  the  draft  regulation  are  reviewed  from  that 

perspective. 

5.4  The draft regulation contains several references to a bank’s asset quality review being performed 
‘in  accordance  with  instructions’  by  the  ECB21.  In  the  interests  of  clarity,  the  ECB  suggests 

amending  this  wording  to  reflect  the  non-binding  nature  of  any  involvement  by  the  ECB  in  the 

relevant asset quality review. 

5.5  The ECB also invites the relevant authorities to consider implementing the other recommendations 

made  in  Opinions  CON/2013/21  and  CON/2013/67,  including  (a)  stipulating  any  further specific 

conditions  that  dedicated  companies  have  to  meet  to  be  able  to  take  over  bank  assets,  as  well  as 

minimum  conditions  on  key  matters,  such  as  corporate  governance  standards  and  conflict  of 

interest rules with respect to such dedicated companies; and (b) taking into account the results of 

the  stress  tests  (in  addition  to  those  of  the  asset  quality  review)  in  the  preparation  by  the  Inter-

ministerial  Committee  of  a  proposal  on  the  execution  of  measures  to  be  submitted  to  the 
Government (as envisaged in Article 8 of the current Regulation)22. 

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See paragraph 3.5 of Opinion CON/2012/101. 
See Article 2(2)(4), Article 13(5) and Article 14(2) and (3) of the draft regulation. 
See paragraph 9 of Opinion CON/2013/21 and paragraph 4 of Opinion CON/2013/67. 

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5.6  The  ECB  also  considers  that  the  draft  regulation  would  benefit  from  a  careful  review  before 

adoption in order to improve its clarity and consistency23. 

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

Done at Frankfurt am Main, 9 December 2013. 

[signed] 

The President of the ECB 

Mario DRAGHI 

23 

See e.g. the incomplete first sentence of Article 19(4) and references to Article 8 in Article 12(1) of the draft regulation. 

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