Opinion of the European Central Bank of 20 November 2015 on the recovery and resolution of credit institutions and investment firms and for deposit guarantee and compensation schemes (CON/2015/48)
Date: 2015-11-20
Institutions: European Central Bank
Subjects: Luxembourg, bank deposit, banking supervision, financial institution, financial intervention, financial stability, guarantee, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 20 November 2015  

on the recovery and resolution of credit institutions and investment firms and for deposit 

guarantee and compensation schemes  

(CON/2015/48) 

Introduction and legal basis 

On 15 October 2015, the European Central Bank (ECB) received a request from the Luxembourg Ministry 

of Finance for an opinion on a draft law on measures for the resolution, reorganisation and winding up of 

credit  institutions  and  certain  investment  firms  and  on  deposit  guarantee  schemes  and  compensation 

schemes for investors (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/EC1,  as  the  draft  law  relates  to  a  national  central  bank  and  to  the  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  purpose  of  the  draft  law  is  to  implement  Directive  2014/59/EU  of  the  European 
Parliament  and  of  the  Council2  (the  ‘Bank  Recovery  and  Resolution  Directive’  (BRRD))  into 

Luxembourg  law,  thereby  providing  a  legal  framework  for  the  recovery  and  resolution  of  certain 

types  of  entities  active  in  financial  markets  (hereinafter  ‘obliged  entities’),  including  credit 

institutions,  investment  firms,  and  financial  holding  companies  that  have  their  head  office  in 

Luxembourg. 

The draft law regulates: (a) plans and procedures for the recovery and resolution of obliged entities 

at both individual and group level; (b) the status and powers of the competent supervisory authority 

and resolution authority and (c) the procedures according to which these authorities may intervene 

in distressed entities or subject them to resolution measures if they are failing or likely to fail. The 

national  supervisory  authority  (Commission  de  surveillance  du  secteur  financier  (CSSF))  is 

designated as the national resolution authority. The functions and powers attributed to the CSSF as 

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2  

Council  Decision  98/415/EC  of  29 June  1998  on  the  consultation  of  the  European  Central  Bank  by  national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 
Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for 
the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, 
and  Directives  2001/24/EC,  2002/47/EC,  2004/25/EC,  2005/56/EC,  2007/36/EC,  2011/35/EU,  2012/30/EU  and 
2013/36/EU,  and  Regulations  (EU)  No  1093/2010  and  (EU)  No  648/2012,  of  the  European  Parliament  and  of  the 
Council (OJ L 173, 12.6.2014, p. 190). 

 
 
 
 
                                                 
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a  national  resolution  authority  are  entrusted  to  an  internal  governing  body  called  the  Resolution 
Council,  set  up  within  the  CSSF.  As  provided  for  in  the  BRRD,  the  draft  law  also  establishes  a 

national resolution fund mechanism (Fonds de resolution Luxembourg (FRL)) as a separate legal 

entity  under  the  authority  of  the  Ministry  of  Finance,  which  will  be  governed  by  a  Directorate 

Committee. In line with the provisions of the BRRD, the draft law provides for a privileged ranking 

in insolvency proceedings for covered deposits and eligible deposits. 

1.2   The  draft  law  also  implements  into  Luxembourg  law  Directive  2014/49/EU  of  the  European 
Parliament and of the Council3 (the Deposit Guarantee Schemes Directive (DGSD)). The principal 

purpose of this part of the draft law is to transform the private, Deposit Guarantee Scheme (DGS) 

that  is  funded  ex  post  into  a  public  DGS  that  is  funded  ex  ante.  To  this  end,  the  draft  law 

establishes:  (i)  a  public  fund,  called  Fonds  de  garantie  des  dépôts  Luxembourg  (FGDL),  as  a 

separate  legal  entity  under  the  authority  of  the  Ministry  of  Finance  and  (ii)  an  internal  governing 

body, called the Conseil de protection des déposants et des investisseurs (CPDI), set up within the 

CSSF and designated as the national administrative authority under the DGSD. 

1.3   The Governor of the Banque centrale du Luxembourg (BCL) is a member of the four new bodies 
established by the draft law: the Resolution Council, the FRL’s Directorate Committee, the FGDL’s 

Directorate Committee and the CPDI. Furthermore, the draft law requires the funds of the FGDL to 

be placed in an account with the BCL. 

2. 

General observations 

2.1   The  ECB  welcomes  the  draft  law,  as  it  strengthens  the  tools  and  procedures  available  to  the 

national  authorities  for  effective  preventive  measures,  early  intervention  in  institutions  and,  if 

necessary, the effective resolution of institutions, in line with the common framework of intervention 

powers and rules laid down in the BRRD. 

2.2   The  ECB  stresses,  however,  that  it  is not  opining  on  whether  the  draft  law  effectively  discharges 

Luxembourg’s obligations to implement the BRRD and the DGSD, but rather on those provisions of 

the draft law that may impact on either the role and tasks of the BCL as a central bank and as a 

member of the European System of Central Banks (ESCB) or on the tasks of the ECB. 

3. 

Specific observations 

3.1  Role of the BCL’s Governor  

3.1.1  The  ECB  takes  note  of  the  provisions  of  the  draft  law  designating  the  Governor  of  the  BCL  as  a 

member  of  the  bodies  responsible  for  resolution  and  for  the  deposit  guarantee  scheme  in 

Luxembourg, as well as the provision allowing the Governor to invite the Resolution Committee to 

consider taking resolution measures with regard to an obliged entity. These membership positions 
have  been  entrusted4  to  the  Governor  of  the  BCL  as  a  result  of  the  BCL’s  competences  for 

3  

4  

Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes 
(OJ L 173, 12.6.2014, p. 149). 

See comments on Article 207 of the draft law, p. 337. 

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supervising  the  general  liquidity  situation  on  the  markets5,  for  promoting  the  smooth  operation  of 
payment systems6 and in the field of financial stability7. As such, they represent an increase in the 

role  of  the  BCL’s  Governor  as  regards  the  BCL’s  existing  tasks  of  ensuring  macro-prudential 

supervision  and  financial  stability.  The  Luxembourg  legislator  considers  it  to  be  of  particular 

importance that these BCL competences  will allow the BCL’s Governor to contribute efficiently to 

the decisions of the Resolution Council. 

3.1.2  With particular regard to the provisions under the draft law that provide for a voting right, the role of 

the BCL’s Governor goes beyond a purely advisory function. As highlighted in the past by the ECB, 

to the extent that national legislation establishes a role for a national central bank (NCB) that goes 

beyond an advisory function, it must be ensured that the NCB’s ability to carry out its ESCB-related 
tasks from an operational and financial point of view will not be affected8. As such, the ECB notes 

that the draft law does not adversely affect the existing tasks of either the BCL or its Governor.  

3.1.3  Additionally,  as  the  draft  law  provides  for  the  inclusion  of  the  BCL’s  Governor  in  the  collegiate 

decision-making resolution body, it should be amended to give due consideration to safeguarding 

the  independence  of  the  BCL  and  its  Governor  when  carrying  out  their  functions  in  the 
abovementioned  bodies9.The  draft  law  states,  for  each  of  the  different  bodies  mentioned  therein, 

that  the  role  of  a  member  may  be  terminated  in  accordance  with  the  terms  upon  which  that 
member was appointed10. In line with the principle of the personal independence of the members of 

an NCB’s decision-making bodies, the ECB understands that the role held by the BCL’s Governor 

under the draft law may only be terminated if the mandate of the BCL’s Governor is terminated in 

line with the central bank law. 

3.2  Cooperation and exchange of information between competent authorities  

3.2.1  Cooperation and exchange of information with the BCL 

The draft law states that both the Resolution Council and the CPDI must cooperate with the BCL, 

insofar as this cooperation respects the BCL’s competences and independence. Since information 
sharing  is  an  important  precondition  for  resolution  to  work  effectively11, the  ECB  welcomes  these 

provisions as they will enable the relevant entities to perform their statutory tasks in a coordinated 

fashion. In particular, they facilitate the BCL’s performance of its financial stability mandate. Such 

arrangements are also in line with past ECB opinions drawing attention to the requirements under 

the BRRD, pursuant to which Member States must ensure that, where the central bank is not itself 

the  resolution  authority,  the  competent  authority  (i.e.  the  authority  responsible  for  the  prudential 

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10  

11  

See  Article  2(4)  of  the  Law  of  23  December  1998  concerning  the  monetary  status  of  the  Central  Bank  of 
Luxembourg, as modified (hereinafter the ‘BCL Organic law’). 
See Article 2(5) of the BCL Organic law. 

See Article 2(6) of the BCL Organic law. 
See Opinion CON/2009/93. All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 
See Opinion CON/2010/94 and the ECB’s 2014 Convergence Report, p. 22. 

See Article 207 of the draft law – which proposes a new Article12-2(5) of the law of 23 December 1998 establishing 
the CSSF. 

See Opinion CON/2013/76. 

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supervision  of  institutions)  and  the  resolution  authority  engage  in  an  adequate  exchange  of 
information with the NCB12. 

3.2.2  The BCL’s independence in relation to cooperation and information exchange 

The  ECB  welcomes  the  provision  that  cooperation  and  information  exchange  between  both  the 

Resolution Council and the CPDI and the BCL will take place in respect of the BCL’s independence 

and its confidentiality regime under Article 37 of the ESCB Statute. The primacy of EU law and the 

rules  adopted  thereunder  means  that  national  laws  giving  third  parties  access  to  documents  and 

information may not lead to infringements of the ESCB’s confidentiality regime. The ECB therefore 

understands  that  respect  of  the  BCL’s  independence  and  its  confidentiality  regime  necessarily 

extends  to  those  circumstances  where  the  BCL  is  represented  by  its  Governor  in  the  bodies 

outlined by the draft law.  

3.2.3  Cooperation and exchange of information with the ECB  

The  draft  law  provides  for  the  direct  exchange  of  information  and  cooperation  between  both  the 
Resolution Council and the CPDI as well as with the ECB. The ECB notes that these provisions are 

based on the corresponding provisions in the BRRD and the DGSD and apply to the exchange of 

information  with  the  ECB  in  its  banking  supervisory  function  under  Article  27(2)  of  Council 
Regulation (EU) No 1024/201313. 

3.3   Resolution planning  

The  draft  law  provides  that  resolution  plans  may  not  assume  any  access  to  or  receipt  of  any 

extraordinary public financial support that goes beyond the provision of funds as provided for in the 

draft law. Nor may such plans assume access to or receipt of any emergency liquidity assistance 

provided by a central bank or any liquidity assistance provided by a central bank that is based on 

non-standardised collateral, maturities or interest rates. However, resolution plans must include an 

analysis  of  how  and  under  what  circumstances  a  distressed  institution  may  apply  for  the  use  of 
central bank facilities14. While acknowledging that these provisions are in line with the requirements 

of the  BRRD, the ECB  emphasises that they  do not  in  any  way  affect the competence  of  central 

banks to decide independently and at their full discretion on the provision of central bank liquidity to 

solvent institutions, both through standard monetary policy operations and via emergency liquidity 
assistance, within the limits imposed by the monetary financing prohibition under the Treaty15. 

3.4   Depositor ranking  

In line with Article 108 of the BRRD, the draft law introduces a privileged ranking for depositors in 

normal  insolvency  proceedings  as  follows:  (a)  the  covered  deposits  and  claims  of  FGDL  when 

subrogated into the rights of the covered  depositors  are  ranked immediately  after the  privilege  of 

the Treasury; (b) with regard to deposits from natural persons and micro, small and medium-sized 

enterprises, eligible deposits for the amounts exceeding the covered deposits, as well as deposits 

which would be eligible deposits if they had not been made through branches located outside the 

12  
13  

14  
15  

See paragraph 3.1 of Opinion CON/2012/99 and paragraph 5 of Opinion CON/2015/17. 
Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank 
concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63). 
See Article 8(2) and (3) of the draft law. 

See Opinion CON/2014/67. 

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Union  of  institutions  established  within  the  Union,  are  ranked  immediately  after  the  general 

privilege  of  salaries.  The  ECB  understands  that,  apart  from  the  newly  introduced  ranking  of 

covered and eligible depositors, the Luxembourg legislator did not intend to legislate on the overall 

ranking  of  creditors  in  normal  insolvency  proceedings  or  in  resolution  proceedings  for  credit 

institutions. However, the BCL, as well as the Eurosystem, has a statutory privilege dating back to 

1998, which provides that claims of the BCL, the ECB or any other NCB in the ESCB resulting from 

operations in connection with monetary or exchange rate policies, will have priority over all debtor 

assets, whether held with the BCL or with a securities settlement system or any other counterpart 
in  Luxembourg,  and  that  this  privilege  ranks  equally  with  that  of  a  pledgee16.  In  this  context,  the 

ECB recalls its concerns regarding the lack of clarity of the exact ranking of the privilege of the BCL 

and  the  Eurosystem  in  insolvency  proceedings,  and  the  legal  position  of  the  BCL  and  the 
Eurosystem  vis-à-vis  other  privileged  creditors17.  Therefore,  the  ECB  recommends  that  the  draft 

law should ensure clarity and efficiency with respect to the BCL privilege set out in article 27-1 of 

the BCL Organic Law, both as regards resolution and normal insolvency proceedings. This should 

in  particular  be  achieved  by  specifying  the  nature  of  the  privilege  (a  special  as  opposed  to  a 

general one) and by increasing the ranking of this privilege. 

3.5   Funds of the Deposit Guarantee Scheme 

As mentioned above, the draft law requires funds of the FGDL to be deposited in an account with 

the  BCL.  The  investment  decisions  regarding  these  funds  will  be  made  by  the  Directorate 
Committee of the FGDL18. The ECB understands that although the BCL’s Governor is one of the 

members  of  this  committee,  he  is  not  responsible  for  the  committee’s  investment  decisions,  and 

therefore the BCL’s financial independence would not be affected by such decisions. Furthermore, 

the  ECB  notes  that,  in  line  with  the  provisions  of  the  DGSD,  the  FGDL  will  be  funded  by 

contributions  from  its  members,  without  excluding  the  need  for  additional  financing  sources, 
including loans19. Given that any such loans could only be provided by a national central bank upon 
strict conditions20, in line with the monetary financing prohibition under Article 123 of the Treaty, the 

deposit of the FGDL’s funds at the BCL would not entail the provision of any loans or other forms of 

financial support from the BCL. The further conditions on the functioning of the accounts opened by  

16  
17  
18  
19 
20  

See Article 27-1, previously Article 4(4) of the BCL Organic law. 
See Opinion CON/2005/12. 

See Article 154(5) of the draft law. 
See Article 179(2) of the draft law. 
See  the ECB’s 2014 convergence report, p. 30, where it is stated that: ‘National legislation which provides for the 
financing  by  an  NCB  of  a  national  deposit  insurance  scheme  for  credit  institutions  or  a  national  investor 
compensation  scheme  for  investment  firms  would  be  compatible  with  the  monetary  financing  prohibition  only  if  it 
were  short  term,  addressed  urgent  situations,  systemic  stability  aspects  were  at  stake,  and  decisions  were  at  the 
NCB’s discretion.’. 

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the FGDL would be determined by the BCL’s Executive Board in accordance with the applicable  

BCL rules. 

ECB-PUBLIC 

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

Done at Frankfurt am Main, 20 November 2015. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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