Opinion of the European Central Bank of 17 November 2016 on a draft law abolishing the State guarantee provided in connection with emergency liquidity assistance (CON/2016/55)
Date: 2016-11-17
Institutions: European Central Bank
Subjects: Belgium, State aid, central bank, credit, financial stability, guarantee, national law, redemption

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 17 November 2016 

on a draft law abolishing the State guarantee provided in connection with emergency liquidity 

assistance  

(CON/2016/55) 

Introduction and legal basis 

On  19  October  2016,  the  European  Central  Bank  (ECB)  received  a  request  from  the  Governor  of  the 

Nationale Bank van België/Banque Nationale de Belgique (NBB), on behalf of the Minister of Finance, for 

an opinion on a draft law amending the Law of 22 February 1998 establishing the Organic Statute of the 

Nationale Bank van België/Banque Nationale de Belgique (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,  since  the  draft  law  concerns  the  NBB  and  contains  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 abolishes the  State guarantee extended  to  the  NBB in  respect  of  the repayment of 

credit  granted  in  the  context  of  its  contribution  to  the  stability  of  the  financial  system  and  the 

coverage of any losses due to any operations necessary in this respect.  

1.2  This guarantee was introduced by the Law of 15 October 2008 on measures to promote financial 

stability and, in particular, setting up a State guarantee for loans granted and other transactions in  

the  context  of  financial  stability,  which  was  enacted  in  the  context  of  the  financial  crisis.  In  its 

Decision  of  28  December  2012  on  State  aid  implemented  by  the  Kingdom  of  Belgium  in  favour, 
inter  alia,  of  Dexia  and  Belfius2,  the  Commission  found  that  in  providing  such  a  guarantee  in 

connection with emergency liquidity assistance (ELA), Belgium had unlawfully implemented aid in 

the  form  of  ELA  in  breach  of  Article  108(3)  of  the  Treaty.  However,  the  Commission  ultimately 

decided  that  this  combination  of  ELA  with  a  State  guarantee  was  compatible  with  the  internal 

1  

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). 
Commission Decision of 28 December 2012 on State aid SA.33760 (12/N-2, 11/C, 11/N); SA.33763 (12/N-2, 11/C, 
11/N);  SA.33764  (12/N-2,  11/C,  11/N);  SA.30521  (MC  2/10);  SA.26653  (C9/09);  SA.34925  (12/N-2,  12/C,  12/N); 
SA.34927 (12/N-2, 12/C, 12/N); SA.34928 (12/N-2, 12/C, 12/N) implemented by the Kingdom of Belgium, the French 
Republic and the Grand Duchy of Luxembourg in favour of Dexia, DBB/Belfius and DMA (notified under document 
C(2012) 9962) (2014/189/EU) (OJ L 110, 12.4.2014, p. 1). 

 
 
 
 
 
                                                 
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market as it was intended to remedy a serious disruption to the economy, and could therefore be 

maintained  provided  that  the  guarantee  was  limited  in  its  scope  and  duration  in  accordance  with 

the Commission’s Decision.  

1.3  As  explained  in  the  preparatory  work  of  the  draft  law3,  the  main  objective  of  the  draft  law  is  to 

ensure  that  the  ELA  extended  by  the  NBB  no  longer  constitutes  State  aid  within  the  meaning  of 

Article 107(1) of the Treaty. As a consequence, the NBB may extend ELA without the need either 

to  obtain  the  Commission’s  prior  approval  or  to  apply  burden-sharing  measures  as  between 

shareholders  and  subordinated  creditors,  which  the  Commission’s  Banking  Communication 

stipulates  as  a  condition  in  order  for  State  aid  to  be  regarded  as  compatible  with  the  internal 
market4.  The  preparatory  work  emphasises  the  significant  operational  risk  posed  by  the  prior 

implementation  of  such burden-sharing measures. In abolishing  the State guarantee for  ELA, the 

draft law bolsters the NBB’s autonomy and allows it to act in a swift and timely manner as a lender 

of last resort. The preparatory work of the draft law notes that this change is without prejudice to 
the right of the King5 (hereinafter the ‘Belgian executive’) under subparagraph 2 of subsection 1 of 

Article  36/24  of  the  Law  of  22  February  1998  establishing  the  Organic  Statute  of  the  Nationale 

Bank  van  België/Banque  Nationale  de  Belgique  (hereinafter  the  ‘Law  of  22  February  1998’)  to 

issue,  on  the  NBB’s  advice,  an  ad  hoc  guarantee  in  the  event  of  a  sudden  crisis  in  the  financial 

markets or a serious risk of systemic crisis, in order to limit the extent or impact thereof. 

2.   General observations 

2.1  Euro  area  credit  institutions  may  receive  central  bank  credit  not  only  through  monetary  policy 

operations,  but  exceptionally  also  through  ELA.  The  provision  of  ELA  means  the  provision  by  a 

Eurosystem  national  central  bank  (NCB)  of  central  bank  money  and/or  any  assistance  that  may 

lead to an increase in the provision of central bank money to a solvent financial institution, or group 

of  solvent  financial  institutions,  that  is  facing  temporary  liquidity  problems,  without  this  operation 

being part of the single monetary policy. Responsibility for the provision of ELA lies with the NCB 

concerned. This means that any costs and risks arising from the provision of ELA are incurred by 

the  relevant  NCB.  However,  pursuant  to  Article  14.4  of  the  Statute  of  the  European  System  of 

Central  Banks  and  of  the  European  Central  Bank  the  Governing  Council  may  restrict  ELA 

operations  if  it  considers  that  they  interfere  with  the  Eurosystem’s  objectives  and  tasks.  The 

Governing  Council  must  be  informed  of  such  operations  in  a  timely  manner  in  order  for  it  to 

adequately  assess  whether  such  interference  is  occurring.  A  procedure  to  this  end  has  been  in 
place  since  1999  and  its  key  features  are  summarised  in  the  ECB’s  ELA  procedures6.  Strict 

compliance with the ELA procedures, particularly in  respect of the extension of ELA to illiquid but 

solvent  banks,  is  of  the  utmost  importance.  The  financing  by  an  NCB  of  insolvent  credit  and/or 

financial institutions would be incompatible with the monetary financing prohibition under Article 123 

3  
4  

5  
6  

See the commentary on Article 77 of the draft law amending Article 9 in the preparatory work of the draft law.  
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, 30.7.2013, p. 1). 
The reference to the King is understood as a reference to the Belgian Government. 

The ELA procedures are published on the ECB’s website at www.ecb.europa.eu . 

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of the Treaty. The rationale behind this prohibition is that by financing an insolvent credit institution, 

an NCB would be assuming a government task. 

2.2  Taking account of the reference in the preparatory work of this draft law to the possible issuance of 

an ad hoc guarantee by the Belgian executive, on the NBB’s advice, in the event of a sudden crisis 

in the financial markets or in the event of a serious risk of systemic crisis, the ECB underlines that 

the criteria it has developed to ensure that an NCB does not assume a government task in breach 

of  the  monetary  financing  prohibition  under  Article  123  of  the  Treaty  must  be  met.  These  criteria 

apply to operations in which ELA is granted by an NCB independently and at its full discretion to a 

solvent financial institution on the basis of collateral security in the form of a State guarantee, and 

are as follows: (a) it must be ensured that the credit provided is as short term as possible; (b) there 

must be systemic stability aspects at stake; (c) there must be no doubts as to the legal validity and 

enforceability of the State guarantee under applicable national law; and (d) there must be no doubts 

as to the economic adequacy of the State guarantee, which should cover both principal and interest 
on the loans7.  

2.3  The ECB also notes that the Commission’s Banking Communication states that while the ordinary 

activities of central banks relating to monetary policy, such as open market operations and standing 

facilities, do not fall within the scope of the State aid rules, the provision of dedicated support to a 

specific  credit  institution,  which  is  commonly  referred  to  as  ELA,  may  constitute  aid  unless  the 

following cumulative measures are met: (a) the credit institution is temporarily illiquid but solvent at 

the moment of the liquidity provision which occurs in exceptional circumstances and is not part of a 

larger  aid  package;  (b)  the  facility  is  fully  secured  by  collateral  to  which  appropriate  haircuts  are 

applied, in function of its quality and market value; (c) the central bank charges a penal interest rate 

to the beneficiary; and (d) the measure is taken at the central bank’s own initiative and, in particular 

is not backed by any counter-guarantee of the State.   

2.4 

In  line  with  its  previous  opinion  issued  on  the  occasion  of  the  introduction  of  the  State  guarantee 
backing the  ELA measures taken by the  NBB8, and consistent  with  the above-referenced criteria, 

the ECB wishes to reiterate that the provision of ELA is an autonomous decision that the NBB must 

be  in  a  position  to  take  in  exceptional  circumstances.  In  this  respect  the  ECB  welcomes  the 

intention of the draft law to bolster the NBB’s autonomy, free from the constraints imposed by Union 

State aid rules, in order for it to be able to act on a swift and timely basis to provide ELA. The ECB 

also notes that Article 12 of the Law of 22 February 1998 has been amended since 2008 to provide 

that for all  decisions and transactions made in the context of its contribution to the stability of the 

financial system, the NBB shall enjoy the same degree of independence as provided for in Article 

130  of  the  Treaty.  In  this  respect  Article  22,  which  provides  for  the  possibility  for  the  Minister  of 

Finance (or his/her representative) to supervise transactions, and to oppose the implementation of 

measures,  and  suspend  decisions,  that  are  contrary  to  the  Law  of  22  February  1998,  the  NBB’s 

statutes or the interests of the State does not apply to the tasks of the European System of Central 

7  

8  

See the second paragraph of the ‘Financial support for credit and/or financial institutions’ section of Chapter 2.2.5.1 
of the ECB’s 2016 Convergence Report. 
See  paragraph  3.2  of  Opinion  CON/2008/46.  All  ECB  opinions  are  published  on  the  ECB’s  website  at 
www.ecb.europa.eu. 

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Banks or to Chapter III/4 of the Law of 22 February 1998, which concerns the NBB’s contribution to 

the  stability  of  the  financial  system.  The  ECB  welcomes  these  provisions  which,  taken  together, 

prevent  any  interference  by  the  Minister  of  Finance  in  the  NBB’s  decision-making  process  as 

regards the extension of ELA. In order to ensure with greater certainty that the Minister of Finance 

cannot  suspend  or  oppose  decisions  made  by  the  NBB  on  ELA,  a  reference  to  Article  12,  which 

relates more generally to financial stability, could be added to Article 22.  

2.5.  From the perspective of the financial independence required of an ESCB central bank under Article 

130 of the Treaty, the ECB recalls that a national central bank (NCB) within the ESCB is required to 

have sufficient financial resources to perform its ESCB-related tasks. Member States may not put 

their NCBs in a position where they have insufficient financial resources and inadequate net equity 

to carry out their ESCB or Eurosystem-related tasks, as applicable.  

Additionally, the principle of financial independence requires an NCB to have sufficient means not 

only to  perform  its ESCB-related tasks but  also its national tasks, including the provision  of  ELA. 

Losses  incurred  by  an  NCB  in  the  exercise  of  its  national  tasks  could  negatively  impact  on  the 
exercise of ESCB-related tasks. As a consequence, the NCB could not autonomously avail itself of 

sufficient financial resources to perform the ESCB-related tasks required of it under the Treaty and 

the  Statute.  Hence,  the  determination  if  the  NCB  avails  of  sufficient  means  to  perform  its 

ESCB-related tasks cannot be considered in isolation. Otherwise, the financial independence of the 

NCB could be jeopardised.  

For all these reasons, financial independence under the Treaty implies that an NCB should always 

be  sufficiently  capitalised.  In  particular,  any  situation  should  be  avoided  whereby  for  a  prolonged 

period  of  time  an  NCB’s  net  equity  is  below  the  level  of  its  statutory  capital  or  is  even  negative, 

including where losses beyond the level of capital and reserves are carried over. Any such situation 

may negatively impact on the NCB’s ability to perform its ESCB-related tasks but also its national 

tasks.  Moreover,  such  a  situation  may  affect  the  credibility  of  the  Eurosystem’s  monetary  policy. 

Therefore,  the  event  of  an  NCB’s  net  equity  becoming  less  than  its  statutory  capital  or  even 

negative  would  require  that  the  respective  Member  State  provides  the  NCB  with  an  appropriate 

amount of capital at least up to the level of the statutory capital within a reasonable period of time 
so as to comply with the principle of financial independence.9  

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

Done at Frankfurt am Main, 17 November 2016. 

[signed] 

The President of the ECB 

Mario DRAGHI  

9 

See ECB Convergence Report, June 2016, p. 25. 

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