Opinion of the European Central Bank of 27 October 2020 on the deposit guarantee scheme and other amendments to the financial services legislation (CON/2020/25)
Date: 2020-10-27
Institutions: European Central Bank
Subjects: banking supervision, financial stability

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 27 October 2020  

on the deposit guarantee scheme and other amendments to the financial services legislation 

(CON/2020/25) 

Introduction and legal basis 

On 5 August 2020 the European Central Bank (ECB) received a request from the Luxembourg Ministry of 

Finance  for  an  opinion  on  a  draft  law  which  seeks  to  implement  Directives  (EU)  2019/878  and  (EU) 
2019/879 of the European Parliament and of the Council1 and Regulation (EU) 2019/876 of the European 
Parliament  and  of  the  Council2  and  to  amend  various  provisions  of  Luxembourg  financial  sector 
legislation3 (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 sixth indent of Article 2(1) of Council Decision 98/415/EC4, as 

the  draft  law  concerns  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. 

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Directive  (EU)  2019/878  of  the  European  Parliament  and  of  the  Council  of  20  May  2019  amending  Directive 
2013/36/EU  as  regards  exempted  entities,  financial  holding  companies,  mixed  financial  holding  companies, 
remuneration, supervisory measures and powers and capital conservation measures (OJ L 150, 7.6.2019, p. 253); 
Directive  (EU)  2019/879  of  the  European  Parliament  and  of  the  Council  of  20  May  2019  amending  Directive 
2014/59/EU  as  regards  the  loss-absorbing  and  recapitalisation  capacity  of  credit  institutions  and  investment  firms 
and Directive 98/26/EC (OJ L 150, 7.6.2019, p. 296). 

Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) 
No  575/2013  as  regards  the  leverage  ratio,  the  net  stable  funding  ratio,  requirements  for  own  funds  and  eligible 
liabilities,  counterparty  credit  risk,  market  risk,  exposures  to  central  counterparties,  exposures  to  collective 
investment undertakings, large exposures, reporting and disclosure requirements, and Regulation (EU) No 648/2012 
(OJ L 150, 7.6.2019, p. 1). 
Projet  de  loi  portant:  1.  transposition:  a)  de  la  directive  (UE)  2019/878  du  Parlement  européen  et  du  Conseil  du 
20 mai 2019  modifiant  la  directive  2013/36/UE  en  ce  qui  concerne  les  entités  exemptées,  les  compagnies 
financières  holding,  les  compagnies  financières  holding  mixtes,  la  rémunération,  les  mesures  et  pouvoirs  de 
surveillance  et  les  mesures  de  conservation  des  fonds  propres;  et  b)  de  la  directive  (UE)  2019/879  du  Parlement 
européen  et  du  Conseil  du  20  mai  2019  modifiant  la  directive  2014/59/UE  en  ce  qui  concerne  la  capacité 
d'absorption des pertes et de recapitalisation des établissements de crédit et des entreprises d'investissement et la 
directive 98/26/CE; 2. mise en oeuvre du règlement (UE) 2019/876 du Parlement européen et du Conseil du 20 mai 
2019 modifiant le règlement (UE) n° 575/2013 en ce qui concerne le ratio de levier, le ratio de financement stable 
net,  les  exigences  en  matière  de  fonds  propres  et  d'engagements  éligibles,  le  risque  de  crédit  de  contrepartie,  le 
risque de marché, les expositions sur contreparties centrales, les expositions sur organismes de placement collectif, 
les  grands  risques  et  les  exigences  de  déclaration  et  de  publication,  et  le  règlement  (UE)  n°  648/2012;  et  3. 
modification: a) de la loi modifiée du 5 avril 1993 relative au secteur financier; b) de la loi modifiée du 18 décembre 
2015 relative à la défaillance des établissements de crédit et de certaines entreprises d'investissement ; c) de la loi 
modifiée  du  24  mars  1989  sur  la  Banque  et  Caisse  d'Epargne  de  l'Etat,  Luxembourg;  d)  de  la  loi  modifiée  du  23 
décembre 1998 portant création d'une commission de surveillance du secteur financier; e) de la loi modifiée du 12 
novembre 2004 relative à la lutte contre le blanchiment et contre le financement du terrorisme; f) de la loi modifiée 
du 10 novembre 2009 relative aux services de paiement, à l'activité d'établissement de monnaie électronique et au 
caractère  définitif  du  règlement  dans  les  systèmes  de  paiement  et  les  systèmes  de  règlement  des  opérations  sur 
titres; et g) de la loi modifiée du 7 décembre 2015 sur le secteur des assurances.  
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). 

 
 
 
                                                 
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1. 

Purpose of the draft law 

1.1  The main purpose of the draft law is to implement into Luxembourg law Directive (EU) 2019/878, 
which amends the Capital Requirements Directive (CRD)5, Directive (EU) 2019/879, which amends 
the  Bank  Recovery  and  Resolution  Directive  (BRRD)6  and  Regulation  (EU)  2019/876  which 
amends  the  Capital  Requirements  Regulation  (CRR) 7.  For  this  purpose,  the  draft  law  seeks  to 
amend primarily8 the Law of 5 April 1993 on the financial sector and the Law of 18 December 2015 
on the failure of credit institutions and certain investment undertakings 9. In that context, in order to 
transpose Article 32b of the BRRD 10, the draft law introduces in the latter Law a new Article 33-2 

on  insolvency  proceedings  for  the  institutions  and  entities  which  are  not  subject  to  a  resolution 

action.  This  provision  specifies  that  where  the  Resolution  Board  considers  that  an  institution  is 

failing or likely to fail without the prospect of an alternative measure to prevent this, but a resolution 

measure is not in the public interest, it requests the Court to wind up the institution in accordance 

with a normal insolvency procedure or, where applicable, in accordance with the provisions of the 

Code of Commerce.  

1.2 

In addition, the draft law aims at reinforcing the protection of depositors by introducing an additional 

backstop  for  the  benefit  of  the  national  deposit  guarantee  fund,  Fonds  de  garantie  des  dépôts 

Luxembourg (FGDL). The FGDL has the status of établissement public (public  body). It is vested 

with legal personality and is placed under the authority of the Minister responsible for the financial 
sector11.The  backstop  takes  the  form  of  a  State  guarantee  for  a  maximum  amount  of  one  billion 

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Directive  2013/36/EU  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on  access  to  the  activity  of 
credit  institutions  and  the  prudential  supervision  of  credit  institutions  and  investment  firms,  amending  Directive 
2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338). 

Directive (EU) 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). 
Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on  prudential 
requirements  for  credit  institutions  and  investment  firms  and  amending  Regulation  (EU)  No  648/2012  (OJ  L  176, 
27.6.2013, p. 1). 
The  draft  law  also  amends  the  following  laws:  the  Law  of  23  December  1998  establishing  the  Financial  Sector 
Supervisory Commission (Loi du 23 décembre 1998 portant création  d'une commission de surveillance du secteur 
financier,  Mém.  A  1998,  N°112),  the  Law  of  12  November  2004  on  combating  money  laundering  and  terrorism 
financing (Loi du 12 novembre 2004 relative à la lutte contre le blanchiment et contre le financement du terrorisme 
portant  transposition  de  la  directive  2001/97/CE  du  Parlement  européen  et  du  Conseil  du  4  décembre  2001 
modifiant la directive 91/308/CEE du Conseil relative à la prévention de l’utilisation du système financier aux fins du 
blanchiment  de  capitaux,  Mémorial  A  2004,  n°  183),  the  Law  of  10  November  2009  on  payment  services  (Loi  du 
10 novembre  2009  relative  aux  services  de  paiement,  à  l’activité  d’établissement  de  monnaie  électronique  et  au 
caractère  définitif  du  règlement  dans  les  systèmes  de  paiement  et  les  systèmes  de  règlement  des  opérations  sur 
titres, Mémorial A 2009, N° 215) and the Law of 7 December 2015 on the insurance sector (Loi du 7 décembre 2015 
sur le secteur des assurances, Mémorial A 2015, N° 229).   
Loi  du  5  avril  1993  relative  au  secteur  financier,  Mémorial  A  1993  N°  27;  Loi  du  18  décembre  2015  relative  aux 
mesures de résolution,  d’assainissement et de liquidation des  établissements de crédit et  de  certaines entreprises 
d’investissement  ainsi  qu’aux  systèmes  de  garantie  des  dépôts  et  d’indemnisation  des  investisseurs,  Mémorial  A 
2015 N° 246.  
Article 32b of the BRRD, introduced by Directive (EU) 2019/879 states as follows: ‘Member States shall ensure that 
an  institution  or  entity  referred  to  in  points  (b),  (c)  or  (d)  of  Article  1(1)  in  relation  to  which  the  resolution  authority 
considers that the conditions in points (a) and (b) of Article 32(1) are met, but that a resolution action would not be in 
the public interest in accordance with point (c) of Article 32(1), shall be wound up in an orderly manner in accordance 
with the applicable national law’. 
Article  154(1)  of  the  Law  of  18  December  2015  on  the  failure  of  credit  institutions  and  certain  investment 
undertakings. 

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euro, which the Government is authorised to grant in respect of credit facilities that the FGDL may 

contract  in  order  to  avail  itself  of  adequate  financial  means.  The  draft  law  further  provides  that 

when the State guarantee has been used, the payment of contributions to the FGDL must continue 

until  the  State  has  been  repaid  in  full,  even  if  the  FGDL’s  target  level  has  been  reached.  It  also 

specifies  that  the  FGDL’s  available  financial  means  will  be  used  to  repay  the  State  guarantee, 

including  principal  and  interest.  According  to  the  explanatory  memorandum,  the  State  guarantee 

will be provided against remuneration. 

1.3  Furthermore, the draft law amends the Law of 24 March 1989 on the Banque et Caisse d’Epargne 
de l’Etat12, which is an autonomous legal entity under public law, in order to ensure the resolvability 

of  the  Banque  et  Caisse  d’Epargne  de  l’Etat  (BCEE),  in  line  with  the  BRRD  and  the  Single 
Resolution  Mechanism  Regulation13.  As  noted  in  the  explanatory  memorandum,  the  objective  of 

the  draft  law  in  this  respect  is  to  allow,  in  case  of  bail-in,  the  conversion  of  liabilities  towards  the 

BCEE’s  creditors  into  participation  certificates  issued  by  the  BCEE,  which  meet  the  criteria  for 

Common  Equity  Tier  1  instruments.  To  that  end,  the  draft  law  requires  that  the  participation 

certificates  issued  by  the  BCEE  comply  with  the  criteria  laid  down  in  Article  28  of  the  CRR.  The 

draft law also provides that these participation certificates may be held by the State or the public. 

The  draft  law  amends  the  provisions  in  the  Law  of  24  March  1989  on  the  available  profit  of  the 

BCEE, by specifying that interest may be paid on the participation certificates  on the basis of the 

available profit on the endowment capital (held by the State). 

2. 

General observations  

This  opinion  focuses  on  the  following  aspects  of  the  draft  law:  (1)  the  backstop  arrangements  of  the 

FGDL, (2) the orderly winding-up of failing or likely to fail institutions that are not subject to a resolution 

action and (3) the issuance of participation certificates by the BCEE. 

3. 

Specific observations   

3.1  Backstop to the deposit guarantee fund  

The ECB recalls that, as noted previously13 ,the efficiency of the deposit guarantee schemes 

(DGSs) in the EU currently ultimately rests on the credibility of national backstop arrangements, 

which are therefore highly important. Therefore, the ECB welcomes the draft law which aims at 

ensuring that the FGDL is adequately funded. An adequately funded DGS provides protection for 

smaller depositors, while enhancing financial stability. Sound funding arrangements ensure an 
effective deposit guarantee and foster the maintenance of public confidence 14. 

The ECB notes, as pointed out in the explanatory memorandum to the draft law, that several other 

Member  States  have  introduced  backstop  mechanisms  in  order  to  support  the  funding  of  their 

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Loi du 24 mars 1989 sur la Banque et Caisse d'Epargne de l'Etat, Mémorial A 1989 N° 16.  
Regulation (EU) No  806/2014 of the European Parliament and  of the Council of 15 July  2014  establishing uniform 
rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of 
a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010 (OJ L 
225, 30.7.2014, p.1). 
See paragraph 4.1 of Opinion CON/2014/86; paragraph 3 of Opinion CON/2012/53. 

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respective  national  DGSs.  Member  States  have  followed  various  paths  for  the  set-up  of  their 

backstops.  In  some  instances,  the  backstops  are  based  on  mandatory  arrangements,  while  in 

others  the  provision  of  the  backstop  is  optional.  Some  backstops  are  of  a  private  nature,  while 
other backstops are provided by the State15. 

3.2  Orderly winding-up of failing or likely to fail institutions that are not subject to resolution action 

The  explanatory  memorandum  to  the  draft  law  clarifies  that  the  concept  of  winding-up  used  in 

Article  33-2  of  the  draft  law  is  to  be  interpreted  broadly,  and  includes  procedures  such  as  the 

suspension of payments, which allow for the restructuring of failing entities. In accordance with the 

current provisions of the Law of 18 December 2015 on the failure of credit institutions and certain 
investment undertakings 16, the winding-up may take place where it is apparent that the suspension 

of payments scheme previously decided upon is not able to rectify the situation which caused it. It 

is important that the provisions of Directive (EU) 2019/879 are transposed in a comparable manner 

across  EU  Member  States  to  ensure  a  level  playing  field  within  the  Banking  Union.  The  ECB 

therefore  recommends  clarifying  that  all  procedures  applicable  to  the  institution  meeting  the 

conditions of Article 32b of the BRRD lead to its winding-up in an orderly manner with the eventual 

realisation of all of its assets. 

3.3 

Issuance of participation certificates by the BCEE   

The ECB takes note of the amendments to the Law on the Banque et Caisse d’Epargne de l’Etat, 

which  the  ECB  understands  are  aimed  at  ensuring  compliance  with  the  conditions  for  these 

instruments to qualify as Common Equity Tier 1 pursuant to Article 28 of the CRR. 

This opinion will be published on EUR-Lex.  

Done at Frankfurt am Main, 27 October 2020. 

[signed] 

The President of the ECB 

Christine LAGARDE 

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See e.g. for Belgium, Royal Decree of 16 March 2009 on the protection of deposits and life insurances by the special 
protection  fund  for  deposits  and  life  insurances;  for  Bulgaria,  the  Law  on  bank  deposit  guarantee;  for  Croatia, 
Article 13(3)  of  the  Law  on  deposit  insurance;  for  Estonia,  Section  86(2)  of  the  Law  on  the  guarantee  fund;  for 
Greece, Article 29 of Law 4370/2016 implementing the Deposit Guarantee Schemes Directive; for Latvia, the Law on 
the  deposit  guarantee;  for  Netherlands,  the  Decree  on  special  prudential  measures,  investor  compensation  and 
deposit guarantees; for Romania, the Law on deposit guarantee schemes and the bank deposit guarantee fund, for 
Sweden, the Law on deposit insurance.  
See  Article  129  of  the  Law  of  18  December  2015  on  the  failure  of  credit  institutions  and  certain  investment 
undertakings. 

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