Opinion of the European Central Bank of 19 March 2008 at the request of the Belgian Ministry of Finance on a draft royal decree amending the Royal Decree of 10 December 2008 on the guarantee for certain risks assumed by financial institutions (CON/2009/25)

OPINION OF THE EUROPEAN CENTRAL BANK of 19 March 2008 at the request of the Belgian Ministry of Finance on a draft royal decree amending the Royal Decree of 10 December 2008 on the guarantee for certain risks assumed by financial institutions (CON/2009/25) Introduction and legal basis

On 11 March 2009 the European Central Bank (ECB) received a request from the Nationale Bank van België/Banque Nationale de Belgique (NBB), acting on behalf of the Belgian Ministry of Finance, for an opinion on a draft royal decree amending the Royal Decree of 10 December 2008 on the guarantee for certain risks assumed by financial institutions (hereinafter the ‘draft royal decree’). Given the current turbulence in the financial markets and the need for firm intervention by the authorities involved, the consulting authority has requested the ECB to provide its opinion as a matter of extreme urgency to allow the swift adoption of the draft royal decree. The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty establishing the European Community and on the sixth indent 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 provisions , as the draft royal decree relates 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 royal decree

1.1 The draft royal decree extends the scope of the Royal Decree of 10 December 2008, on which the ECB previously opined . The Royal Decree of 10 December 2008 completes the system for granting the guarantee of the Belgian State for liabilities entered into by financial institutions by

establishing a State guarantee aimed at avoiding that the entity whose commitments are guaranteed,

or a subsidiary thereof, will be exposed to a serious need for additional liquidity, due inter alia to a

downgrading of their rating .

1.2 Overall, the draft royal decree does not substantially alter the scheme set up under the Royal

Decree of 10 December 2008 . Instead, it is limited to extending the scope of the scheme so that

not only commitments to cover losses or a risk of losses on financial assets held by a guaranteed

entity’s subsidiaries may be guaranteed , but also in certain circumstances an undertaking by the

guaranteed entity to buy financial assets held by its subsidiaries . The report to the King explains

that considering that an entity’s liquidity position is, in addition to the risk of default on its

portfolio, another element taken into account in determining its rating, it might be necessary for a

parent company to undertake to buy its subsidiary’s assets in certain circumstances (i.e. to grant the

subsidiary a put option over the assets) in order to generate sufficient liquidity for the subsidiary

and therefore uphold the latter’s rating, which in turn will avoid liquidity outflows.

2. General observations

The ECB has already opined on several elements of the general rescue package put in place by the

Belgian authorities in response to the current turbulence in the financial markets . The ECB underlines

that all the comments and recommendations made in its Opinions CON/2008/74 and CON/2008/50 apply

equally to the draft royal decree.

In particular, the ECB wishes to stress that it is important for national authorities to seek to coordinate

their responses to the current financial situation with their European Union partners. This is in line with

the Declaration of 12 October 2008 made at the summit of the euro area Member States in Paris, which

stressed the need for the Member States to ‘act in a united manner and avoid that national measures adversely affect the functioning of the single market and the other member States’ . The ECB also reminds the consulting authority of the importance of ensuring the harmonisation of the price determination of such a guarantee within the euro area and the EU, and that the price of such guarantee should be risk-based and market-oriented, i.e. determined on the basis of the cost of obtaining a corresponding guarantee in the market. In this respect, the ECB recommends to apply, mutatis mutandis, the practice set out in its Recommendations on government guarantees for bank debt . Hence, the extension of the scope of the State guarantee under the draft royal decree must be appropriately reflected in the price determination of the State guarantee.

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

Done at Frankfurt am Main, 19 March 2009.

[signed]

The President of the ECB

Jean-Claude TRICHET