Current Developments in Monetary and Financial Law, Volume 6

Chapter 4: The Legal Response to the Financial Crisis Between 2008 and 2010: The Role and Initiatives of the European Central Bank

International Monetary Fund. Legal Dept.
Published Date:
February 2013
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Since late August 2008, the financial world has gone through what was initially termed “financial turmoil,” thereafter “financial crisis” and, more recently, “the worst financial crisis since the 1930s.” Since then, certainly in Europe, the threat of sovereign default and the challenge to the single European currency have become the most worrying aspects of the crisis.

So far, the financial crisis has been fought quite successfully in Europe. First, the Member States have introduced national legislative measures aimed at restoring the soundness of credit institutions and citizens’ confidence in the banking system, among other things by issuing State guarantees. Second, the European Central Bank (ECB) and the Eurosystem have sought to increase access to liquidity for market participants through a combination of measures. And third, the European Union (EU) institutions have established new instruments (a fund able to assist Member States in distress, bilateral loans, measures monitoring, and interventions in national fiscal and economic policy rules), and new bodies (dealing with prudential supervision and oversight at a European level).

This article will not deal with the national legislative measures adopted at the height of the crisis.1 Instead it will concentrate on the crucial contribution of the ECB and the Eurosystem to financial stability by ensuring, through various instruments, liquidity in the European financial markets and on the main steps taken by the European legislator to strengthen Europe’s institutional framework for dealing with microprudential supervision and macroprudential oversight, and aimed at preventing the recurrence of these events.

Background: Three Important Points on the Institutional Structure of the European Union

To fully understand how the EU and its Member States were affected by the financial crisis and have reacted to it, it is necessary to have a clear understanding of the complex structure of the EU.

First, the EU is composed of 27 Member States, which apply common rules, including rules on the free movement of capital; there can be no legal obstacle to the transfer of capital and investment funds across EU borders. Of these 27 Member States, 172 have adopted the euro as their common currency. These States (which together make up the euro area) no longer have their own national currency or their own national monetary or exchange rate policy. According to the Treaty on the Functioning of the European Union, it is the ECB which is responsible for monetary policy decisions for the whole euro area and which stands at the centre of the Eurosystem. The Eurosystem is composed of the ECB and the national central banks of the Member States that have adopted the euro (NCBs). These NCBs, whose governors are members of the Governing Council of the ECB in their personal capacity, have the task of implementing the decisions of the ECB by carrying out operations in their national legal systems. In contrast, the remaining 10 Member States continue to enjoy full sovereignty in their currency and monetary policy decisions.

Secondly, according to the principle of conferred powers, EU institutions (including the ECB which, since the adoption of the Treaty of Lisbon, is qualified as a European institution) only have the competences that are attributed to them by the Treaty, with all other competences remaining with the Member States. The Treaty has not conferred upon the ECB, or on any other EU body, supervisory powers over individual financial institutions. This means that supervisory powers continue to be exercised at national level, whether by an NCB or by one or more specialized national supervisory institutions, subject to (harmonized) national law. In contrast, nowadays credit institutions established in the EU operate across the whole of the EU. Because of this situation, they are subject to the supervision of various national authorities acting independently. Also, there is no mention in the Treaty of an ECB function as lender of last resort. It is not clear whether the fact that emergency liquidity assistance3 is not mentioned as a task of the ECB is motivated by the need to avoid moral hazard4 or whether this competence is not attributed to the ECB because it remains a task of the NCBs.

Thirdly, within the EU there is neither a common economic policy nor a common fiscal policy, not even among the euro area Member States, which share a single monetary and exchange rate policy. From the beginning, this imbalance has been identified as a potential source of complexity; in the long term, lack of coordination on fiscal and budgetary policy, and in particular control of excessive government deficits, can affect the conduct and transmission of a single monetary policy. The Stability and Growth Pact (SGP) was adopted at the outset of Economic and Monetary Union (EMU) in order to limit this risk and impose a combination of peer monitoring and sanctioning of those Member States that do not respect the fiscal and budgetary discipline obligations imposed by the Treaty to avoid excessive government deficits. The SGP was watered down in 2005,5 a development which, during the financial crisis, might have impacted market perceptions.6

The Role of the ECB and the Eurosystem in Combating the Financial Crisis

In regulating the establishment and operation of the ECB, the Maastricht Treaty equipped it with a number of monetary policy instruments to achieve its objectives, and in particular its primary objective of maintaining price stability for the euro area. More specifically, the ECB conducts open market operations, offers standing facilities and requires credit institutions to hold minimum reserves on accounts with the Eurosystem. The General Documentation,7 a Guideline of the ECB Guideline that is binding on the NCBs of the euro area Member States, forms the basis of the Eurosystem’s legal framework for the conduct of monetary policy operations, providing counterparties with the necessary information for their participation in such operations.8 One of the main objectives of the General Documentation is to ensure that the Eurosystem’s monetary policy operations are executed uniformly across the euro area, mostly through the NCBs in their capacity as the ECB’s operating arms, in line with the principle of decentralization.

Article 18.1 of the Statute of the European System of Central Banks and of the European Central Bank (hereinafter the “Statute”)9 requires all Eurosystem liquidity-providing operations to be collateralized by eligible assets provided by counterparties. The rationale for this requirement is to protect the Eurosystem from incurring losses in the conduct of credit operations, as these would have an impact on its credibility and independence, both of which are essential to the achievement of its Treaty objectives.

Starting from a situation in which there was no uniformity and each NCB had its own list of eligible collateral, EMU started with a two-tier approach.10 Already prior to the onset of the financial turmoil, the ECB had unified the Eurosystem collateral framework at a euro area level through its Single List Project in order to achieve operational efficiency, a level playing field and the availability of sufficient collateral.11 Thus, Eurosystem counterparties had available for monetary policy operations the richest and largest range of collateral among the global reserve currencies. This collateral was one of the critical factors enabling the Eurosystem to deal effectively with the liquidity crisis of August 2007.

The unprecedented stress in the financial system following the failure of Lehman Brothers tangibly showed that the flexibility of the collateral framework is essential for ensuring that the necessary liquidity can be provided to the market in times of crisis. By October 2008, it had become clear that it was necessary to temporarily widen further the list of eligible collateral.

Since then, four main instruments have been used by the ECB and the Eurosystem to combat the consequences of the financial crisis. Three of these relate to the collateral policy and one is aimed more directly at providing liquidity. In addition, changes to the allotment policies and maturities have been introduced, increasing the length of allotment maturities up to 6 and 12 months, and introducing a full allotment at a fixed rate.12

The first of these four instruments has been a temporary relaxation of the Eurosystem collateral eligibility rules13; the second has been the provision of liquidity in foreign currencies through the establishment of swaps agreements with other central banks in the world; the third has been the implementation of the Covered Bonds Purchase Programme14; the fourth and most recent instrument has taken the form of outright purchases of euro area public and private debt securities through the Securities Markets Programme. The following paragraphs analyze each of these instruments in turn.

In October 2008, the ECB decided, first by means of an ECB Regulation15 and then through an ECB Guideline,16 to widen temporarily the rules relating to the eligibility of collateral for Eurosystem operations. These admitted as eligible collateral: (i) non-euro denominated marketable instruments; (ii) syndicated loans governed by the law of England17; (iii) debt instruments issued by credit institutions, which are traded on certain non-regulated markets; (iv) collateral with a “BBB-” credit assessment and above,18 (v) subordinated assets with adequate guarantees; and (vi) fixed-term deposits, within the meaning of Section 3.5 of the General Documentation. The expansion of the Eurosystem’s collateral eligibility rules was originally intended to apply until the end of 2009, but was extended until the end of 2010 by means of an amending ECB Guideline.19 Again, in May 2010, for the first time adopting a decision specifically addressing the situation of a single Member State, the ECB decided to accept as eligible collateral for Eurosystem monetary policy operations, marketable debt instruments issued by the Greek government, or by entities established in Greece and fully guaranteed by the Greek government, regardless of their credit rating and credit quality.20 This decision was made shortly after Greece had agreed to a EUR 120 billion package of emergency loans from the IMF and from its euro area partners.

As for the second of the instruments referred to, the provision of liquidity in foreign currencies, since 2008 bilateral swap agreements have been concluded between the ECB and (i) the U.S. Federal Reserve, (ii) the Bank of Japan and (iii) the Swiss National Bank21 to ensure that counterparties, both within the euro area and in the jurisdictions of those three banks, are able to provide their market participants with enough liquidity, both in euro and in the respective foreign currencies.22 These instruments, unprecedented in central bank history,23 proved to be very effective in stabilizing the markets, avoiding in particular liquidity shortages in the four leading business currencies.

The third initiative, the Covered Bonds Purchase Programme, began in July 2009 on the basis of an ECB Decision24 that was motivated by the realization that, given the exceptional circumstances prevailing in the covered bond market at the time, a purchase program was necessary to: (a) promote the decline in money market term rates; (b) ease funding conditions for credit institutions and enterprises; (c) encourage credit institutions to maintain and expand their lending to clients; and (d) improve market liquidity in important segments of the private debt securities market.25 The Program was implemented by the NCBs and the ECB26 directly with counterparties, through outright purchases of eligible covered bonds in the primary and secondary markets27 with a global nominal target of EUR 60 billion. The Program, which expired on June 30, 2010, was a success. It revived the covered bond primary market, which had come to a standstill after the failure of Lehman Brothers; it triggered a substantial tightening in secondary market spreads across the different covered bond categories, interrupted only at the beginning of 2010; and it helped restore confidence in one of the most important segments of Europe’s privately issued bond markets, accounting for an estimated 20 percent of outstanding residential mortgage loans in the EU. Having achieved its objectives, the ECB terminated the program.

The successful completion of the Covered Bonds Purchase Programme lends credibility to the repeated statements of the ECB that the exceptional measures adopted to deal with the financial crisis are temporary, and that there is an exit strategy which is constantly checked against the economic and market conditions, to ensure the ECB’s readiness to terminate the exceptional measures as soon as appropriate.

The fourth, most recent and most widely discussed28 of the ECB’s initiatives in the field of collateral policy to deal with the financial crisis, is the establishment and implementation of the Securities Markets Programme (SMP). On May 10, 2010, the Governing Council of the ECB decided on several measures to address the severe tensions in certain market segments that were hampering the monetary policy transmission mechanism and the effective conduct of monetary policy. A Securities Markets Programme was established29 for the conduct of outright purchases of eligible marketable debt instruments, to be implemented by euro area NCBs and by the ECB. The objective of the SMP was to address the malfunctioning of securities markets and to restore an appropriate monetary policy transmission mechanism.30 The scope of the interventions31 covered the purchase, in the secondary market, of eligible market debt instruments issued by the central governments or public entities of euro area Member States and, in the primary and secondary markets, of eligible marketable debt instruments issued by private entities incorporated in the euro area. To neutralize the impact of the SMP purchases32 on the euro area banking system’s liquidity conditions, specific operations are conducted to immediately re-absorb the liquidity injected through the purchases.33

The competence of the ECB to establish the SMP has been subject of intense debate and has even been challenged in the German Constitutional Court.34 While it is true that the SMP is a novel and perhaps unorthodox measure, it falls within the powers conferred on the ECB by the Statute and it does not breach the prohibition of monetary financing enshrined in the Treaty.35

The use of these new instruments, introduced at the height of the crisis, has been praised for addressing, flexibly but responsibly, the urgent needs of the moment, allowing the financial markets to continue to function; these initiatives were not directed at financing deficits in a specific Member State but at making dysfunctional sectors of the markets operate more smoothly. In addition, countermeasures have been implemented to absorb the excessive liquidity in the market, which qualitatively distinguish these measures from quantitative easing.36 Given the limited means that the ECB had at its disposal to support the capital markets at the height of the crisis, especially in early May 2010 (the ECB has been given neither supervisory nor regulatory powers in the field of financial stability), and given the gravity of the situation, the choice of these instruments appears to be at the same time innovative and within the legal limits of the ECB’s conferred powers. It should also be underlined that all these measures are intended to be temporary and that the ECB has made clear it is planning an exit policy to terminate these exceptional measures in due course.

It is premature, while still in the midst of the financial crisis, to draw conclusions and to look towards the post-turmoil future. Nevertheless, what has clearly emerged is that, barely ten years after their establishment, the ECB and the Eurosystem have shown signs of flexibility and resilience in combating the worst financial and speculative crisis since the 1930s, making use of a credible and robust mix of old and new monetary policy instruments.

European Initiatives to Improve Financial Stability

Immediately after the start of the crisis, a lacuna in the EU’s financial regulatory armoury became clearly visible; the gap in the institutional and regulatory structure for the supervision of financial markets. The absence of a European supervisor, in sharp contrast to the fact that many of Europe’s credit institutions have a pan-European reach, was blamed for some specific elements37 of the crisis. It was seen that there were divergent rules and a lack of information and communication between national supervisors about the financial situation of credit institutions with cross-border activities, and this made it impossible to assess the gravity of the situation of specific financial institutions. It also became apparent that there were serious disadvantages from the lack of attention to the issue of macroprudential oversight: a need for a single European institution dealing with risks developing across borders and across financial sectors became clear, a need that was due to the common exposure of different financial institutions to the same risk factors, independently of the risks or weaknesses of specific financial institutions.

On the basis of the de Larosière Report of February 25, 2009,38 the Commission prepared five Regulations to address the shortcomings identified, and it established a new architecture for financial supervision in Europe. On November 17 and 24, 2010, these legal acts were adopted by the European Council and Parliament.39 With effect from January 1, 2011, these new regulations established a European System of Financial Supervision (ESFS), consisting of a European Systemic Risk Board (ESRB), with macroprudential oversight tasks, and three European Supervisory Authorities (ESAs) for the financial services sector. These ESAs, which will have microprudential supervisory tasks, are: the European Banking Authority (EBA) based in London; the European Insurance and Occupational Pensions Authority (EIOPA) in Frankfurt; and the European Securities and Markets Authority (ESMA) in Paris.

The three ESAs will be made up of the 27 national supervisors and, working together with and in tandem with the national authorities, they will focus on individual financial firms to ensure their soundness and protect the interests of consumers. They have been given the power to draw up rules for national authorities and financial institutions and to develop technical standards, akin to an embryonic European rulebook. They can take action and intervene directly in the event of emergencies declared by the EU Council, and they can also temporarily restrict or prohibit certain financial activities that threaten the stability of the financial market. However, with the exception of ESMA, which is to have direct supervisory authority over credit rating agencies, the ESAs have not been given the power to directly supervise transboundary credit institutions, control over which remains fragmented between the various national authorities.40

The fourth component of the ESFS, the ESRB, is to be based in Frankfurt and is to have the task of macroprudential oversight, i.e., to prevent or mitigate systemic risk within the financial system. It will cooperate closely with the three ESAs and exchange information with them; it will be able to issue warnings and recommendations addressed to the EU institutions, the Member States, European or national supervisory authorities,41 and it will follow up on compliance with these recommendations and warnings. It is to be chaired by the President of the ECB and is to be composed by 36 voting members (29 of whom are central bankers) and 28 non-voting members (mainly representatives of the national supervisory authorities).42

The establishment of the ESFS is undoubtedly a qualitative step forward in filling in the gaps that manifested themselves during the crisis. The important role given to the NCBs in the European macroprudential oversight43 confirms the degree of the trust of governments in independent central banks in general and in the ECB in particular, as one of the main actors behind the response to the unfolding crisis. Apart from the criticism of the limited powers given to the new institution, which can issue warnings but cannot bite, doubts remains as to whether, by taking a more decisive step and creating a single European Supervisory Authority with regulatory, monitoring and sanctioning powers,44 the legislator might not have provided a more effective alternative to the newly-created structure, which is composed of complex of bodies with so many members that it will not be easy for them to take executive decisions in a conflict or crisis situation. It has often been said by opponents of the idea of such a European Supervisory Authority that since, in an emergency, it is for national governments (and ultimately national tax-payers) to bail out their own banks, there cannot be shared or delegated responsibility for supervision, and that the reform stopped short of creating a European supervisor because there is no common European executive with common European financing to take on the role of a pan-European supervisor.45 In reality this argument draws attention to another need, that of creating an insurance system possibly supported by a tax to be paid by the European financial operators, to avoid national tax payers having to cover unexpected losses arising, despite proper prudential supervision. In my personal opinion, the creation of such a scheme should be a priority. Once in place, it would also remove the political objections to a pan-European supervisor, which appears appropriate for pan-European credit institutions, financial operators and infrastructures.46

Despite these shortcomings, what has been achieved by this reform is certainly a positive step forward.

European Initiatives to Support a Distressed Euro Area Member State

In early 2010, the financial crisis entered into a new phase in Europe. For the first time there was the real risk of a developed economy becoming insolvent. Moreover, for the first time, the country under attack no longer had its own currency but shared a common currency, the euro. On the one hand, this meant that the troubled country could not use some of the instruments which would normally have been available to it to limit the damage (in particular devaluation). On the other hand, the insolvency of the troubled country could have had serious consequences for the States that share the same currency. This situation drew renewed attention to the lack of arrangements for the coordination of fiscal policy in the EU, referred to above, and highlighted the importance of planning how best to avoid a repetition of this situation in the future.

The existence of the problem was already clear in January 2010. For a while, Greece managed to obtain the funds it needed in the market to refinance its debt obligations, while struggling to tackle its public debt problem under pressure from its EU partners. On May 1, 2010, after the ECB and the Commission had concluded that Greece had insufficient market access for the financing of its obligations, it became clear that a robust response was needed. In the early morning of Monday, May 3, an agreement was reached and a strong signal was sent to the markets that the European Union and its Member States were ready to protect EMU and the single currency. The Eurogroup (the gremium of the ministers of economics and finance of the euro area Member States) agreed on a package to support Greece, provided that Greece introduced economic and fiscal measures. Under these conditions,47 a finance plan was activated on May 7, comprising EUR 80 billion in bilateral loans from the other 15 euro area Member States, centrally pooled by the Commission,48 and a EUR 30 billion loan from the IMF.

On 10 May this agreement was complemented by the adoption of three important legal instruments.49 First, the EU Council addressed a Decision to Greece with a view to reinforcing and deepening fiscal surveillance and giving notice to Greece to take measures for the deficit reduction judged necessary to remedy its excessive deficit situation.50 This Decision, which sets out the main elements of the policy which were the conditions for the granting of financial support, is unparalleled both in its prescriptiveness and in its level of detail, and it seems to have set a precedent for future EU interventions in fiscal policy if a Member State does not observe its commitments under the SGP.

Secondly, in view of the risk of the crisis extending to other Member States, the ECOFIN Council adopted a Regulation51 establishing a European financial stabilization mechanism (EFSM) for extending financial assistance, in instalments, to troubled Member States (not only of the euro area but also of the EU), in the form of a loan (to be repaid with interest) or a credit line.52 It is the Council which decides on the activation of the stabilisation mechanism, acting by a qualified majority on a proposal from the Commission after hearing the views of the ECB.53 Its funds are to be secured by borrowing on the capital markets or from financial institutions, up to EUR 60 billion, to be raised by the European Commission acting for the EU.

Third, the ECOFIN Council decided that the European financial stabilization mechanism was to be complemented by the European Financial Stability Facility (EFSF), in the form of a special purpose vehicle (SPV), a separate legal entity to be established by way of an inter-governmental agreement between the euro area Member States,54 which would guarantee the SPV pro-rata and in a coordinated manner. The SPV could provide a further EUR 440 billion in financial assistance to Member States facing a liquidity crisis in the market for their government debt.55 To access the EFSF, Member States would first need to agree on a macroeconomic adjustment programme with the Commission and the Eurogroup in liaison with the ECB and, depending on the circumstances, the IMF. In particular, the Eurogroup would retain its decision-making responsibility with regard to evaluating the conditions for any financial assistance and authorizing disbursements.

The obligation of the euro area Member States to issue guarantees entered into force on August 4, 2010, when the guarantee commitments of the euro area Member States to the EFSF reached more than 90 percent of the total amount. The EFSF is now authorized to issue bonds in the market with the help of Finanzagentur, the German Debt Office. On December 1, 2010, the ECOFIN Council decided to use this instrument for helping Ireland cope with the financial distress it was facing. The EFSF thus became operational.56

The legal basis for these measures has been a matter of heated debate, and in Germany the national implementing measures have been challenged before the Constitutional Court. It has been argued that these measures breach Articles 124 and 125 of the Treaty on the Functioning of the European Union (the prohibition of “privileged access” by the State to financial institutions and the “no bail-out clause”).57 In reality, the big challenge has been to preserve these principles while applying the principle of solidarity towards a Member State in distress.58 The balance has been found by having recourse to these measures only when the situation is caused by exceptional circumstances that are outside the control of the Member State, and in making these measures subject to strict conditions, non-concessional (i.e., provided at close-to-market rates) and exceptional (i.e., temporary).

The ECB has played an important role in establishing these exceptional measures, acting as an honest broker and facilitating the reaching of agreement in the most critical days of the crisis, as well as acting as the payment agent for the Member States and the European Commission both in the EFSF and in the ESFS.

Concluding Remarks

Between 2008 and 2010, the ECB and the EU have combated the financial crisis by using a three-pronged approach: ensuring the provision of liquidity to markets, establishing a European supervisory framework, and creating instruments to support Member States in distress while tightening the controls on their fiscal and budgetary policies. Some of these new measures are qualitative steps towards deepened integration within the EU. So far, they have proved to be effective in containing the crisis. Time will tell whether they will prove sufficient or whether further steps are needed.

The fact that Europe did not shy away from energetic, creative and flexible use of its legal, political and economic tools to combat the crisis and defend the European construction, within the limits of its conferred powers, is in itself good news both for Europe and the wider world. So far, the EU institutions and the Member States have demonstrated to the market their determination to support and defend EMU in extremely difficult circumstances. Those who have challenged the solidity of EMU have no doubt managed to shake it but not to the point of making its founders disavow it.

At the same time, the crisis has shed light on some of the inherent complexities of the current institutional set-up of the EU. A single monetary policy that does not go hand in hand with single fiscal and budgetary policies can only be explained by reference to the political compromises underlying the EU’s incremental construction. The EU’s response to this paradox, the Stability and Growth Pact, which was conceived as a safety net against inappropriate fiscal policies of the Member States, has not yet proved to be a success. More than ever it has become evident that there is a need to complement monetary union with proper economic union, equipped with the necessary tools and funds.

For an overview of all these new legislative provisions, aimed mainly at recapitalization and restructuring of banks, see A. Petrovic and R. Tutsch, “National rescue measures in response to the current financial crisis,” 2009, available at For a specific view of the reforms in the United Kingdom, see S. Dhama, J. Taylor and C. Proctor, The Reform of Financial Regulation in the United Kingdom after the Crisis, in Devos, Giovanoli, eds., International Monetary and Financial Law, 2010, p. 234 ff; for the German legislative reforms, see B. Krauskopf, Legislative Measures to support Financial Market Stability: The German Example and its European Context, ibid, p. 329 ff.

Including Estonia, which adopted the euro in January 2011.

To be distinguished from insolvency support, which is not a central bank task but a task of the State where it is necessary for a higher public objective.

Most central bank statutes are silent on this issue. In Europe, the lender of last resort task is explicitly mentioned only in the Statute of Banco de Portugal, but it is generally accepted that all central banks have this function.

This watering down followed the decision of the European Court of Justice in case C-27/04, Commission v. Council. See also Cfr. also Herdegen, “Price Stability and Budgetary Restraints in the Economic and Monetary Union: The Law as Guardian of Economic Wisdom,” 35 Common Market Law Review (1998), p.9-32. Cfr. also the interview with Bini Smaghi Das ist Geldpolitik des 21. Jahrhunderts, May 20, 2010,

In the words of Jean-Claude Trichet, “when a few years ago it became clear that in some countries fiscal policies would not be able to meet the rules of the Stability and Growth Pact, it was not the policies that were changed but the Pact. This was clearly a mistake. In 2004 and 2005, several governments, including the government of the larger Member States, were actively trying to dismantle the Stability and Growth Pact. It was a very fierce battle at the time, and the ECB publicly voiced its grave concerns,” Speech by Jean-Claude Trichet at the European American Press Club, Paris, December 3, 2010,

Guideline ECB/2000/7 of 31 August 2000 on monetary policy instruments and procedures of the Eurosystem (OJ L 310, 11.12.2000, p. 1), most recently amended by Guideline ECB/2010/1 of 4 March 2010 (OJ L 63, 12.3.2010, p. 22).

As such, the General Documentation neither confers rights nor imposes obligations on counterparties. The legal relationships between the Eurosystem and its counterparties are established in the national regulatory or contractual arrangements between each of the participating NCBs and their counterparties.

According to Article 18 of the Statute, “In order to achieve the objectives of the ESCB and to carry out its tasks, the ECB and the national central banks may: … conduct credit operations with credit institutions and other market participants, with lending being based on adequate collateral.”

Collateral included in the Tier one list was eligible in all the NCBs of the euro area; collateral included in the Tier two list was eligible only in the respective NCB.

Through the Single List, the collateral that is eligible for credit operations of the Eurosystem was broadened to include asset backed securities, covered bonds, non-EEA euro-denominated debt and non-marketable assets (such as credit claims).

See “The ECB response to the financial crisis,” in ECB Monthly Bulletin October 2010, pp. 59-74, available at

This was initially intended to be for one year; it was then extended by a further year. See below note 19.

Decision ECB/2009/16 of July 2, 2009 on the implementation of the covered bond purchase programme (OJ L 175, 4.7.2009, p. 18).

Regulation ECB/2008/11 of October 23, 2008 on temporary changes to the rules relating to eligibility of collateral (OJ L 282, 25.10.2008, p. 17). This Regulation is quite important as it is the first time that this form of legal act has been adopted by the ECB in the field of monetary policy. According to the Treaty Regulations should be used in particular for monetary policy; in reality, the instrument of the Guideline has always been used as it is preferable for political reasons for the Governing Council.

Guideline ECB/2008/18 of November 21, 2008 on temporary changes to the rules relating to eligibility of collateral (OJ L 314, 25.11.2008, p. 14).

The syndicated loans component of Regulation ECB/2008/11 was elaborated in Decision ECB/2008/15 of November 14, 2008 on the implementation of Regulation ECB/2008/11 of October 23, 2008 on temporary changes to the rules relating to eligibility of collateral (OJ L 309, 20.11.2008, p. 8). Syndicated loans governed by English law were only accepted very briefly as a cost-benefit analysis made it clear that their acceptance would not bring enough advantage to noticeably improve the situation.

The lower quality level of securities below the A- rating is compensated by requesting higher haircuts for their acceptance (between 5.5 and 69.5, depending on how long-term and how illiquid these securities are). See the ECB press releases of April 8, 2010 and July 28, 2010.

Guideline ECB/2009/24 of December 10, 2009 amending Guideline ECB/2008/18 on temporary changes to the rules relating to eligibility of collateral (OJ L 330, 16.12.2009, p. 95).

Decision ECB/2010/3 of May 6, 2010 on temporary measures relating to the eligibility of marketable debt instruments issued or guaranteed by the Greek Government (OJ L 117, 11.5.2010, p. 102). In this context, cfr. “Derriére les mots de Christian Noyer: les banques centrales sont trop dépendantes des agences de notation,” La Tribune, June 7, 2010.

Swaps were also agreed by the ECB with other central banks with the unilateral purpose of providing them with the required amount of euro.

See, for example, the press releases of September 24, 2009 and April 6, 2009.

Apart from a swap agreement which was concluded for a short period by the ECB and the U.S. Federal Reserve in the immediate aftermath of the 2001 terrorist attacks in the USA.

Decision ECB/2009/16 of July 2, 2009 on the implementation of the covered bond purchase programme (OJ L 175, 4.7.2009, p. 18).

Cfr. Recital 2 of Decision ECB/2009/16, cited above fn. 24. The implementation of the programme followed the Governing Council’s Decisions of May 7, 2009 and 4 June 2009, motivated by the realization that a purchase programme was necessary in view of the exceptional circumstances prevailing in the covered bond market at the time.

Normally, operations implementing the monetary policy decisions of the ECB are carried out by the NCBs. Exceptionally, in this case the ECB was also involved in the implementation of this programme to ensure it had maximum effect.

In general, only covered bonds issued in line with the conditions laid down in Article 22(4) of Council Directive 85/611/EEC of December 20, 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (OJ L 375, 31.12.1985, p. 3) were eligible for the Covered Bonds Purchase Programme. However, structured covered bonds that an NCB, at its sole discretion, considered to offer safeguards similar to those of UCITS-compliant covered bonds were also eligible.

For the first time some members of the Governing Council have made public that they have voted against this measure; “Árger im Euro-Turm” in Süddeutsche Zeitung, June 1, 2010, p. 26. This is normal in the common law tradition (where, e.g., dissenting opinions of judges are published) but very unusual in civil law and European Union law, where there is only one collegial decision and minority opinions are not stated separately and do not exist legally.

Decision ECB/2010/5 of May 14, 2010 establishing a securities markets programme (OJ L 124, 20.5.2010, p. 8).

Cfr. Recital 3 of Decision ECB/2010/5, cited above, fn. 29.

These interventions were implicitly made subject to the fulfilment by some Member States of their commitments to accelerate fiscal consolidation and to ensure the sustainability of their public finances.

In contrast to the Covered Bonds Purchase Programme, SMP purchases are of temporary but indefinite duration.

Through the ECB deposit facility.

On this Constitutional case, see:; and,1518,698926,00.html. A request for accelerated procedure has been rejected by the Court, see BVerG, May 7, 2010, 2 BvR 987/10 and June 9, 2010, 2 BvR 1099/10, but the substance of the case is still pending. It is clear that the publication of the dissent of Governor Weber, the German member of the Governing Council, has not helped German citizens to understand and support this measure which was dramatically necessary at that time, not only for the sake of Greece and Europe as a whole, but also for the German banks which had invested heavily in Greek securities, and German consumers.

See also Louis, “The no bail-out clause and rescue packages,” in Common Market Law Review 47 (2010), p.975; and Häde, “Haushaltsdisziplin und Solidarität im Zeichen des Finanzkrise,” in 2009 EuZW, p. 400.

See “The ECB’s response to the recent tensions in financial markets,” speech by J.-C. Trichet at the 38th Economic Conference of the Oesterreichische Nationalbank, Vienna, May 31, 2010, available at

A case in point is the crisis of the Belgian-Dutch-Luxemburg bank Fortis, cfr. Michielsen, Sephiha, Bankroet. Hoe Fortis al zijn krediet verspeelde, Lannoo nv (2009)

The High Level Group on Financial Supervision in the EU, chaired by Jacques de Larosiére, see

Regulations (EU) Nos. 1092/2010, 1093/2010, 1094/2010, 1095/2010 of the European Parliament and of the Council and Council Regulation (EU) No 1096/2010. They are all published in the Official Journal of the European Union L 331 of December 15, 2010 ( For an interesting comment, focusing on the ESRB, see Phoebus Athanassiou, “The Role of Regulation and Supervision in Crisis Prevention and Management: A Critique of Recent European Reflections,” in Journal of International Banking Law and Regulation, (2009) 24 (10) pp. 501-508.

However, a much closer working relation between the ESAs is envisaged in the new system, and the ESAs are to have a mediation role in the event of disagreement between national supervisors.

Article 16 of Regulation (EU) No 1092/2010 cit. supra, note 39.

Article 6 of Regulation (EU) No 1092/2010 cit. supra, note 39.

This is evident from the fact that NCB governors constitute ¾ of the voting members of the ESRB, with supervisors being non-voting members.

According to Article 127(6) of the Treaty on the Functioning of the European Union, these powers could have been attributed to the ECB by a Council regulation. This easy avenue was not chosen by Member States.

Of course, there is the budget of the European Union, but this has very limited own resources and expenditure is possible only for administrative costs and for a limited number of specific EU policies, which do not include taking over insolvent financial institutions to preserve financial stability in the EU.

Various ideas relating to the creation of a European fund were discussed during 2010, cfr. Gros, Mayer, “How To Deal with Sovereign Default in Europe: Towards a Euro(pean) Monetary Fund,” CEPS Policy Brief, No. 202, February 2010; J.-V. Louis, Un fonds monétaire européen? Réflections sur le débat, at For another option on a system to avoid financial crises, cfr. Luigi Zingales, “A Market-Based Regulatory Policy to Avoid Financial Crises,” Cato Journal, Vol. 30, No. 3 (Fall 2010), p.535 ff.

These conditions were then defined in Council Decision 2010/320/EU of May 10, 2010 addressed to Greece with a view to reinforcing and deepening fiscal surveillance and giving notice to Greece to take measures for the deficit reduction judged necessary to remedy the situation of excessive deficit (OJ L 145, 1.6.2010, p. 6).

The Loan Facility Agreement between the Commission, in charge of coordinating the pool of bilateral loans from the euro area Member States, and the Greek government, is available at

Council Regulation (EU) No 407/2010 of May 11, 2010 establishing a European financial stabilization mechanism (OJ L 118/1, 12.5.2010, p.1).

This approach to providing financial assistance is inspired by the existing Medium-term Financing Facility (or Balance of Payments facility), in the administration of which the ECB is also involved. The implication of the nature of the assistance granted by the fund is that this is not contrary to Article 125 of the Treaty.

Council Regulation (EU) No 407/2010, Article 3. The activation of the EFSM was decided for the first time on December 7, 2010 when the Council adopted a decision providing financial assistance to Ireland and a recommendation setting out the conditions attached to the aid: cfr.

The SPV was established on June 7, 2010 as a limited liability company under Luxembourg law, for three years.

The EFSF will issue bonds on the market, with pro rata guarantees by all euro area Member States who will commit up front to their total share of EUR 440 billion, and provide loans at interest rates determined on the basis of a pricing formula consistent with the lending rates of the IMF.

Cfr. above, fn. 53.

On these legal questions, see Louis, above, note 35, p. 975 ff.; Cisotta Viterbo, “La crisi della Grecia, l’attacco speculativo all’euro e le risposte dell’Unione europea,” in Diritto dell’Unione Europea 2010, in print.

The principle of solidarity was introduced in Article 122 of the Treaty, and is the legal basis for the EFSM.

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