ANNUAL REPORT 2008 - Polymer Bank Notes of the World

spillover effects and that a level playing-field ismaintained across countries.First, the ECOFIN Council decided on 7 Octoberto increase the EU minimum protection forindividual deposits to €50,000 for at least oneyear. As a result, the Commission adopted aproposal for the amendment of the Directive ondeposit guarantee schemes on 15 October 2008.The Directive, with the amendments approvedby the European Parliament and the EU Council,is expected to be published in the OfficialJournal around March 2009. In particular, theDirective will increase the level of mandatoryprotection for individual deposits to €50,000 byJune 2009 and further to €100,000 by end-2010unless the Commission reports that this wouldbe inappropriate.Second, a set of “EU common principles”were defined, which were complemented bymore precise guidelines agreed at the summitof euro area countries in Paris on 12 Octoberand subsequently endorsed by all 27 MemberStates at the European Council meeting of15-16 October. They determined, among otherthings, the common features for MemberStates’ interventions, including the guaranteesapplied to the funding and recapitalisation ofbanks.In the case of measures aimed at supporting“liquidity-constrained solvent banks”, it was agreedthat government guarantees could be provided fornew medium-term (up to five years) bank seniordebt issuance. The criteria for determining whichfinancial institutions are eligible to take part in theguarantee scheme must be non-discriminatory andinclude subsidiaries of foreign institutions withsubstantial operations in an EU Member State.The scheme should also be limited in amountand expire on 31 December 2009. Importantly,the Paris declaration states that governmentsmust “work in cooperation with the EuropeanCentral Bank so as to ensure consistency withthe management of liquidity by the Eurosystemand compatibility with the operational frameworkof the Eurosystem”.With regard to recapitalisation measures,Member States decided to make core capitalavailable to relevant financial institutions,for instance by acquiring preferred shares.Although governments committed themselves toproviding the appropriate amount of capital whenneeded, they will generally favour the raising ofprivate capital.The European Council at its meeting of15-16 October underlined the importanceof cooperation mechanisms and announcedthe establishment of a “financial crisis cell”.This cell, in which the President of the ECBparticipates, aims to improve crisis managementamong EU Member States through measuresincluding informal warnings, informationexchange and an evaluation mechanism. TheEuropean Council also stressed the importanceof regular meetings of national supervisors.Finally, the ECOFIN Council, at its meetingon 2 December 2008, specifically emphasisedthe need to establish, without delay, nationalschemes to support the banking sector in respectof guarantees and, in particular, recapitalisationplans. The European Commission was requestedto work closely with the ECB on these issues.With the aim of enhancing the stability of thefinancial system and maintaining a level playingfield,the Eurosystem issued recommendationson government guarantees for bank debt and onthe pricing of bank recapitalisations. InDecember 2008 the European Commissionadopted a communication on the recapitalisationof financial institutions, which also reflected theECB’s recommendations on this matter. 5In February 2009 the ECOFIN Council agreedthat, in order to safeguard banking sectorstability, measures to deal with impaired assetscould in specific cases complement governmentguarantees for bank debt and recapitalisations.These measures should remain consistent5 The communication was published in January 2009 (OJ C 10,15.1.2009, pp. 2-10).ECBAnnual Report2008153