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Eur Bus Org Law Rev (2017) 18:479–502
DOI 10.1007/s40804-017-0083-1
Safeguarding the Stability of the Greek Banking System
Amidst the Fiscal Crisis in the Euro Area:
Arrangements Before and After the Establishment
of the European Banking Union
Christos V. Gortsos1
Published online: 4 October 2017
T.M.C. Asser Press 2017
Abstract The present paper examines the impact of the current fiscal crisis in the euro
area on the Greek banking system and the institutional, regulatory and supervisory
measures adopted to preserve its stability. It is divided into two parts. The first part deals
with the differentiated impact of the recent (2007–2009) international financial crisis and
the current fiscal crisis in the euro area on the Greek banking system, and the measures
adopted to safeguard its stability from 2008 (amidst the recent international financial
crisis) until the establishment of the European Banking Union in 2014 (amidst the current
fiscal crisis in the euro area). The second part overviews the main elements of the current
institutional, regulatory and supervisory framework governing banking stability in
Greece in the era of the European Banking Union and its implementation during the last
2 years after the establishment of the Single Supervisory Mechanism, the Single Resolution Mechanism and the Single Resolution Fund. The paper concludes with some
remarks on the current challenges of the Greek banking system, the functioning of the
Single Supervisory Mechanism and the need for a ‘regulatory pause’.
Keywords Banking system Stability Fiscal crisis Economic Adjustment
Program Recapitalization Credit institution Regulation Resolution Capital
controls Bank holiday
This paper was presented at the Workshop of the European University Institute (EUI, Florence) on ‘The
European Banking Union and Its Instruments: Experience from the First Years of an Interplay with
National Banking Supervision and Resolution’. It is a fully revised and updated version of Gortsos
(2016b). The cut-off date for data included therein is 27 December 2016.
& Christos V. Gortsos
Professor, Public Economic Law, Law School, National and Kapodistrian University of Athens,
Athens, Greece
C. V. Gortsos
1 Introduction
The present paper examines the impact of the current fiscal crisis in the euro area on
the Greek banking system and the institutional, regulatory and supervisory measures
adopted to preserve its stability. It is divided into two main Sections: (a) Sect. 2
deals with the differentiated impact of the recent (2007–2009) international financial
crisis and the current fiscal crisis in the euro area on the Greek banking system and
the measures adopted to safeguard its stability from 2008 (amidst the recent
international financial crisis) until the establishment of the European Banking Union
in 2014 (amidst the current fiscal crisis in the euro area); (b) the following Sect. 3
overviews the main elements of the current institutional, regulatory and supervisory
framework governing banking stability in Greece in the era of the European
Banking Union and its implementation during the last 2 years after the establishment of the Single Supervisory Mechanism, the Single Resolution Mechanism and
the Single Resolution Fund. The paper concludes with some remarks on the current
challenges of the Greek banking system, the functioning of the Single Supervisory
Mechanism and the need for a ‘regulatory pause’.
2 The Impact of the Recent (2007) International Financial Crisis
and of the Current Fiscal Crisis in the Euro Area on the Greek
Banking System: An Overview
2.1 The Impact of the Recent (2007–2009) International Financial Crisis1
Despite the existence of an extensive international regulatory financial framework,
which gradually has been established since the 1970s,2 a major international
financial crisis erupted in 2007. This crisis was triggered by events in the financial
system of the United States, spilled over to the world economy seriously affecting
the stability of the financial system in several other states around the globe, and had
a serious negative impact on the real economy worldwide.3 Consequently, several
banks and other financial institutions around the world (small or big, even
‘systemically important’ ones)4 were not able to absorb the losses from their risk
exposure. This resulted, inter alia, in negative effects on the real economy, obliging
I use the term ‘recent’ (and not ‘current’) to denote that this crisis lasted from 2007 to 2009 and came
to an ending. This is without prejudice either to the fact that the financial systems of certain states remain
vulnerable as a result of this crisis, or that in certain cases (especially in the euro area periphery)
the current malfunctioning of the banking system is a corollary of the current fiscal crisis in the euro area
which occurred, at least to a certain extent, as a result of the international financial crisis.
On this see, by means of indication, Giovanoli (2000); Nobel (2010), pp 97–256; Gortsos (2012),
pp 107–281; Lastra (2015), pp 499–554.
On this see various relevant IMF Reports at The analysis of the causes of this
crisis is beyond the scope of the present study. For an overview of the vast existing bibliography on this
issue see Gortsos (2012), pp 127–129.
From the extensive literature on systemically important financial institutions see indicatively Claessens
et al. (2010), and the various contributions to Lastra (2011).
Safeguarding the Stability of the Greek Banking System…
several governments to adopt rescue packages and recovery programs5 in order to
support or even bail out individual banks (and, in some cases, the entire banking
system).6 Such government interventions weighed on state budgets and, in some
cases, created serious fiscal imbalances, some of which evolved into fiscal crises7
which, in turn, spread to become financial crises through the activation of several
channels of transmission.8
Before the onset of the international financial crisis, the Greek banking system
was largely sound and resilient to potential adverse shocks. This was the conclusion
of the Financial System Stability Assessment (FSSA) on Greece, which was
conducted on the basis of the joint International Monetary Fund (IMF) and World
Bank Financial Sector Assessment Program (FSAP), was completed on November
21, 2005 and, inter alia, included Reports on the Observance of Standards and
Codes (ROSCs) on banking supervision.9 According to this Assessment, the Greek
credit institutions were well capitalized and profitable, with adequate liquidity
(although facing challenges arising from the recent rapid credit growth that
increased bank exposure to unfamiliar credit risks). In addition, risk management
capabilities were strengthened in response to regulatory change and rapid credit
growth, while bank supervisory authorities, i.e. the Bank of Greece (hereinafter
BoG) were also largely effective (unlike insurance supervisory authorities).10
The Greek banking system was not directly and particularly affected by the
recent international financial crisis,11 mainly due to the insignificant exposure of
domestic banks to securitised financial products issued by US banks.12 In more
detail, during that period Greece’s fiscal position had started to deteriorate, but the
banking system had not yet been affected. It is indicative that the systemically most
important Greek credit institutions recorded their second highest profitability level
of the last decade in 2008, just a few months after the collapse of Lehman Brothers
For an assessment of these measures in the EU, see Panetta et al. (2009); Gortsos (2009); Petrovic and
Tutsch (2009).
The most striking example in this case is Iceland (see Claessens et al. (2010), pp 51–53; Norberg
(2009), pp 94–98).
The most striking example is that of Ireland (for a detailed discussion, see Eichengreen (2015)). The
Irish case also raised concerns about the accuracy and forward-looking perspective of the monitoring
mechanism provided by pan-European and international institutions and bodies. See on this also Véron
(2016), p 14.
For more details see Committee on the Global Financial System (2011); Shambaugh (2012),
pp 157–162 and 187–190. On the ‘vicious circles’ (also called ‘vicious cycles’, diabolic loops’ or ‘doom
loops’) between the banking system and sovereign bond markets, from a historical perspective, see
Mitchener (2014).
IMF Country Report No. 06/6, January 2006, available at
Ibid., Executive Summary, pp 5–6.
Nevertheless, there was a negative impact on the Greek economy as a whole. On the warnings
addressed by the BoG about the severity of the crisis and its impact on the Greek economy, see Bank of
Greece (2014), pp 41–50.
It seems, as a result, that in the case of Greece, in contrast to that of Ireland, the FSAP assessment was
C. V. Gortsos
(15 September 2008), at the height of the international financial crisis.13
Nevertheless, liquidity conditions were strained during this crisis, since Greek
credit institutions had restricted access to wholesale market liquidity for their
lending operations, while maturing interbank liabilities put additional pressure on
their liquidity position, thus rendering necessary the adoption of a recovery
Accordingly, in December 2008 the Greek government adopted a ‘recovery
program’ (widely known as ‘the € 28bn package’) under Law 3723/2008 ‘on the
enhancement of liquidity of the economy in response to the impact of the
international financial crisis’.14 As indicated by the Law’s title, this program was
mainly aimed at improving liquidity conditions in the banking system through two
(2) pillars. First was the issuance of bank bond guarantees worth € 15 billion, in
order to facilitate Greek credit institutions’ fund-raising on international markets,
and the issuance of ‘special’ Greek government bonds worth € 8 billion, in order to
further bolster liquidity and ensure competitive terms for the provision of loans to
small and medium enterprises and of housing loans for households. Another pillar
consisted of a € 5 billion capital support, through capital increases with the issue of
preference shares rendering a fixed annual return of 10%.15 All these support
measures fell into the category of state subsidies under EU competition law and
were authorised by the Commission as compatible aid under Article 107(3), point
(b) of the Treaty on the Functioning of the European Union16 (TFEU).17
Despite these problems, Greek credit institutions have shown remarkable
resilience and were able to overcome adversities due to a number of factors, such
as a strong capital base, steadily increased provisions (more than 40% on a year-toyear basis), and liquidity-support measures by the European Central Bank (ECB).
As a result, the Greek banking system remained healthy, adequately capitalised, and
highly profitable amidst the international financial crisis.
See, e.g. the published annual reports of Alpha Bank, Bank of Piraeus, Eurobank and National Bank of
Greece for the period 2000–2010 (available on their websites). These four credit institutions are currently
considered as ‘significant’ and are thus being directly supervised by the European Central Bank (ECB).
Government Gazette issue A 250, 9 December 2008.
This support was deemed necessary on precautionary grounds, but use thereof was made by all
systemically important credit institutions, paving the way for the participation of the Greek government in
their capital share and triggering actions of state interventionism.
[2012] OJ C 326, pp 47–200.
Decision of the European Commission Mo. 560/08 [2009] OJ C/125/6, as continuously prolonged,
available at
2008.pdf. See on this Boudghene et al. (2011), pp 45–49. On the other measures adopted in 2008 (in
the middle of the recent international financial crisis) see Gortsos (2016b), under Sect. 2.1.
Safeguarding the Stability of the Greek Banking System…
2.2 The Impact of the Current Fiscal Crisis in the Euro Area
2.2.1 Introductory Remarks
The fiscal crisis in the euro area was triggered by the exceptionally severe fiscal
imbalances in Greece,18 which were then transmitted to other EU Member States of
the euro area ‘periphery’.19 In 2010, Greece’s public deficit, which had been
widening over the years, leading to the accumulation of external public debt,
coupled with a continued loss of competitiveness and a worsening of the current
account deficit (‘twin deficits’), resulted in a surge in borrowing costs and risk
premia on Greek sovereign debt, as well as in Greece’s exclusion from international
In order to cope with the Greek crisis, in May 2010 the IMF concluded a staff
level agreement for a joint euro area/IMF financing package to Greece of € 110
billion and supporting economic policies. In addition, the Eurogroup agreed to
activate stability support through bilateral loans centrally pooled by the European
Commission on the basis of the First Economic Adjustment Programme for Greece
of 3 May (usually referred to as the ‘First Memorandum’).20
At this point it is worth mentioning that a common problem for (almost) all euro
area Member States was ‘disaster myopia’: in the absence of ‘local’ funding of
foreign exchange risk after the introduction of the euro, it was perceived that banks
were bankruptcy remote.21 A major institutional deficiency existed as well: the
TFEU did not contain any provisions (similar to the IMF financial assistance
mechanisms) for financial assistance to euro area Member States having lost their
access to international interbank, money and capital markets. Accordingly the initial
financial support to Greece was provided on the basis of Article 122(2) TFEU,
which deals with national disasters or exceptional circumstances beyond a Member
State’s control. This choice was obviously due to the lack of any other more
I use the term ‘fiscal crisis’ instead of the term ‘debt crisis’ as more consistent with the fact that Greece
(as well as Portugal, Ireland, and Cyprus, which, for different reasons each, were severely affected by this
crisis, were excluded from international interbank and capital markets and resorted to the sovereign
lending of last resort facilities of the IMF and the newly built (during this crisis) EU facilities) violated
the ‘hard limit’ (3%) deficit/GDP ratio laid down in Art. 126(2), point (a) TFEU and in Art. 1 of Protocol
(No. 12) ‘on the excessive deficit procedure’ attached to the Treaties [2012] OJ C 326, pp 279–280. The
author also considers that this crisis is still ongoing (hence ‘current’).
See on this Armingeon and Baccaro (2011), pp 1–39; Eichengreen et al. (2011), pp 47–64;
Athanassiou (2011); Aizenman (2012); Caminal (2012); Avgouleas and Arner (2013); Chiti and Teixeira
(2013); De Grauwe (2013); Stephanou (2013); Hadjiemmanuil (2015), pp 6–10; D’Arvisenet (2015);
Zimmermann (2015); Christodoulakis (2015).
On this Adjustment Programme and the related Memoranda of Understanding (Memorandum of
Economic and Financial Policies (MEFP), Memorandum of Understanding on Specific Economic Policy
Conditionality (MoU) and Technical Memorandum of Understanding (TMU)), see European Commission
See on this, by mere indication, Eichengreen (2015), pp 1–2. On the term ‘disaster myopia’ see
Guttentag and Herring (1986).
C. V. Gortsos
suitable TFEU provision.22 The subsequent financial support mechanisms (European Financial Stabilisation Mechanism (EFSM), European Financial Stability
Facility (EFSF) and European Stability Mechanism (ESM)) were all based on
bilateral and multilateral agreements outside the TFEU,23 with the TFEU-anchor for
the ESM laid down only in 2013 with the insertion of Article 136(3).24 In addition,
and the IMF was involved in order to provide, apart from financial assistance,
‘conditionality services’.25
2.2.2 The Impact on the Greek Banking System
Unlike in the case of the international financial crisis, the Greek banking system was
gravely and negatively affected by the fiscal crisis in the euro area. From the point
of view of non-performing loans, the situation deteriorated continuously: they
increased from 10.5% at the end of 2010 to 31.9% at the end of 2013 and to 46.7%
at the end of 2015.26 In addition, all the channels for the activation of negative
spillover effects from the government to the banking system were set in motion.27
Indicatively, the successive downgrades of Greece’s sovereign debt since late-2009
in turn resulted in rating downgrades of Greek credit institutions and severely
tightened their liquidity position.
Bank deposits and repos declined by 21% since the end of 2010 (30% since the
end of 2009), while Greek credit institutions’ ability to raise liquidity on the
international interbank and on the international bond markets, was heavily
constrained. Accordingly, there was a need to rely heavily on the Eurosystem
credit facilities. At the end of 2010, ECB financing represented 15.5% of Greek
credit institutions’ total liabilities. Furthermore, the latter were heavily reliant on the
‘Emergency Liquidity Assistance’ (ELA) mechanism, according to which the BoG
acts as a lender of last resort to Greek credit institutions with the involvement of the
In addition, Greek credit institutions suffered extremely severe losses from their
participation in the Private Sector Involvement (PSI) as far as their holdings of
On this TFEU article, see Hattenberger (2012).
On these mechanisms, see, by mere indication, Stephanou (2013); De Witte (2015).
This new provision was inserted by Decision 2011/199/EU of the European Council of 25 March 2011
‘amending Article 136 of the Treaty […] with regard to a stability mechanism for Member States whose
currency is the euro’ [2011] OJ L 91, pp 1–2.
IMF Articles of Agreement (1990), Art. V (‘Operations and Transactions of the Fund’). See on this
Lowenfeld (2009), pp 613–617 and 622–624; Lastra (2015), pp 415–422.
European Banking Authority, ‘Risk Dashboard: Data as of Q4 2015’, April 2016, Statistical Annex,
p 29; Bank of Greece, ‘Monetary Policy—Interim Report’, November 2011, Table V.9, p 125; Bank of
Greece, ‘Monetary Policy—Interim Report’, December 2014, p 77; Bank of Greece, ‘Governor’s Annual
Report’, February 2016, pp 23 and 188–189.
On these channels see above Sect. 2.1.
Indeed, the ELA is granted by the national central banks of the Member States whose currency is the
euro, while the ECB Governing Council is allowed to prohibit this, if deemed to be in conflict with the
objectives and tasks of the Eurosystem according to Art. 14.4 of the Statute of the European System of
Central Banks and of the ECB. See on this Smits (1997), pp 99–101; Gortsos (2015b); Lastra (2015),
pp 376–382; Scouteris and Athanassiou (2016).
Safeguarding the Stability of the Greek Banking System…
Greek government bonds were concerned. At this point, the author considers that
two remarks deserve specific attention in relation to the PSI (apart from any
concerns about its efficiency in contributing to the taming of the Greek sovereign
debt). Firstly,29 no ‘troika’ institution, including the IMF, did impose on Greek
credit institutions any limitations on their exposure to the Greek sovereign.
Noteworthy are also the provisions of the principal banking Law 3601/200730 on the
calculation of capital requirements for exposure to credit risk under the Standardised
Approach (used by several credit institutions), which stipulated that claims on
Member State governments, if denominated in the local currency, have a zero
percent (0%) risk weight.31 In this context the following should be mentioned:
The July 2011 support programme for Greece, aimed at strengthening
economic policy coordination for competitiveness and convergence on
condition of commitments by Greece, provided for a total official financing of
€ 109 billion.32 On 14 March 2012 then, the Euro Area Finance Ministers
approved additional financing under the second economic adjustment
programme amounting to € 130 billion until 2014, including an IMF
contribution of € 28 billion. They also authorised the EFSF to release the first
installment of a total amount of € 39.4 billion, to be disbursed in several
tranches. The release of the tranches was based on the observance of
quantitative performance criteria and a positive evaluation of progress made
with respect to the policy criteria contained in Council Decision 2011/734/EU
of 12 July 2011 ‘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’33 (subsequently amended three times),34 and on the (second)
Memorandum of Understanding between the European Commission and the
Hellenic Republic of March 2012.35
The PSI in Greece’s debt exchange offer was high. Out of a total of € 205.5
billion in bonds eligible for the exchange offer, approximately € 199 billion
(96.9%) have been exchanged with a nominal discount of 53.5%. On 20 April
See Véron (2016), p 12.
Government Gazette issue A 178, 1 August 2007. That law transposed into Greek legislation the two
main EU legal acts of the European Parliament and of the Council on the micro-prudential supervision
and regulation of credit institutions in the period before the establishment of the European Banking
Union, namely Directives 2006/48/EC and 2006/49/EC [2006] OJ L 177, pp 1–200 and 201–255,
This provision still applies in accordance with Art. 114(4) of the Capital Requirements Regulation (on
which, see below Sect. 3.1.3). For a critical evaluation and the current proposals for its amendment, see
European Systemic Risk Board (2015).
Council of the European Union, ‘Statement by the Heads of State or Government of the Euro Area and
EU Institutions’, Brussels, 21 July 2011.
[2011] OJ L 296, pp 38–52.
Council Decisions 2011/791/EU of 8 November 2011 [2011] OJ L 320, pp 28-31, 2012/211/EU of 13
March 2012 [2012] OJ L 113, pp 8–10 and 2013/6/EU of 4 December 2012 [2013] OJ L 4, pp 40–45.
The text of this MoU can be accessed at
2012-03-01-greece-mou_en.pdf (accessed 24 April 2017).
C. V. Gortsos
2012, the four (4) largest Greek credit institutions (representing more than
65% of the Greek banking system’s assets at that time) announced losses of
€ 27.9 billion.36
On 18 December 2012, the Greek authorities also completed a voluntary
buyback of bonds from the private sector after the Eurogroup decisions of 27
November 2012.37 The buyback retired € 31.8 billion in exchanged bonds,
including € 14.1 billion from Greek banks (or 44% of the total amount). In
total, the exchange is estimated to have reduced debt to GDP by 9.5%.38
Finally, the ‘collateral/liquidity’ channel has been activated as well, since the
ECB had gradually been cutting the market value of Greek government bonds and
the other assets provided as collateral by Greek credit institutions, referring them
mainly to the ELA mechanism. Greek credit institutions also suffered losses on
account of (explicit or implicit) Greek government guarantees granted to them,
which could not be honoured in full due to fiscal strains.
2.3 Measures Adopted Immediately after the Fiscal Crisis in the Euro Area
After the onset of the euro area fiscal crisis in 2010,39 the need to reinforce the
stability of the Greek banking system became imperative. This triggered three
important initiatives. Firstly, from an institutional point of view, the most important
development was the establishment of the Hellenic Financial Stability Fund
(HFSF),40 with the primary objective to maintain the stability of the Greek banking
system by strengthening the capital adequacy of domestic credit institutions.41 A
Hellenic Council of Systemic Stability was also established,42 even though the body
entrusted with the macro-prudential oversight of the Greek financial system since
2012 has been the BoG,43 which in that respect operates in accordance with the
On the PSI key terms following the 26 October 2011 Euro Summit, see Hellenic Republic, Ministry of
Finance, PSI Launch, Press Release, 21 February 2012. For the final settlement of the PSI, see Hellenic
Republic, Ministry of Finance, Press Release, 25 April 2012. On the litigation surrounding the PSI, see
Tsibanoulis and Anagnostopoulos (2014).
Eurogroup statement on Greece, 27 November 2012 and Hellenic Republic, Ministry of Finance Press
Releases, 3, 10 and 12 December 2012.
Bank of Greece, ‘Governor’s Annual Report’, February 2013, Table 5A, p 197, and IMF Country
Report No. 13/20, ‘First and Second Reviews Under the Extended Arrangement Under the Extended Fund
Facility […]’, January 2013, Box 4, p 84.
For a detailed overview of this period from the BoG’s point of view, see Bank of Greece (2011), supra
n. 26, pp 55–190. On the role of the IMF, see Véron (2016), pp 11–14.
Law 3864/2010 (Government Gazette issue A 119, 21 July 2010).
Ibid., Art. 2(1).
Law 3867/2010 (Government Gazette issue A 128, 3 August 2010), Art. 20.
Statute of the Bank of Greece (2012), Art. 55A, fourth sub-paragraph.
Safeguarding the Stability of the Greek Banking System…
European Systemic Risk Board’s Recommendation of 22 December 2011 ‘on the
macro-prudential mandate of national authorities’.44
In addition, with a view to enhancing financial stability, specific targeted microprudential supervisory and regulatory measures were taken as well.45 Finally, the
framework governing banking crisis management was also enhanced through the
establishment of a resolution regime for ailing credit institutions.46 This regime
introduced provisions mainly with regard to two resolution tools to be implemented
by the Minister of Finance and/or the BoG: the sale of business tool and the bridge
bank tool. It also provided for the creation of a ‘resolution fund’, which in 2011 led
to the establishment of a ‘resolution scheme’ as the third pillar of the Hellenic
Deposit and Investment Guarantee Fund (HDIGF).47 The resolution scheme was
independent from the other two pillars of the HDIGF (the deposit guarantee
scheme48 and the investor compensation scheme).49 Nevertheless, for a transitional
period it was the HFSF which covered the resolution funding gap50 in view of the
significant amount of funds that would potentially be required (and, as a matter of
fact, have been required) in order to cover the resolution funding gap of several
credit institutions, including larger ones.
2.4 The First Two Greek Bank Recapitalisations and the First Round
of Bank Resolutions
2.4.1 The First (2012) Recapitalisation Exercise as a Result of the Debt WriteDown with Private Sector Involvement (PSI)
In 2012, in the context of the Greek sovereign debt write-down and debt buyback
operation which resulted from Greek credit institutions’ inclusion in the PSI,51 these
suffered losses on account of Greek sovereign bonds held in their portfolios. As a
result, on 20 April 2012, the four (4) largest and systemically important Greek credit
institutions announced losses of € 27.9 billion,52 which totally depleted their
[2012] OJ C 41, pp 1–4. The ESRB, established by virtue of Regulation (EC) 1092/2010 of the
European Parliament and of the Council of 24 November 2010 [2010] OJ L 331, pp 1–11, is entrusted
with the EU financial system’s macro-prudential oversight. The BoG’s Governor is a member of the
ESRB’s General Council (Art. 6(1), point (b)). On the ESRB see Ferran and Alexander (2011);
Papathanassiou and Zagouras (2012); Grünewald (2014), pp 172–176.
For further details on this see Gortsos (2016b), section 2.2.4.
Law 4021/2011 (Government Gazette issue A 218, 3 October 2011). That Law was adopted on the
basis of the ‘Fourth Review Under the Stand-By Arrangement and Request for Modification and Waiver
of Applicability of Performance Criteria’ of the IMF Country Report No. 11/175 (July 2011) and was
subsequently amended by Law 4051/2012 (Government Gazette issue A 40, 29 February 2012).
Law 3746/2009 (Government Gazette issue A 27, 16 February 2009).
That scheme was firstly established in 1995 by Law 2324/1995 (Government Gazette issue A 146, 17
July 1995), which incorporated into Greek law Directive 94/19/EC of the European Parliament and of the
Council of 30 May 1994 ‘on deposit guarantee schemes’ [1994] OJ L 135, pp 5–14.
That scheme was established by Law 3746/2009.
Law 4051/2012, Art. 9(12) amending Law 3864/2010.
See, on this, Bank of Greece (2014), pp 168–169.
See also above, Sect. 2.2.2.
C. V. Gortsos
regulatory own funds and led to their recapitalisation by public funds through the
2.4.2 The Second (2014) Recapitalisation Exercise
In 2013, the fiscal crisis continued to have a severe negative impact on credit
institutions’ liquidity, quality of loans and financial results. Their assets continued to
be negatively affected by the continuing rise in non-performing loans (NPLs) as a
result of the (cumulatively big) recession that began in late 2008 and had been
ongoing up until that point. At the same time, there was a sharp decline in deposits,
thus directly impacting bank liquidity.53 In addition, on account of their low credit
ratings, Greek credit institutions lost access to both the interbank market and the
capital market, and thus their ability to raise funds through bond issuance. As a
result, their liquidity shortage further deteriorated.
Then, in April 2014, following a stress test conducted by the BoG, in compliance
with a relevant commitment under the second Memorandum of Understanding, the
second recapitalisation of the four (4) systemically important credit institutions was
completed. In particular, € 8.3 billion were raised through the private sector,
compared with capital needs calculated at € 5.8 billion under the stress test’s
baseline scenario. Following the successful completion of that second recapitalisation exercise, Greek credit institutions could once again return to international
capital markets and raise funds through bond issuance. In addition, since May 2014,
ELA financing, which peaked in November 2012 (at € 123.3 billion), gradually fell
essentially to zero, albeit temporarily as it would later turn out.54
2.4.3 The First (Extensive) Round of Bank Resolutions
In the period 2011–2014, the sale of business and the bridge bank (resolution) tools,
which were established in order to ensure the continuity of critical banking
functions and, hence, safeguard financial stability and protect depositors and
investors, were used in twelve cases.55 This development drastically altered the
Greek banking system landscape.
In all these cases the credit institutions resolved were considered non-viable and
concurrently not systemically important and were placed under liquidation,
following the withdrawal of their license. The deposit guarantee scheme was not
activated, because, just before the license withdrawal, their viable property items
(including all of their deposits and not only those covered by the deposit guarantee
Deposits held by domestic households and enterprises dropped from € 228 billion in December 2008
to € 164 billion in November 2014.
See also below, Sect. 3.3.1 and Gortsos (2016b), Table 2.
See on this Bank of Greece (2014), pp 174–183; Gortsos (2016b), Table 3.
Safeguarding the Stability of the Greek Banking System…
scheme) had been transferred to the one of the four systemically important credit
3 The Impact of the European Banking Union’s Establishment
3.1 The New Institutional and Regulatory Framework and Its
Implementation in Greece
3.1.1 Introductory Remarks
The creation of a ‘European Banking Union’ (EBU) is a very ambitious political
initiative, which was tabled at the Euro Area Summit of 29 June 2012, amidst the
current fiscal crisis in the euro area. The establishment of the EBU was aimed at
creating a ‘Europeanised bank safety net’ to ‘break the vicious circle between banks
and sovereigns’57 consisting of three ‘main’ pillars: a Single Supervisory
Mechanism, a Single Resolution Mechanism and a Single Resolution Fund, as
well as a single deposit insurance scheme. The new EU institutional framework on
the EBU has been coupled with a ‘single rulebook’ containing substantive rules on
the prudential regulation and supervision of credit institutions, their recovery and
resolution, and the guarantee of bank deposits.
The most significant institutional and regulatory developments towards establishing the EBU took place in the course of 2013 and 2014, with the exception of the
creation of a single deposit insurance scheme (which is still pending).58 In this
respect it is worth noting that the main pillars of the EBU are a by-product of the
fiscal crisis in the euro area and are designed to apply mainly (but not exclusively)
to the euro area Member States. On the other hand, the ‘single rulebook’, adopted by
the European Parliament and the EcoFin Council, and further detailed by the
European Commission and the European Banking Authority (EBA), is applicable
across all EU Member States.59 It is a child of the recent (2007–2009) international
financial crisis, its content is substantially influenced by developments in
international financial law and it is part of the legislation on completing the single
market for financial services.
In fact, the bridge bank tool was activated only in two cases. The first time was immediately after the
entry into force of Law 4021/2011 in the case of the resolution of ‘Proton Bank’, whose license was
withdrawn and the bridge bank ‘New Proton Bank’ was simultaneously set up (Decision of the Minister
of Finance 9250/9.10.2011 and Decision 20/9.10.2011 of the Bank of Greece’s Credit and Insurance
Committee. The second time was in January 2013 for the resolution of ‘TT Hellenic Postbank’ (Decision
of the Minister of Finance 95/18.1.2013 and Decision 7/18.01.2013 of the Bank of Greece’s Resolution
Measures Committee).
Euro Area Summit Statement, 29 June 2012, first paragraph, first sentence, available at https:// (accessed 24 April 2017).
On 24 November 2015, the Commission submitted a proposal for a Regulation of the European
Parliament and of the Council ‘amending Regulation EU No. 806/2014 in order to establish a European
Deposit Insurance Scheme’, available at
On the single rulebook as a body of EU law, see Lefterov (2015), pp 4–22.
C. V. Gortsos
3.1.2 The Two Main Pillars of the EBU
As regards the establishment of a (genuinely) single supervisory authority for the
banking system, the Council adopted Regulation (EU) No. 1024/2013 of 15 October
2013 ‘conferring specific tasks on the ECB concerning policies relating to the
prudential supervision of credit institutions’.60 This Regulation (SSMR), adopted on
the basis of Article 127(6) TFEU, establishes a Single Supervisory Mechanism
(SSM) for credit institutions and some types of holding companies operating mainly
in the euro area Member States,61 which became operative on 4 November 2014.
The institutional framework governing the SSM is further specified in several ECB
legal acts on the detailed operational arrangements for the implementation of the
tasks conferred on it by the SSMR.62 The most important is ECB Regulation (EU)
No. 468/2014 of 16 April 2014, known as the ‘SSM Framework Regulation’ (ECB/
As of 4 November 2014, the four Greek systemically important credit institutions
(‘significant credit institutions’ in the terminology of the SSMR) are being directly
supervised, pursuant to that Regulation,64 by the ECB. The BoG, a member of the
SSM, remains the supervisory authority for the ‘less significant’ Greek credit
In addition, a European Single Resolution Mechanism (SRM) for non-viable
credit institutions (and investment firms) and a European Single Resolution Fund
(SRF) to fill in any funding gaps that might result from a resolution were created by
virtue of two legal acts adopted in 2014.66 The first is 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 […]’ (SRMR).67 This Regulation was
adopted under Article 114 TFEU and entered into force on 19 August 2014. The
second legal act is the Intergovernmental Agreement signed by twenty-six (26) EU
Member States ‘on the transfer and mutualisation of contributions to the Single
[2013] OJ L 287, pp 63–89.
Member States with a derogation may establish a ‘close cooperation’ with the SSM under the
conditions laid down in Art. 7 SSMR. In such a case, all credit institutions incorporated in their
jurisdiction will be directly supervised by the ECB (SSMR, Arts. 2, point (1), and 7(1)).
For an overview see Gortsos (2015a), pp 71–83.
[2014] OJ L 141, pp 1–50. The entire SSM framework is analysed in Gortsos (2015a), with extensive
further references.
SSMR, Art. 6(4).
SSMR, Art. 6(6). However, if necessary in order to ensure consistent application of ‘high supervisory
standards’, the ECB may, at any time, decide to exercise directly the supervision of a less significant
supervised entity (SSMR art. 6(5), point (b)).
On the SRM framework see Gortsos (2016a), with extensive further references.
[2014] OJ L 225, pp 1–90.
Safeguarding the Stability of the Greek Banking System…
Resolution Fund’,68 which was established under Article 67(1) SRMR.69 The SRM
entered into full operation on 1 January 2016.
Since then, the Single Resolution Board (SRB), which was established in
accordance with Article 42 SRMR and which is directly supervised by the ECB, is
responsible for adopting decisions relating to the resolution of significant credit
institutions. On the other hand, the adoption of such decisions in relation to less
significant credit institutions is the responsibility of the national resolution
authorities which are members of the SRM, i.e. in Greece the BoG (unless the
resolution action requires the use of the SRF).70 Since the SRF is also in full
operation as of the same date, the ‘resolution scheme’ of the HDIGF71 has, from that
date onwards, become one of its compartments and must gradually transfer the
contributions raised at national level thereto.72
3.1.3 The Single Rulebook
The single rulebook has also been completed and is based on several legal acts. The
framework governing (mainly) access to activity of the business of credit
institutions (granting and withdrawal of authorisation, as well as the exercise of
the right of establishment and the freedom to provide services in the single market),
micro-prudential supervision of credit institutions, and micro- and macro-prudential
regulation of credit institutions is based on two (2) legal acts. These legal acts of the
European Parliament and of the Council of 26 June 2013, adopted under Articles
114 and 53(1) TFEU, respectively, and in force since 1 January 2014, are
Regulation (EU) No. 575/2013 ‘on prudential requirements for credit institutions
and investment firms and amending Regulation (EU) No. 648/2012’ (Capital
Requirements Regulation; CRR),73 and Directive 2013/36/EU ‘on access to the
activity of credit institutions and the prudential supervision of credit institutions and
investment firms […]’ (‘Capital Requirements Directive IV’, hereinafter the ‘CRD
IV’).74 The CRD IV was transposed into Greek legislation in May 2014 by Law
4261/2014,75 which repealed the principal banking Law 3601/2007.
Almost 1 year later, on 16 April 2014, Directive 2014/49/EU of the European
Parliament and of the Council ‘on deposit guarantee schemes’76 (DGSD) was also
adopted as part of the single rulebook.77 Its legal basis being Article 53(1) TFEU,
The text of this Intergovernmental Agreement can be accessed at
(accessed 24 April 2017).
On the SRB, see Gortsos (2016a), pp 55–82.
SRMR, Art. 7(2)-(3). See Grundmann (2016), pp 57–60; Gortsos (2016a), pp 44–46.
See above, Sect. 2.3.
SRF Agreement, Arts. 4 and 1(1), respectively.
[2013] OJ L 176, pp 1–337.
[2013] OJ L 176, pp 338–436.
Government Gazette issue A 107, 5 May 2014.
[2014] OJ L 173, pp 149–178.
This legal act is analysed in Gortsos (2014).
C. V. Gortsos
the DGSD repealed Directive 94/19/EC of the same EU institutions of 30 May
199478 as of 4 July 2015. The DGSD was transposed into Greek legislation in March
2016 by Law 4370/2016,79 which repealed Law 3746/2009.80
Finally, on 15 May 2014, the European Parliament and the Council adopted
Directive 2014/59/EU ‘establishing a framework for the recovery and resolution of
credit institutions and investment firms […]’ (BRRD).81 This Directive, adopted
under Article 114 TFEU and applicable (mainly) from 1 January 2015, contains
provisions on three (3) main aspects. These are preparatory measures (including
recovery and resolution planning, Articles 4–26), early intervention measures
(Articles 27–30), and resolution tools and powers (Articles 31–86). The BRRD was
transposed into Greek legislation in July 2015 by Article 2 of Law 4335/2015.82 Use
of the (novel for the Greek legal order) bail-in resolution tool could be made only as
of 1 January 2016.83
3.2 The Outcome of the 2014 ECB Comprehensive Assessment for Greek
Credit Institutions
In preparation for the exercise of its (new) supervisory tasks within the SSM, the
ECB has since January 2014 conducted a Comprehensive Assessment of the credit
institutions and supervised groups to be directly supervised by it.84 The Comprehensive Assessment was conducted in collaboration with the national competent
authorities and supported by the private company Oliver Wyman Consultants, and
consists of three (3) components: a ‘Supervisory Risk Assessment’ to review,
quantitatively and qualitatively, key risks, including liquidity, leverage and funding;
an Asset Quality Review (AQR) to enhance the transparency of bank exposures by
reviewing the quality of banks’ assets, including the adequacy of asset and collateral
valuation and related provisions85; and a ‘stress test’, in collaboration with EBA, to
examine the resilience of banks’ balance sheet to stress scenarios.
The results of this exercise were published on 26 October 2014 and are contained
in the ECB’s ‘Aggregate Report on the Comprehensive Assessment’.86 The finding
was that the four Greek significant credit institutions, which took part in the
exercise, were not short of capital even under the dynamic balance sheet
[1994] OJ L 135, pp 5–14.
Government Gazette issue A 37, 7 March 2016.
See above, Sect. 2.3.
[2014] OJ L 173, pp 190–348. On that Directive, see Thole (2014); Binder (2015a).
Government Gazette issue A 87, 23 July 2015.
Law 4335/2015, Art. 3(1), first sentence. For a comprehensive analysis of Greek public banking law as
in force in September 2016, see Gortsos (2016c).
These credit institutions were identified in the ECB Decision 2014/123/EU of 4 February 2014 (ECB/
2014/3) [2014] OJ L 69, pp 107–111.
On the legal aspects of this review, see Joosen (2014).
See on this European Central Bank (2014).
Safeguarding the Stability of the Greek Banking System…
3.3 The Third (2015) Recapitalisation Exercise in the European Banking
Union Era
3.3.1 The Background: Macro-Economic Conditions, Bank Holiday and Imposition
of Capital Controls
Since December 2014, mainly as a result of domestic political and economic
uncertainty conditions, deposit outflows started to accelerate again, while the ratio
of NPLs increased constantly, a development that took place against the backdrop of
a worsening economic environment. This trend continued up until June 2015.87 In
this respect, on aggregate, in the December 2014–November 2015 period, deposits
held by households and enterprises decreased by € 43.4 billion; 97% of this
decrease was recorded between December 2014 and June 2015,88 while during the
period December 2014–December 2015, ELA financing surged again from € 1.1
billion to € 77.488 billion.89
The protracted negotiations between Greece and its lenders during the first
semester of 2015 resulted in the launch of a bank holiday which lasted from 28 June
until 19 July 2015.90 By 20 July 2015, the bank holiday was lifted and restrictions
were imposed on cash withdrawals and on capital movements,91 which—despite
some relaxations—are still in place.92
3.3.2 The Third Recapitalisation: The First Application of the BRRD in Greece
Given these unfavourable conditions, the banking system was affected strongly and
another bank recapitalisation, on top of the two previous ones in 2012 and 2014,
became imperative. In October 2015, the ECB conducted a new Comprehensive
Assessment of the four Greek significant credit institutions, in accordance with the
conclusions of the 12 July 2015 EU summit and the Financial Assistance Facility
Agreement of 19 August 2015. In the context of this Comprehensive Assessment,
another AQR and a second stress test exercise were conducted, the latter containing
a baseline scenario and an adverse scenario in order to evaluate the recapitalisation
needs of individual credit institutions. In total, the stress test found the participating
See details in Xafa (2016), pp 102–106.
Bank of Greece (2016), supra n. 26, p 174.
Ibid., Annex, p 22.
Legislative Act of 28 June 2015 (Government Gazette issue A 65), as applicable and extended, until 19
July 2015, by consecutive Decisions of the Minister of Finance.
The imposition of capital controls was considered to be compatible with Art. 65(1), point (b), last case
TFEU. On this article, see Craig and de Búrca (2015), pp 724–725.
Legislative Act ‘Urgent provisions for imposing restrictions on cash withdrawals and capital transfers’
(Government Gazette issue A 84, 18 July 2015), as in force. The provisions of this Act apply to Greek
credit institutions, the Consignments and Loans Fund, Greek payment institutions under Law 3862/2010
(Government Gazette issue A 113) and electronic money institutions under Law 4021/2011 (Government
Gazette issue A 218), as well as to branches of foreign credit institutions and to branches and agents of
foreign payment institutions and electronic money institutions operating in Greece. For the updating of
this Act see:
C. V. Gortsos
Greek credit institutions being short of € 5.2 billion under the baseline scenario and
€ 15.4 billion under the adverse scenario, i.e. at 21 and 62% respectively of the
amount of € 25 billion initially included in the above Agreement for bank
Under these circumstances, the new banking resolution Law 4335/2015, which,
as already mentioned, incorporated into Greek legislation the BRRD, was activated
for the first time. This provided93 that the national resolution authority, i.e. the BoG,
should take a resolution action in relation to each of these credit institutions if it
considered that the following conditions were met cumulatively:
The determination by the competent (supervisory) authority that a credit
institution was failing or was likely to fail. This condition was met for all
credit institutions.
A resolution action was necessary in the ‘public interest’, i.e. it was not
advisable to wind up a credit institution under normal insolvency procedures.
This condition was met for all credit institutions as well.
There was no reasonable prospect that any ‘alternative private sector
measures’ (i.e. recapitalisation with the use of private funds) or ‘supervisory
action’ (including early intervention measures or write-down/conversion of
relevant capital instruments taken in respect of the institution) would prevent
the failure of a credit institution within a reasonable timeframe. Hence, the
four (4) significant credit institutions submitted their respective capital plans
to the ECB, and the less significant credit institutions to the BoG, detailing
how they intended to address their capital shortfalls.
Given that alternative private sector measures were available for all of them, no
Greek credit institution was resolved. The recapitalisation process with the use of
private funds was completed successfully with substantial participation by foreign
institutional investors, who placed around € 5.3 billion in the significant credit
institutions. The necessary additional funds for the two credit institutions that did
not fully cover their capital needs from private sources (€ 5.4 billion) were drawn
from the HFSF.94 The HFSF contribution was granted as a ‘precautionary
recapitalisation’ in accordance with Article 32(4), first sub-paragraph, point
(d)(iii) BRRD and Law 4335/2015.95 It constituted a State aid in compliance with
Law 4335/2015, Art. 2, internal Art. 32(1).
See the relevant Press Releases of the ESM available at
and (both accessed 24 April 2017). The conditions were laid
down in Art. 1 of Law 4340/2015 (Government Gazette No. A 134, 1 November 2015), in the delegated Act
of Governmental Council 36 of 2 November 2015 (Government Gazette No. A 135, 2 November 2015) and
in Art. 1 of Law 4346/2015 (Government Gazette No. A, 20 November 2015, which amended the principal
HFSF Law 3864/2010. These amendments are connected with the requirements arising from the (third)
Memorandum of Understanding between the European Commission, the Hellenic Republic and the Bank of
Greece ‘for a three-year ESM programme’ of 19 August 2015 (Section 3), available at
economy_finance/assistance_eu_ms/greek_loanfacility/pdf/01_mou_20150811_en.pdf (accessed 24 April
On this BBRD article, see Conlon and Cotter (2014); Binder (2015b); Gortsos (2016d), section 4.2.
Safeguarding the Stability of the Greek Banking System…
the ‘2013 Banking Communication’96 and hence was approved by the Commission.97 In accordance with point 43 of that Communication, approval in both cases
was conditional upon conversion of subordinated debt into equity (‘burden
sharing’), since the exception provided for in point 45 thereof (‘where implementing
such measures would endanger financial stability or lead to disproportionate
results’) was not activated.98
3.4 The Second (Limited) Round of Bank Resolutions in 2015
During 2015, bank resolutions continued, albeit on a limited scale, with the use of
the ‘sale of business tool’. The first credit institution resolved was a commercial
bank whose shareholders were all Greek cooperative banks.99 This resolution action
took place in April and was the last bank resolution conducted under the initial
resolution regime.100 In late December then, a cooperative bank became the first
Greek credit institution to have been resolved101 under the new banking resolution
Law 4335/2015. Nevertheless, in this case the credit institution’s liabilities
(including unsecured deposits) were not bailed-in, since resort to this resolution
tool could only be made as of 1 January 2016.102
3.5 Specific Corporate Governance Rules
Specific new provisions relating to the evaluation of the members of the Board of
Directors (BoD) and certain of its committees of credit institutions, to which the
HFSF participates as a shareholder, were included in Article 10(5)-(8) of its
founding Law 3864/2010. These provisions, which in this author’s opinion go well
Communication from the Commission ‘on the application, from August 2013, of State aid rules to
support measures in favour of banks in the context of the financial crisis’ (‘Banking Communication’)
[2013] OJ C 216, pp 1–15.
The Commission Press Releases on the approval of that State aid are available,
press-release_IP-15-6193_en.htm and (respectively) (both accessed 24 April 2017). A noteworthy remark in both Press Releases, vividly reflecting
recent developments in the Greek economy and the Greek banking system, is the following: ‘The
Commission took into account the fact that most of [the] Bank’s difficulties did not come from excessive
risk taking but from the uncertainty and the events that led to the agreement of the third economic
adjustment programme for Greece in August [2015].’.
On the relation between the principle of proportionality and the application of the burden sharing
principle to subordinated debtholders under the Banking Communication, see the recent ‘Kotnik case’
(Case C-526/14) of the European Court of Justice, available at
TXT/HTML/?uri=CELEX:62014CJ0526&qid=1470488103569&from=IT) (accessed 24 April 2017). On
the third recapitalisation see also Xafa (2016), pp 106–110.
Decision 136/1/17.04.2015 of the Bank of Greece’s Credit and Insurance Committee (Government
Gazette issue B 633, 17 April 2015).
Law 3601/2007 (as in force), Art. 63D (see above, Sect. 2.3).
Decision 173/18.12.2015 of the Bank of Greece’s Credit and Insurance Committee (Government
Gazette issue B 2762, 18 December 2015).
See above, Sect. 3.1.3.
C. V. Gortsos
beyond international and EU governance standards, best practices and rules,103 were
added following the amendments of Law 3864/2010 in 2015.104 They apply to all
credit institutions which have received capital support even before these provisions
were enacted, since the law’s sole criterion is that the credit institution has signed a
Relationship Framework Agreement.105 They also apply independently of the
participation percentages of the HFSF in the credit institution’s share capital (which
may differ significantly) and independently of its voting rights (whether full or
In particular, the HFSF is called to evaluate, with the assistance of an
independent consultant of international reputation and established experience and
expertise, the corporate governance arrangements of credit institutions with which
the HFSF has signed a Relationship Framework Agreement. On the one hand, the
evaluation takes account of the way the BoD is structured (size, structure and
allocation of tasks and responsibilities within the board, its committees, as well as
any other committee which the HFSF deems necessary to evaluate for the fulfilment
of its objectives under this law). On the other, it takes account of the individual
members of the BoD and the committees concerned.106 Beyond the evaluation by
the HFSF and the criteria it will adopt itself for this purpose, specific criteria must
be taken into account in this evaluation, in particular concerning the individual
BoD’s members and its committees. These criteria concern all these members, with
the exception of certain additional criteria which apply to the non-executive and the
independent non-executive members of the board of directors.107
Accordingly, the evaluation by the HFSF of the members of the BoD of credit
institutions which have received capital support is a special shareholder right of the
HFSF arising from its capacity as a shareholder of the credit institutions to which it
provides state aid. This special right is included systematically in Article 10 in
which all the special rights of the HFSF are stipulated and it is exercised in the way
defined therein. At the same time, this right does not constitute a supervisory tool.
It is worth noting that Article 10(10) is characterized by an unusually soft—for a
legal provision—turn of phrase, insofar as it refers to ‘recommendations’ by the
HFSF and provides for its reaction only in the event that the general assembly ‘does
not agree’ to replace the BOD’s members. Hence, the HFSF does not have the right
to enforce its evaluation criteria, but rather addresses as a shareholder the
institution’s corporate bodies (BoD and general assembly) in order to reach a
consensus on its recommendations.
The author notes with emphasis that, according to the new requirements, any person not employed or
with no experience in the banking sector may not remain as a member of the Board of Directors of a
Greek credit institution or become such a member. On a comparative overview of governance issues in
bank recapitalisations, see Nestor and Khalilulina (2012).
See above, Sect. 3.3.2.
This agreement governs the relationship between the credit institution and the HFSF in matters
related, inter alia, with the credit institution’s corporate governance, as well as the monitoring of its
Restructuring Plan, the implementation of its NPL management framework and its performance on NPL
Law 3864/2010, Art. 10(5).
Ibid., Art. 10(7)-(8).
Safeguarding the Stability of the Greek Banking System…
If on the other hand, the general assembly does not agree with the proposals of
the HFSF, then the only consequence is the disclosure of this fact on its website
(‘naming and shaming’), as well as a notification to the competent supervisory
authorities.108 Therefore, violation of these provisions does not produce any legal
consequences in itself, apart from those expressly defined. Hence, these provisions
constitute soft law, namely non legally binding rules, which is compatible with the
spirit of corporate governance in general.109
4 Concluding Remarks
As analysed in this study, Greece belongs to the group of countries, the banking
system of which did not (substantially) burden the state during the recent
(2007–2009) international financial crisis.110 The Greek banking system was rather
a victim of the Greek state’s over-indebtedness and the subsequent fiscal crisis in the
euro area. During this crisis, the Greek banking system has been completely
transformed following the resolution of 14 credit institutions (including 2
traditionally large ones) and 3 recapitalisation rounds for the 4 systemically
important ones.111
Taking into account all the above-mentioned parameters, in the current
conjuncture, the main medium-term challenges for the Greek banking system are
as follows. The first challenge is the preservation of its (few) remaining credit
institutions’ solvency in order to avoid exposure to a new capital shortfall. To a
large extent this is linked to the development of the still extremely vulnerable Greek
economy, but also heavily depends upon the resolution of the problem related to the
large stock of NPLs. In this respect, the Greek credit institutions face challenges
arising from legal and judicial weaknesses (such as moratoria on auctioning
collateral, seniority of state claims over banks’ claims, and long waiting times for
court appointments), and the break-down of the real estate market.
Initial steps have been taken to improve the effectiveness of NPL resolution
activities by updating the household insolvency law and introducing the ‘Facilitation Program,’ a medium-term forbearance scheme for over-indebted households.
Nevertheless, further steps are needed, including enhancing debt enforcement and
collateral recovery, and designing an effective out-of-court restructuring
Ibid., Art. 10(9).
On this aspect, see extensively Livada (2016), pp 232–238; Xafa (2016), p 111.
The only exception was the 2008 recovery (and not rescue) program under Law 3723/2008 (see
above, Sect. 2.1).
This apart, and for the sake of completeness, during this crisis the Greek subsidiaries of three foreign
credit institutions (namely, Emporiki Bank, Geniki Bank and Millennium Bank) were acquired by two of
Greece’s systemically important credit institutions. In addition, during the Cypriot banking crisis of 2013,
the assets and liabilities of three Cypriot credit institutions’ branches in Greece (Bank of Cyprus, Cyprus
Popular Bank and Hellenic Bank) were transferred to a Greek systemically important credit institution, in
the context of an action orchestrated by the BoG in order to insulate the Greek banking system from
negative spill-over effects of the Cypriot crisis (see on this Bank of Greece (2014), p 183).
C. V. Gortsos
mechanism.112 There is no doubt that this is a conditio sine qua non for resuming
their role in granting credit to viable enterprises in order to support, as much as
possible, the Greek economy’s much desired return to growth.
The second challenge is on the liquidity front. Maintaining the current levels of
liquidity is also a conditio sine qua non, while the predominant task refers to the
creation of favourable macro- and micro-economic conditions for the return of
deposits and the gradual access of Greek credit institutions to ECB and market
funding. This would allow them to gradually but radically reduce their disproportionally high (and extremely costly in the current environment of negative interest
rates) ELA financing exposure, and resume access to the other ECB credit facilities
forming part of its monetary policy. It would also allow them to meet the prudential
liquidity requirements laid down in the CRR, and in particular the short-horizon
‘liquidity coverage requirement’ (LCR)113 and the long-horizon ‘net stable financing
requirement’ (NSFR).114 Furthermore, they would then be able to meet the
minimum requirement for own funds and eligible liabilities (MREL) laid down in
the BRRD,115 and return to normal lending activities, especially to viable businesses
seeking for borrowed funds.116
Thirdly, Greek credit institutions are also taking significant deleveraging
initiatives consisting in disposing of assets, selling non-core foreign assets, cutting
claims on foreign financial institutions, and reducing holdings in capital market
instruments.117 For a long time now, a major primary objective has been the
preservation, to the extent possible, of private ownership in the banking system.118
Despite the fact that the implementation of the SSM, in November 2014, almost
coincided with the most recent (December 2014–2015) Greek economic crisis, and
that the Greek banking system has been mainly concerned with dealing with the
problems which have arisen therefrom, several points of concern with regard to the
operation of the SSM have not remained unnoticed. These include the lack (in
several cases) of timely and effective communication between the ECB, as a
supervisor, and the other members of the Joint Supervisory Teams (JSTs), on the
one hand, and the credit institutions directly supervised by the ECB, on the other (to
a certain extent an unavoidable by-product of the transition to the new supervisory
regime and culture). In addition, they include the relatively slow decision and
approval processes, including (but not confined to) ‘fit and proper’ assessments for
On the development of NPLs and the determinants of loan loss provisions in Greece, see indicatively
Konstantakis et al. (2016); Monokroussos et al. (2016), respectively. On resolving private sector
insolvency in Greece, see the various contributions in Monokroussos and Gortsos (2016).
CRR, Art. 412(1).
Ibid., Art. 413(1).
BRRD, Art. 45. On the MREL, see Mišková and Országhová (2015); Gortsos (2016a), pp 92–99, and
in details Maragopoulos (2016).
There is no doubt, nevertheless, that apart from the demand for working capital most businesses are,
given the prolonged recession of the Greek economy, in search of own funds which cannot be satisfied
directly by the banking system.
IMF Country Report No. 12/57 (2012), p 7 (which is still accurate).
Ibid., pp 1 and 118.
Safeguarding the Stability of the Greek Banking System…
credit institutions’ managers in accordance with Article 93 of the SSM Framework
Regulation,119 and in certain cases, inconsistency between the reporting requirements imposed by the ECB, the national competent authorities and the EBA (in its
capacity as a regulatory authority).
As a final remark it should be noted that, taking into account the difficulties
arising from the appropriate application and interpretation of several provisions of
the extensive new regulatory framework in the EBU era (CRR and the national
legislation having incorporated the CRD IV and the BRRD), legal certainty and
efficiency dictate a ‘regulatory pause’. The steady state should be reached soon and
not be distorted by a new wave of regulations before the recent ones have been fully
and adequately absorbed (even though the current developments are just to the
opposite).120 It is this author’s strong belief that the preservation of systemic
stability is mainly a function of efficient micro-prudential supervision and macroprudential oversight and less of over-regulation. This applies in particular when new
regulations, usually as ‘children of crises’, are being adopted without a prior
thorough cost–benefit analysis, based on untested assumptions.121 Overreaction
which may turn into ‘regulatory failure’ is not an appropriate means for dealing
effectively with ‘market failures’.
Aizenman J (2012) US banking over two centuries: lessons for the Eurozone crisis. In: Beck T (ed)
Banking Union for Europe. Risks and challenges. Centre for Economic Policy Research (CEPR),
London, pp 129–135
Armingeon, K, Baccaro L (2011) The sorrows of young euro: policy responses to the sovereign debt
crisis. Paper presented at the eighteenth conference of Europeanists organized by the Council for
European Studies, Barcelona, Spain, 20–22 June 2011
Athanassiou Ph (2011) Of past measures and future plans for Europe’s exit from the sovereign debt crisis:
what is legally possible and what not. Eur Law Rev 36(4):558–575
Avgouleas E, Arner DW (2013) The eurozone debt crisis and the European Banking Union: a cautionary
tale of failure and reform. University of Hong Kong Faculty of Law Research Paper no 2013/037. Accessed 14 July 2017
Bank of Greece (2014) The chronicle of the great crisis: the Bank of Greece 2008–2013—public
interventions and institutional actions to safeguard financial stability and overcome the crisis. Bank
of Greece, Centre for Culture, Research and Documentation.
20the%20Bank%20of%20Greece%202008-2013.pdf. Accessed 14 July 2017
Binder J-H (2015a) Komplexitätsbewältigung durch Verwaltungsverfahren? Krisenbewältigung und
Krisenprävention nach der EU-Bankensanierungs- und -abwicklungsrichtlinie. Zeitschrift für das
gesamte Handelsrecht und Wirtschaftsrecht (ZHR) 173(1):83–133
Binder J-H (2015b) Resolution planning and structural bank reform within the Banking Union. In:
Castaneda J et al (eds) European Banking Union. Prospects and challenges. Routledge, London,
pp 129–155
See on this Gortsos (2015a), pp 175–177.
As a matter of fact, on 23 November 2016, the Commission submitted a new banking reform package
on the amendment of the SRMR, the CRR, the CRD IV and the BRRD, available at
rapid/press-release_IP-16-3731_en.htm (accessed 24 April 2017).
For a typical example, see above, Sect. 2.2.2.
C. V. Gortsos
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