The Slovenia Times

EU court sets limit on central bank liability for damages to erased creditors


Ljubljana - The EU Court has effectively set limits on the Slovenian central bank's liability for damages claimed by junior creditors who were wiped out in the 2012-2013 bank bailout. In a ruling issued on Tuesday, it indicated the extent of damages and eligibility must be precisely determined so as to prevent monetary financing, which is not permitted.

The court said that EU law does not preclude national legislation under which a central bank is liable, from its own funds, for damage suffered by former holders of financial instruments cancelled by it pursuant to reorganisation measures ordered by that central bank.

But it does preclude national legislation which provides that a national central bank is liable for damage caused by the cancellation of financial instruments "in such sums as might impair the bank's ability to perform its tasks effectively".

This is because a levy on the general reserves of a national central bank in an amount likely to affect its ability to carry out its tasks effectively, combined with an inability to restore those reserves independently, "is liable to place that central bank in a situation of dependence with regard to the political authorities of the Member State to which it belongs".

As regards the second point of contention, access to information generated during the bank restructuring measures, the court said that the obligation of professional secrecy and confidentiality apply to authorities responsible for the function of supervising credit institutions but "they may not be imposed on information which has been obtained or generated in the exercise of other functions".

The ruling is the latest chapter in a long saga involving wiped-out junior creditors of major Slovenian banks that were bailed out in a multi-billion euro operation at the end of 2012 and in early 2013.

Recourse for the creditors was put in place several years later and subsequently amended based on a Constitutional Court decision, but the central bank requested a new review of constitutionality, arguing that that the rules laid down in those provisions as regards the incurring of its liability and access to information which it holds were incompatible with EU law.

It was in the course of these proceedings that the Constitutional Court asked the EU court for clarification.

Since 2019, Banka Slovenije, the central bank, has been setting profit aside into a special reserve fund intended for the compensation scheme. If that were not enough, general reserves created before 2019 would be tapped and the state would extend a loan.

The erasure of junior claims affected some 100,000 holders of bank shares and over 1,600 holders of junior bonds in a combined amount of nearly a billion euros.

Responding to the EU court ruling, MDS, one of the associations of small shareholders, urged the government to find a just out-of-court solution before the ninth anniversary of the first erasure.

MDS says that the ruling confirms the wiped-out holders of bank shares and junior bonds are a victim of the central bank and the state mutually avoiding responsibility.

It sees the ruling as "a nail in the coffin" of the 2019 law on legal remedy for former holders of bank shares and junior bonds, and agrees with Banka Slovenije that a new legal solution should be drafted to comprehensively address this issue.

MDS believes that the wiped-out holders are entitled to be compensated even if Banka Slovenije acted with due care but somebody else did not, for instance appraisers.

The right to a fair compensation cannot depend on Banka Slovenije's violations of due care but only on "the objective value of the assets" erased.

MDS reiterated that the confiscated assets were not worthless. "Had they been worthless, they would not have been confiscated, or deleted, in the first place."

According to MDS's calculations, the default interest amounts to more than EUR 600 million on a EUR 950 million principal.

Meanwhile, the Finance Ministry said it was key to wait for the final decision of the Slovenian Constitutional Court. It added that it was already working on a solution for an effective legal remedy, likely in the form of court proceedings.


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