Establishes Measures Of Strengthening The Financial Soundness Of Credit Institutions Within The Scope Of The Initiative To Strengthen The Financial Stability And The Provision Of Liquidity In Financial Markets

Original Language Title: Estabelece medidas de reforço da solidez financeira das instituições de crédito no âmbito da iniciativa para o reforço da estabilidade financeira e da disponibilização de liquidez nos mercados financeiros

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Read the untranslated law here: http://app.parlamento.pt/webutils/docs/doc.pdf?path=6148523063446f764c3246795a5868774d546f334e7a67774c336470626d6c7561574e7059585270646d467a4c316776644756346447397a4c334277624449794f5331594c6d527659773d3d&fich=ppl229-X.doc&Inline=false

PRESIDENCY of the COUNCIL of MINISTERS 1 Proposal of law No. 229/X 635/2008 PL 2008.11.02 this Bill falls under the initiative of strengthening of financial stability, which incorporates measures of deepening the duties of information and transparency, further sanctions regime in the financial sector and increasing the amount of coverage of the protection schemes of deposits with credit institutions. More recently, this initiative was developed with the adoption of a extraordinary regime of personal guarantees of the State, in order to create the necessary conditions to restore liquidity in financial markets and to ensure the regular financing of the economy. It is in this line, and in the context of a concerted effort within the European Union to strengthen national financial systems in the face of the current international financial crisis, which will adopt measures to strengthen the financial soundness of credit institutions based in Portugal. The similarity of measures adopted in other countries of the European Union, this proposed law creates conditions for credit institutions to strengthen their capital base, allowing them to maintain support for the financing of the economy. The constant regime of this law has been defined with reference to the recommendations of the European Commission on the subject, in particular the compliance with: (i)) of a temporary nature in public support; II) nature subsidiary in relation to the strengthening of capital by shareholders; III) the commitment by credit institutions supported in its effort of capitalization with recovery plans; and iv) of the distinction in treatment between credit institutions structurally sound of those who present problems of solvency.

PRESIDENCY of the COUNCIL of MINISTERS 2 this measure covers, as mentioned, solvents and solid credit institutions in the light of the law and supervision applicable criteria, with the aim of providing these institutions public support that allows placing them in a situation comparable to their European counterparts, which benefit from similar measures, conditions and compensation balance. On the other hand, this measure aims to create a specific legal framework for direct public intervention in the processes of recovery and reorganisation of credit institutions with capital levels below the legal minimum. In both strands, recourse to public investment is carried out in accordance with the principles of proportionality, compensation and guarantee the capital invested and to minimise the risks of distortion of competition. The monitoring and supervision of the implementation of the proposed measures is the responsibility of the Bank of Portugal that elaborates, with maximum monthly periodicity, individual reports on each of the credit institutions concerned, the Commission refers to the Member of Government responsible for the area of finance. Semi-annually, the Member of Government responsible for the area of finance gives knowledge to Parliament capitalization operations performed and its execution. So: under d) of paragraph 1 of article 197 of the Constitution, the Government presents to the Assembly of the Republic the following Bill: chapter I PRESIDENCY of the COUNCIL of MINISTERS 3 General provisions Article 1 subject-matter this law establishes measures of strengthening the financial soundness of credit institutions within the scope of the initiative to strengthen the financial stability and the provision of liquidity in financial markets. Article 2 reinforcing Modes 1-strengthening the financial soundness of credit institutions is carried out by means of capitalisation operations with recourse to public investment and can take place by means of: a) the strengthening of own funds of credit institutions assemble adequate strength and solvency conditions measured in accordance with the applicable law; b) participation in the recovery plan and settlement of credit institution which, in accordance with article 141 of the general scheme of credit institutions and financial corporations, report, or show risk of present, a level of own funds, solvency or liquidity below the legal minimum. 2-the use of public investment is carried out in accordance with the principles of proportionality, compensation and guarantee the capital invested and to minimise the risks of distortion of competition.

3 – the arrangements laid down in paragraph 1 have subsidiary and temporary nature, being applicable to operations of capitalisation of credit institutions to be carried out until 31 December 2009. Article 3 4 of the COUNCIL of MINISTERS PRESIDENCY subjective scope can benefit from capitalization transactions provided for in this law, credit institutions have headquarters in Portugal. Article 4 1 capitalization modes – the capitalization can be made using any instruments or financial resources to allow the funds made available to the credit institution are eligible for original own funds (tier 1). 2-the capitalisation operation can be carried out in particular through: the) acquisition of own shares of the credit institution; b) increase of the share capital of the credit institution; c) other values, legally or statutorily admitted, representing capital; d) contract of Association in participation or agreement of similar effects. 3 – the increase of the share capital provided for in subparagraph (b)) of the preceding paragraph may be carried out by issuing: the preference shares without voting rights) and shares that confer special rights; b) ordinary shares.

4-in the case of capitalization operation be carried out through the issue of preference shares without voting rights, the right to priority dividend referred to in article 341.º of Código das Sociedades Comerciais is fixed by order of the Member of Government responsible for the area of finance. 5-the capitalisation operation can also be carried out through the issuance of financial instruments referred to in the preceding paragraphs intended for shareholders of the PRESIDENCY of the COUNCIL of MINISTERS 5 credit institution to the public or to both, with underwriting or guarantee placement, in whole or in part, by the State. 6 – Is the State authorized to underwrite or guarantee the issuance of financial instruments in accordance with the procedure referred to in the preceding paragraph, without prejudice to the possibility of resorting to a financial intermediary for this purpose. 7-By proposal of the Bank of Portugal, duly substantiated, capitalization operation can also be carried out by issuing bonds or other debt on the part of the credit institution, without subjection to the limit laid down in article 349.º of Código das Sociedades Comerciais. 8 – obligations or other debt issued under the preceding paragraph may be convertible into shares, common or preferred, or exchangeable for these, at the initiative of the holders. Article 5 advance payment on account of the advance funding inputs to the credit institution shall be deemed to have been allocated to the implementation of the obligation of entry in case of capital increase and releases the State of this obligation to the extent applicable.

Article 6 right of preference in subscription Without prejudice to the provisions of the Commercial companies code regarding the possibility of restriction or withdrawal of the right of pre-emption, the deadline for the exercise in the context of capital increases of credit institutions, in the framework of this law, may not exceed five days, counted from the publication of the notice in a daily newspaper of PRESIDENCY of the COUNCIL of MINISTERS 6 large national circulation , sending e-mail or shipment of registered letter addressed to the holders of registered shares. By way of derogation from article 7 duty to launch tender offer 1-the voting rights acquired by the State in the context of this law are not considered for purposes of duty general public offering launch. 2-Don't fall for the purposes of attribution of voting rights, nor to the duty of general public offering launch acquisition, the arrangements for the exercise of voting rights that have as their purpose the binding of society for the purposes of implementation of capitalisation operations under this law. 3 – The subscribed shares by the State, and while these remain on your title, shall not apply the provisions of paragraph 5 of article 227.º of Código dos Valores Mobiliários, starting the period on the day of transmission provided for there actions to third parties.



Article 8 public Disinvestment 1-showing ensured by the credit institution, the maintenance of adequate levels of own funds, can the same acquire State participation or repay debt values under this law, in whole or in part, with observance of the provisions of paragraph 3.

PRESIDENCY OF THE COUNCIL OF MINISTERS



7 2-the State may also, without prejudice to any rights of first refusal, assign to third parties, at any time, their participation in the share capital of the credit institution, or dispose of the debt securities issued under this law, in whole or in part. 3 – the public disinvestment is carried out, in particular, in accordance with market conditions and to ensure adequate remuneration and guarantee the capital invested, taking into account the objectives of financial stability. Chapter II Strengthening of own funds article 9 Access and deliberations of society 1-access to public investment capital reinforcement depends on request of the Board, with the consent of the Supervisory Board. 2 – the Board of Directors can always depend on your initiative for access to public investment mandate given by the General Assembly and will, necessarily, if the measures to be taken on, in whole or in part, by decision of the general meeting.

3 – the mandate given by the General Assembly involves giving the Board of jurisdiction, with the agreement of the supervisory organ, take all the measures provided for in this law, including capital increases, without reliance on statutory limits that perhaps there may be established. 4 – The deliberations of the capital increase in the context of the strengthening of equity shall not apply the provisions of paragraph 3 of article 87 of the code of commercial companies. 5 – the resolutions laid down in the preceding paragraph produce immediate effect, without prejudice to the need to see the record of the minutes and to be entered in the commercial register. Article 10 of the COUNCIL of MINISTERS PRESIDENCY 8 Form and scope of the deliberations of the company 1 – the general meeting shall be convened specifically for the purpose referred to in paragraph 2 of the preceding article, at least a day, by notice published in mass circulation national daily newspaper or by electronic mail addressed to all the shareholders. 2 – the general meeting deliberates, for all intents and purposes provided for in this law, by a simple majority of the votes present and no quorum requirement of incorporation. 3-this article takes precedence over any legal or statutory provisions to the contrary. Article 11 Challenge of corporate resolutions 1 – The corporate resolutions relating to matters covered by this chapter shall not apply the provisions of paragraph 3 of article 397.º of the code of Civil procedure and presume that their suspension results very serious damage to society. 2 – the suspension of credit institutions corporate resolutions adopted within the framework of the strengthening of equity can only be requested by shareholders holding shares corresponding to at least 5% of the share capital of the credit institution. Article 12 Application 1-access to public investment capital reinforcement depends on nomination submitted by the credit institution concerned with the Banco de Portugal, duly motivated and educated with a capital enhancement plan. 2-the plan referred to in the preceding paragraph must contain, inter alia, the following elements: PRESIDENCY of the COUNCIL of MINISTERS the 9) objectives of strengthening of own funds, with an indication of the evolution, composition and structure of these own funds over the period of the plan, as well as the nature of the operations envisaged for their implementation; b) updated information about the assets and liabilities, as well as the ratios and prudential indicators on liquidity, asset quality and risk coverage; c) strategic Programming of activities throughout the duration of the plan, including possible changes in the structure of the group in the institution, and in particular, non-financial holdings, owned by same, and projections about the evolution of profitability, liquidity position and capital adequacy;



d) any adjustments to be made in the system of corporate governance and management mechanisms and control of risks, with a view to achieving the objectives of the plan. 3 – it is incumbent upon the Bank of Portugal to proceed to the examination of the application, and mail, within 10 working days, its proposal for a decision, duly substantiated, to the Member of Government responsible for the area of finance. 4-on the proposal for a decision, the Bank of Portugal pronounced, in particular, about the adequacy of assets of the credit institution concerned and on guarantees that the same offers from pursuing a sound and prudent business policy. 5 – the Bank of Portugal may request the credit institution concerned and additional information elements which are necessary for the assessment of the application.

PRESIDENCY of the COUNCIL of MINISTERS 10 6-the period referred to in paragraph 3 may be extended for an equal period if the complexity of the operation. Article 13 Decision 1-the Member of Government responsible for the area of finance, by order, to decide on the implementation of the capitalization operation, their terms, conditions and charges to assume the credit institution concerned. 2-in the weighting of the decision, the Member of Government responsible for the area of finance takes into account, inter alia, the contribution of the credit institution concerned for the financing of the economy and the need for strengthening of own funds.

3-the decision referred to in paragraph 1 may also fix the terms and conditions of public disinvestment, fulfilled the objectives of strengthening of own funds. 4-the decision referred to in paragraph 1 must be taken within five working days, renewable for an equal period if the complexity of the operation justifies, without prejudice to the Faculty of return of the application to the Bank of Portugal for clarification, in which case the term suspended. 5-the order referred to in paragraph 1 may be modified depending on the circumstances, in particular in the event of serious or systematic charges made by the credit institution. Article 14 obligations of credit institution 1-While the credit institution to meet within the public investment to strengthen own funds shall be subject to the terms, conditions and charges set out in the order provided for in paragraph 1 of the preceding article, in particular as regards: PRESIDENCY of the COUNCIL of MINISTERS the 11) the use of the means provided under strengthening of own funds in particular with regard to the credit institution's contribution to the financing of the economy, particularly to households and small and medium-sized enterprises; b) the adoption of principles of good corporate governance, which can include the enhancement of the number of independent directors; c) dividends distribution policy and remuneration of the holders of the management and supervisory bodies, as well as the possibility of introducing limitations to other compensations that benefit these holders, regardless of nature that are;

d) the adoption of measures to avoid distortions of competition; and) the possibility of be required the strengthening of contributions to deposit guarantee funds; f) the adoption of mechanisms that allow achieving disinvestment in public market conditions to ensure that an appropriate return on capital invested, thereby ensuring the protection of the interests of taxpayers. 2-While the credit institution to meet within the public investment for capital reinforcement, can, in the order provided for in paragraph 1 of the preceding article, be given the non-application of paragraph 1 of article 294 of the Código das Sociedades Comerciais. 3 – are zero the deliberations of bodies of the credit institution which contradict the commitments for this undertaken pursuant to this article. Article 15 Responsibility PRESIDENCY of the COUNCIL of MINISTERS



12 the liability of members of management and supervisory organs to society, to the partners and to the creditors for any action pursuant to this chapter shall only exist in case of fraud or serious misconduct. Chapter III public intervention on rehabilitation and Sanitation article 16 Part 1 intervention-where a credit institution is in a situation of financial imbalance due to present a level of own funds, solvency or liquidity below the legal minimum, the recovery and sanitation scheme provided for in articles 139 et seq. of the general scheme of credit institutions and financial corporations. 2-within the framework of the program of intervention provided for in article 142 of the general scheme of credit institutions and financial corporations, can the Bank of Portugal to propose State cooperation in the improvement of the credit institution through appropriate monetary support or enablement, with recourse to modes of capitalisation laid down in article 4 3-the implementation of the operation and the definition of their terms the charges, conditions and member of the Government responsible for the area of finance, by order. 4 – the order referred to in paragraph 1 provides for the matters referred to in article 14, the State may designate one or more members to the Supervisory Board of the credit institution, without the need for compliance with the statutory limit to the composition of those bodies, applying them the arrangement provided for in article 15 final provisions chapter IV, PRESIDENCY of the COUNCIL of MINISTERS 13 article 17 Financing measures for strengthening the financial soundness, as envisaged by this law have resources obtained by appropriations from the State budget and public debt up to the limit of 4 billion euros, in addition to the maximum amount laid down in article 109 of the law No. 67-A/2007, of December 31, approving the State budget for 2008.

Article 18 monitoring and supervision 1-without prejudice to the competence of other entities with inspectivas functions, the Bank of Portugal to monitor and supervise the fulfilment of the obligations of the credit institution established in despatches referred to in articles 14 and 16 2-implementation of the measures provided for in this law is evaluated with maximum monthly periodicity and includes individual reports on each of the credit institutions subject to , to refer to the Member of Government responsible for the area of finance. 3-every six months, the Member of Government responsible for the area of finance gives knowledge to Parliament of capitalisation operations carried out within the framework of this law and its implementation. Article 19 public interest going on disputes under the code of procedure in administrative courts of any standards issued in implementation of this law or any acts done in its scope, it is assumed that the adoption of precautionary measures relating to such standards COUNCIL PRESIDENCY of 14 MINISTERS or acts seriously harms the public interest, dismissing the resolutions referred to in paragraph 1 of article 128 of the code. Article 20 Competition 1-without prejudice to the international obligations of the Portuguese State is not considered concentrations the State acquisition of shareholdings or assets in credit institutions under this law.

2-While public intervention remains held under this law, whenever you are referred to the susceptibility of weighting of relevant economic interests, for the purposes of the legislation applicable to restrictive competition practices and operations of concentrations, must be considered for the protection of the public interest, the urgency inherent in performance in the financial sector, the circumstances relating to risk and asset situation of credit institutions in particular as regards solvency and liquidity, and its implications in the Portuguese financial system stability. 3-If the public intervention on rehabilitation and sanitation, provided for in chapter III, during a concentration in that any of the conditions referred to in paragraph 1 of article 9 of law No. 18/2003, of 11 June, this operation can be carried out before it was the subject of a decision of non-opposition on the part of the competition authority not depending on the validity of the legal transactions conducted in the context of this operation authorization, express or implied, that authority. Article 21 Revision 1 – this law can be reviewed at any time, in particular if financial market conditions so warrant or if this is necessary for reasons of coordination at the level of the euro zone and the European Union.

PRESIDENCY of the COUNCIL of MINISTERS 15 2 – without prejudice to the provisions of the preceding paragraph, the present law is reviewed within six months.

Article 22 the State References references in this Act to the State include companies whose capital is held directly or indirectly by the State. Article 23 Legislation the Member of Government responsible for the area of finance sets, by Ordinance, procedures for the implementation of this law, in particular: a) the definition of the level of own funds of credit institutions are to be achieved with the implementation of the operations of capitalisation; b) setting a minimum threshold for the priority higher than the dividend provided for in paragraph 2 of article 341.º the commercial companies code, in line with the benchmark adopted at European level; c) the terms and any additional elements of the plan to strengthen own funds provided for in paragraph 2 of article 12 article 24 Extinction measures strengthening the financial soundness of credit institutions ceasing when the public divestment is completed within a maximum of three years, PRESIDENCY of the COUNCIL of MINISTERS 16 can, exceptionally and in case market conditions so warrant , go to five years from the date of entry into force of this law.



Article 25 coordination with the system of warranties 1-access to public investment in the context of this law is independent of the resource by the credit institution the personal guarantees of the State pursuant to law No. 60-A/2008, of 20 October. 2-in the case of activation of guarantees laid down in the Ordinance which regulates the law referred to in the preceding paragraph, the conversion of loans into capital of the credit institution is carried out in accordance with the provisions of subparagraph (a)) of paragraph 3 and paragraph 4 of article 4, the institution concerned may be subject, inter alia, the obligations of article 6(1)(b)) and c) of paragraph 1 of article 14 and the designation of one or more administrators in accordance with provisional and with the powers provided for in article 143 of the general scheme of credit institutions and Financial Societies, assigned to the Member of Government responsible for the area of finance skills there assigned to the Bank of Portugal. 3-the provisions of this law regarding competence of organs of convening general meetings and corporate resolutions are applied within the framework of the activation of guarantees granted under law No 60-A/2008, of 20 October, and its regulation, and the capital increase for the State credit cast considered as capital increase in cash.

PRESIDENCY of the COUNCIL of MINISTERS 17 article 26 entry into force this law shall enter into force on the day following that of its publication.

Seen and approved by the Council of Ministers of 2 November 2008 the Prime Minister, the Minister of Parliamentary Affairs Minister Presidency