Governor’s open letter to the President of the Republic of Slovenia

03/22/2018 / Press release

Dear Mr President, I am writing to you in connection with the statement by your advisor, Dr France Arhar, as quoted in today’s issue of Delo, in an article titled “Parties favour a review of bank recovery” (or “Politicians delay discussion of the governor until after the elections” in the online version).

Dr Arhar, your advisor, gave the following quote in today’s Delo in connection with SD’s manifesto, which states that the mistakes that happened during the bank recovery in 2013 need to be rectified, and announces a review of the recovery project: “Each candidate for the position of governor will have to answer the question of how he or she sees the recovery story. I also said this to the president, who now faces the search for a new governor. We also sent a letter from the office of the president to those who suffered during the bank recovery, in which I stated my opinion that a settlement is worthy of consideration.”

I believe that a move such as this by your office or your advisor – as described in the quote in the newspaper – would be intolerable.

The former holders of subordinated instruments and shares in banks that underwent write-down as a result of extraordinary measures during the bank recovery initiated numerous judicial proceedings against the Bank of Slovenia before the ordinary courts, and also before the Constitutional Court, challenging the legality and constitutionality of the extraordinary measures. In October 2016 the Constitutional Court unanimously confirmed that the articles of the Banking Act (the ZBan-1) that formed the legal basis for the Bank of Slovenia’s extraordinary measures of 2013 and 2014 were constitutional. The Constitutional Court did give the legislator additional instructions to adopt more effective judicial relief for holders of qualified bank credit that underwent write-down, once the ordinary courts have established whether the Bank of Slovenia acted lawfully in the treatment of subordinated debt. A law governing effective judicial relief for holders of qualified bank credit has not yet been adopted, and the legislator is almost a year late in its adoption.

To date there has not been corroboration in any court proceedings or any other official proceedings of the accusations that irregularities of any kind were committed in the bank recovery in 2013 and 2014, or that anyone suffered any unlawful deprivation. Neither was any evidence presented to reasonably indicate any irregularities in Bank of Slovenia procedures. It is therefore intolerable that your office, which should act as the defender of the constitutional order and the rule of law, should be the source of claims of irregularities in the bank recovery or of deprivation of the former holders of subordinated instruments and shares in banks. On this basis, any calls for a settlement by the president are premature and unjustified.

I am not acquainted with the content of the letter that according to the statements of Dr Arhar was sent by your office (we did ask your office for it), and no-one from your office has ever, even now, approached the Bank of Slovenia for information in connection with the recovery or for its views.

The statements can also be interpreted as putting pressure on the Bank of Slovenia, and on the candidates for the position of governor who would judge the Bank of Slovenia’s conduct in connection with the recovery to be fit and proper. Such prejudicing and exclusion of candidates who would judge the Bank of Slovenia’s actions and the recovery in 2013 to be successful, on the basis of the crude and unjustifiable conclusions cited by Dr Arhar, is unacceptable.

Insofar as your office is proposing a settlement in respect of the Bank of Slovenia, it should be highlighted that in the responsible performance of its tasks the Bank of Slovenia could never agree to a settlement of any kind in relation to the former holders as a result of measures that were lawfully and properly implemented within the framework of the bank recovery. Insofar as your office recommends a settlement for the former holders in relation to the state, it should be noted that this action could be problematic from the perspective of state aid procedures, and could additionally have an adverse impact on the commitments given by the government with regard to the status and operations of certain banks. Not least, it could have an adverse impact on the actual negotiations being conducted with the European Commission by the government.

I anticipate that the Ministry of Finance will also respond in this connection, as there is a need to prevent additional damage to NLB. It is intolerable for your office to defend the particular interests of the former holders of subordinated instruments and shares in banks, while completely neglecting the legitimate interests of all taxpayers who contributed to the successful recovery of the banking system.

Any announcement of settlements could also be interpreted as an intention to cease all debate and all procedures for determining responsibility for the situation in which the Slovenian banking system found itself in 2013 to even require recovery. These undoubtedly include the pre-recovery governments, in particular your government, while the fact is that Dr Arhar was president of NLB’ supervisory board at the time of the recovery.

The statements given to Delo by Dr Arhar from your office could be interpreted by the public as an unambiguous condemnation of the individuals involved in the recovery in 2013 and 2014. Indirectly discrediting the Bank of Slovenia and the individuals who were involved in the processes is intolerable, as it completely ignores the reasons that action was required. This cannot stand, and is particularly problematic in the context of the threats that I have been receiving this week.

The bank recovery of 2013 and 2014 made a key contribution to the turnaround and stabilisation of the economic situation in Slovenia. It was carried out in accordance with applicable legislation, which envisaged burden-sharing with the aim of protecting taxpayers. This means that part of the requisite capital for the banks that we saved from collapse was to be contributed by shareholders and holders of the banks’ subordinated bonds. The cost of the recovery to the taxpayers was lower as a result of these contributions. The Bank of Slovenia feels that legal protection for the holders of qualified bank credit, as required by the Constitutional Court, should be provided as soon as possible. I should reiterate: the bank recovery would have been cheaper, had the governments, your government in particular, provided the requisite capital to the largest banks in the country in timely fashion, and met the requirements of the Bank of Slovenia.

I call on you to repair the damage that been done, and to not allow confidence in the institutions of the state to be destroyed, particularly inside your own office.

Boštjan Jazbec, Governor of the Bank of Slovenia