January 10, 2020 / 12:08 PM / 14 days ago

Slovenian central bank asks top court to rule on bank rescue compensation law

LJUBLJANA, Jan 10 (Reuters) - Slovenia’s central bank asked the country’s top court on Friday to decide whether a law passed in November that requires it to cover any losses to investors arising from the 2013 rescue of Slovenian banks breaches the constitution.

The Bank of Slovenia and the European Central Bank, of which it is part as a member of the euro currency, claim the legislation breaks European Union rules on monetary financing.

The finance ministry, which sponsored the law, says it is in line with a 2016 Constitutional Court ruling that urged parliament to give more legal protection to holders of bonds and shares who lost out when the government propped up the banks.

“The law violates the prohibition of monetary financing according to which central bank’s means cannot be used for tasks which are not the tasks of the central bank,” the Bank of Slovenia said in a statement on Friday.

“The generally accepted stand in the EU is that it is not a task of the central bank to save (commercial) banks.”

The central bank had said in October it would appeal to the Constitutional Court if the law was passed by parliament. Its challenge could prevent or significantly delay enforcement of the law.

In 2013, the government poured more than 3 billion euros ($3.31 billion) into mostly state-owned banks to keep them from collapsing under the weight of bad loans.

The effort, led by the Bank of Slovenia in cooperation with the government, the European Commission and the ECB, stopped Slovenia from needing an international bailout.

But some 600 million euros of subordinated bonds issued by the banks were scrapped, as well as bank shares held by around 100,000 investors, many of whom are now suing the banks and the central bank under the contested law to get their money back.

The rescued banks were later privatised.

$1 = 0.9020 euros Reporting by Marja Novak; Editing by Catherine Evans

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