ECB threatens Slovenia after central bank police raid

Markets | Thu Jul 7, 2016 7:58am EDT

Related: Financials

UPDATE 3-ECB threatens legal action against Slovenia after police raid

(Updates with Slovenian police comment in paragraph 3)

By Marja Novak and Balazs Koranyi
http://www.reuters.com/article/slovenia-cenbank-idUSL8N19S1YQ

The European Central Bank threatened to take legal action against Slovenia after police seized documents from the country's central bank in a rare conflict between authorities and one of the euro zone's most respected institutions.

ECB President Mario Draghi said late on Wednesday that he deplored the seizure, which infringes on the ECB's legal privileges and immunities, and called on European Commission President Jean-Claude Juncker to intervene.

The Slovenian police said on Thurday the Bank of Slovenia and its employees did not enjoy privileges which would exempt it from investigation in pre-criminal procedures.

It added that the people who are being investigated did not act in the name of the European Union but as officials of a Slovenian institution.

Slovenian police conducted an investigation in four locations in Ljubljana on Wednesday, including at the central bank, collecting evidence in a pre-criminal investigation related to possible irregularities during a bank overhaul in 2013.

"Seized equipment contains ECB information and such information is protected under directly applicable primary EU law," Draghi said in a letter to the Slovenian State Prosecutor General. "The ECB will also explore possible appropriate legal remedies under Slovenian law."

The ECB said police seized information on the computers of Bank of Slovenia Governor Bostjan Jazbec, who sits on the ECB's rate-setting Governing Council, as well as a former deputy governor and some staff members.

Slovenian police said the investigation related to an assessment of one of the banks rescued by the state in 2013, which meant the bank could scrap its obligations towards holders of subordinated bonds and subordinated debt to the value of 257 million euros.

In 2013 the previous government had to pour more than 3 billion euros ($3.33 billion) into local banks to prevent them collapsing under a large amount of bad loans. The move helped the country narrowly avoid an international bailout.

As part of the bank overhaul about 600 million euros of subordinated bonds were scrapped in five banks.

In 2014, the Slovenian Association of Small Shareholders filed several court cases against the Bank of Slovenia and local banks, claiming the subordinated bonds and shareholders' capital in rescued banks should not have been erased. None of the cases have yet been finished.

The Bank of Slovenia had repeatedly rejected allegations that it mishandled data used when putting together a rescue package for Slovenia's banks. ($1 = 0.9011 euros) (Editing by Ralph Boulton)