EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 9 November 2009 
on the extension of the Irish State guarantee of certain liabilities of credit institutions 
(CON/2009/92) 
 
Introduction and legal basis  
On 22 October 2009 the European Central Bank (ECB) received a request from the Irish Minister for 
Finance (hereinafter the ‘Minister’) for an opini on on a draft Credit Institutions (Eligible Liabilities 
Guarantee) Scheme 2009 (hereinafter the ‘draft scheme’).  
The ECB’s competence to deliver an  opinion is based on Article 105(4) of the Treaty establishing the 
European Community and the third and sixth indents of Article 2(1) of Council Decision 98/415/EC of 
29 June 1998 on the consultation of the European Ce ntral Bank by national authorities regarding draft 
legislative provisions1, as the draft scheme relates to the stability  of Ireland’s financial system and the 
Central Bank and Financial Services Authority of Ire land (CBFSAI). In accordance with the first sentence 
of Article 17.5 of the Rules of Procedure of th e European Central Bank, the Governing Council has 
adopted this opinion. 
The ECB was consulted by the Minister on 18 June 2009 on a previous version of the draft scheme 
(hereinafter the ‘original draft scheme’). The ECB provided an opinion on the original draft scheme on 
25 June 2009 (Opinion CON/2009/56). The original dr aft scheme was not implemented and the draft 
scheme proposes to amend the original draft scheme in a number of respects as outlined below.  
 1.  Purpose of the draft scheme 
1.1 The draft scheme is made pursuant to the Credit Institutions (Financial Support) Act 2008 
(hereinafter the ‘2008 Act’). Financial s upport may only be granted under the 2008 Act until 
29 September 2010 or a later date as  specified by the Minister, after consulting the Governor of the 
CBFSAI and the Irish Financial Services Regulatory Authority. The draft scheme will, inter alia , 
provide credit institutions with access to a stable  funding stream and to longer term funding from 
the capital markets in order to maintain the stability of the Irish financial system
2.  
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2  Paragraphs 1 and 2 of the schedule to the draft scheme. 
2 1.2 Under the draft scheme, credit institutions and th eir subsidiaries which are systemically important 
and solvent may apply to the Minister to become participating institutions.3 The eligible liabilities 
of the participating institutions will be guar anteed by the Minister under the draft scheme4. Eligible 
liabilities are deposits (to the extent not covered by deposit protection schemes in Ireland (other 
than the Credit Institutions (Financial Support) Sc heme 2008 (hereinafter ‘the existing scheme’) or 
any other jurisdiction), senior unsecured certificat es of deposit, senior unsecured commercial paper, 
other senior unsecured bonds and notes and other forms of senior unsecured debt which may be 
specified by the Minister, and which are consistent  with EU State aid rules and with the European 
Commission’s Banking Communication, subject to prior consultation with the Commission5. 
Eligible liabilities must also satisfy the specified eligibility criteria in that they must have a 
maximum maturity of five years and must be incurred during the period from the commencement date, being the date specified by the Minister as such (hereinafter the ‘commencement date’) and 
29 September 2010 (hereinafter the ‘issuance period’)
6.  
1.3 The Minister must review the draft scheme no less frequently than at six-month intervals, the 
results of which are to be provided to the European Commission7. The Minister will monitor the 
amount of eligible liabilities guaranteed under the draf t scheme, and will also be able to vary its 
terms; however, any such variation will not affect any guarantee of a liability in issue at the date of 
that variation8. The draft scheme states that a fee shall be payable to the Minister or his nominee by 
each participating institution in respect of each gua ranteed liability, which shall be consistent with 
the recommendations of the Governing Council of  the ECB on government guarantees for bank 
debt of 20 October 2008 (hereinafter the ‘E CB’s recommendations on government guarantees’), as 
further discussed in paragraph 3.1 of this opinion. It  also states that the basis for the calculation of 
the fee shall be advised by the Minister to the participating institutions from time to time9.  
1.4 The draft scheme allows a participating ins titution to incur eligible liabilities which are not 
guaranteed liabilities10. 
1.5 The draft scheme provides that eligible liability guarantees shall terminate five years after the end 
of the issuance period11.   
 
                                                 
3  Paragraph 3 of the schedule to the draft scheme.  
4  Paragraph 10 of the schedule to the draft scheme.  
5  Paragraph 11 of the schedule to the draft scheme.  
6  Paragraph 12 of the schedule to the draft scheme.  
7  Paragraph 5 of the schedule to the draft scheme.  
8  Paragraphs 6 and 13 of the schedule to the draft scheme.  
9  Paragraph 19 of the schedule to the draft scheme.  
10  Paragraph 9 of the schedule to the draft scheme.  
11  Paragraph 18 of the schedule to the draft scheme.  
3 2. General observations 
The ECB has issued opinions on the 2008 Act12, the existing scheme13 and the original draft scheme. It 
underlines that its recommendations in relation to th e draft scheme should be taken together with the 
recommendations expressed in the abovementioned opinions.   
 3. Specific observations 3.1 Fee arrangements 
 The ECB notes that the fee arrangements in the draft scheme provide that a fee is to be paid by 
participating institutions to the Minister or his nominee in respect of each guaranteed liability. The 
draft scheme states that this fee shall be consistent with the ECB’s recommendations on 
government guarantees and any Eurosystem guidelines and in accordance with EU State aid rules 
or such other rules as may be applicable. The E CB notes that the draft scheme provides that fees 
shall be consistent with the ECB’s recommenda tions on government guarantees, and recommends 
that, in the interests of legal certainty, the re ference to the ECB’s r ecommendations on government 
guarantees and any Eurosystem guidelines should  be deleted. Such recommendations and 
guidelines are not legal acts and may be subject to revision
14. Furthermore, for the sake of 
transparency, a more precise indication should be given on the method to be used to calculate the 
fees.  
3.2 Scope of the guarantees and implementa tion of Eurosystem monetary policy  
 The ECB takes the opportunity of this opinion to reiterate the points made in its previous opinions 
and to reemphasise the key elements of the Declara tion issued by the Heads of State of the euro 
area on a concerted European action plan of  the euro area countries (hereinafter the 
‘Declaration’)15. In addition, the ECB reminds the consulting authority of the ECB’s 
recommendations on government guarantees. Concerning the Declaration, the Heads of State acknowledged the need to cooperate with the ECB to  ensure consistency in liquidity management 
by the Eurosystem and compatibility with the Eu rosystem’s operational framework and pointed out 
that, with a view to ensuring a sufficiently level playing field, uncoordinated decisions among Member States should be avoided as they may in volve a fragmentation of the euro area money 
market. Against this background, th e ECB has the following observations. 
3.3 The extension of a guarantee to cover interbank deposits should be avoide d as this could entail a 
substantial distortion in the various national segment s of the euro area money market by potentially 
increasing short-term debt issuance activity across Member States and impairing the implementation of the single monetary policy, wh ich is a unique competence of the Eurosystem 
                                                 
12  ECB Opinion CON/2008/44. 
13  ECB Opinion CON/2008/48. 
14  See paragraph 3.2 of ECB Opinion CON/2008/67.   
15  The text of the Declaration is available on the fo rmer French Presidency’s website at www.ue2008.fr. 
4 under Article 105(2) of the Treaty. The ECB has expressed this particular concern in a number of 
opinions delivered to the authorities of Member States, including Ireland16. 
 Furthermore, in line with the Declaration, the ECB reminds the consulting authority that the euro 
area governments committed themselves to making available for an interim period a Government 
guarantee of new medium-term (up to five years) bank senior debt issuance. In the same vein, the 
ECB’s recommendations on government guarantees st ate that ‘Government guarantees on short-
term bank debt with maturity of three to 12 months  could be provided so as to help revitalise the 
short-term bank debt market.’ Moreover, it is no ticeable that under the draft scheme there is no 
stated minimum maturity for any guaranteed liab ilities which means that liabilities with a maturity 
of less than three months may be guaranteed in practice.  
3.4 The ECB notes that the guarantee provided for in  the draft scheme is to cover all deposits and 
short-term debt. In this regard, the ECB notes the points made by the consulting authority on why it 
considers it necessary that short-term funding with a maturity of up to three months can continue to 
benefit from a State guarantee. In summary, it advanced the following points: (i) notwithstanding the improvement in liquidity conditions overall ove r recent months, credit institutions in Ireland 
remain subject to liquidity pressures; (ii) because  the existing scheme covers interbank deposits and 
obligations of less than three months duratio n, a transitional phase is necessary so that the 
guarantees in respect of such funding can be phased out in an orderly fashion; and (iii) it will be possible for participating institutions to i ssue unguaranteed deposits, a strategy which is 
encouraged by way of the fee arrangements provided for under the draft scheme.   
3.5 The ECB acknowledges the significant challenges cu rrently faced by the banking sector in Ireland 
and notes the points made by the consulting aut hority referred to above. However, granting 
government guarantees for bank debt with a maturity  of less than three months should be avoided 
to the extent possible. The ECB reiterates that it is essential that the scheme will not impair the 
implementation of the single monetary policy throughout the euro area. 
3.6 Finally, the ECB notes that the draft scheme provi des that the Minister shall review the scheme and 
its rules no less frequently than at six-month inte rvals from the commencement date to ensure that 
it is achieving the purposes of the Act. The results  of such reviews are to be provided to the 
European Commission which must approve the c ontinued operation of the draft scheme on a six-
monthly basis. The ECB welcomes the fact that the draft scheme is specifically stated to terminate 
five years after the end of the issuance period. As  previously stated, the ECB emphasises that, in 
                                                 
16  See paragraph 3.7 of ECB Opinion CON/2008/48; paragra ph 3.2 of ECB Opinion CON/2008/50; paragraph 3.3 of ECB 
Opinion CON/2008/50; paragraph 3.4 of ECB Opinion C ON/2008/52; paragraphs 2.3 and 2.4 of ECB Opinion 
CON/2008/54; paragraph 3.5 of ECB Opinion CON/2008/ 55; paragraph 3.2 of ECB Opinion CON/2008/56; 
paragraph 3.4 of ECB Opinion CON/2008/57; paragraph 3. 2 of ECB Opinion CON/2008/58; paragraph 3.3 of ECB 
Opinion CON/2008/59; paragraph 2.1.2 of ECB Opinion CON/2008/62; paragraph 2.1 of  ECB Opinion CON/2008/65; 
paragraph 3.3 of ECB Opinion CON/ 2008/67; paragraph 3.4 of ECB Opini on CON/2008/68; paragraph 3.3 of ECB 
Opinion CON/2008/76, paragraph 3.2 of ECB Opinion C ON/2008/79; paragraph 3.2 of  ECB Opinion CON/2008/80; 
paragraph 3.5 of ECB Opinion CON/ 2008/81; paragraph 3.1 of ECB Opini on CON/2008/88; paragraph 3.3 of ECB 
Opinion CON/2009/2; paragraph 2.3 of ECB Opinion C ON/2009/6; paragraph 3.2.2 of ECB Opinion CON/2009/12; 
paragraph 3.3.2 of ECB Opinion CON/ 2009/18; paragraph 2.4 of ECB Opinion CON/2009/28; paragraph 3.4.3 of ECB 
Opinion CON/2009/32; paragraph 3.9 of ECB Opinion CON/2009/49. 
5 accordance with the Declaration, harmonisation re garding the expiry of the various financial 
support measures within a particular country and the national financial support schemes across the 
EU is of crucial importance in orde r to ensure a level playing field17. 
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 9 November 2009. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET 
                                                 
17  See ECB Opinion CON/2009/6.