EN ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 9 December 2014  
on amendments to the Law on the bank deposit guarantee  
(CON/20 14/86) 
 
Introduction and legal basis  
On 14 November 2014,  the European Central Bank (ECB) received a request from Българска народна 
банка (the Bulgarian National Bank ) (BNB)  for an opinion on a draft law amending the Law on the bank 
deposit guarantee (hereinafter the ‘draft law’).  
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioni ng of the European Union and the third and sixth indents of Article  2(1) of Council 
Decision  98/415/EC1, as the draft law relates to the BNB and to rules applicable to financial institutions 
insofar as they materially influence the stability of financial i nstitutions and markets . In accordance with 
the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing 
Council has adopted this opinion.  
 
1.  Purpose of the draft law  
1.1  The draft law amends  the Law on the bank deposit guarantee by introducing new measures to 
address the financ ing of a shortfall in the financial resources  of the Bulgarian Deposit Guarantee 
Fund (hereinafter ‘the Fund’) .  
1.2  Pursuant to the Law on the bank deposit guarantee, each bank is obli ged to pay an annual 
premium to the Fund equal to 0.5 % of its total deposit base for the preceding year, as determined 
on an average daily basis. If  there is a shortfall in the Fund’s  financial resources, its  board of 
management  may decide to establish a higher annual premium of up to 1.5 % of a bank’s  total 
deposit base.  
1.3  The draft law provides that in the event that the Fund’s financial resources are insufficient to cover 
its liabilities under the Law on the bank deposit guarantee, its board of management must , within 
three days of identifying the shortfall, t ake a decision to cover the shortfall by increasing the annual 
premium up to a limit  of 2 % of each bank’s  total deposit base,  for a period of up to 3 years. The 
Fund’s board of management  will require  the banks  to make  such annual premium payments  in 
advance, within a set period of time and at an increased rate.  The amount payable in advance by 
each bank is to be deducted from the annual premium due for the following years. The amount that 
                                                 
1  Council Decision 98/415/EC of 29  June 1998 on the consultation of the European Central Bank by national authorities 
regarding draft legislative provisions ( OJ L 189, 3.7.1998, p. 42) . 
ECB -PUBLIC  
2 has been overcharged will be refunded within the time limit set out in the Law on the bank deposit 
guarantee.  
1.4  The draft law further stipulates that , in the event of an additional shortfall  after the measure 
described in  paragraph 1.3 above has been applied , the BNB must  cover the additional shortfall 
within 10 days. The BNB is obliged to provide a loan to the Fund in the amount required to cover 
this additional shor tfall, at the basic interest rate applicable at that time. The loan will be provided 
out of t he financial resources of the BNB’s Banking Department and from the BNB’s ‘ reserve ’. 
1.5  Pursuant to the draft law , the Fund is also authori sed to obtain loans from Bulgarian and foreign 
banks in accordance with the terms and conditions set out by its  board of management . Loans 
obtained by the Fund may be secured on its assets, including future claims on banks for annual 
premium s. 
 
2. Prohibition o n monetary financing  
2.1 The ECB underlines the importance of safeguarding compliance with the prohibition on  monetary 
financing laid down in Article 123(1) of the Treaty . This  prohibits central banks from providing 
overdraft facilities or any other type of credit facility to the public sector, including any financing of 
the public sector’s obligations vis -à-vis third parties . 
2.2 The ECB has consistently emphasised that the only compatible forms of central bank financing of a 
national deposit guarantee scheme for credit institutions  are: (a) intraday credit in line with the 
general rules on provision of such credi t by the central bank ; and (b) short -term emergency liquidity 
financing under strict conditions established in the ECB’s convergence reports, i.e. if such funding 
is short term, addresses urgent situations, systemic stability aspects are at stake and decis ions are 
at the central bank’s discretion2. Provisions to this effect  need to be inserted  into the draft law3. The 
draft law does not contain such  conditions  and makes no reference to the maximum duration of a 
loan provided by the BNB to the Fund . Therefor e, the BNB’s obligation to provide a loan to the 
Fund in an amount required to  cover the additional shortfall in the Fund’s financial resources is 
incompatible with the prohibition on  monetary financing.  
 
3. Central bank independence  
3.1 The draft law  provides that  the loan that the BNB is obliged to provide to the Fund should  be 
granted from the financial resources of the BNB’s Banking Department and from the ‘ reserve ’. The 
draft law does not provide any indication  as to what t his ‘reserve ’ contains . Furth ermore,  the draft 
law does not provide for an upper  limit on the value of the loan and does not provide the BNB with 
the discretion  to decide  whether or not to grant  the loan.  
                                                 
2  See the ECB’s Convergence Report  2014, p. 31 , and in particular paragraph 3.1.3 of Opinion CON/2011/76.  All ECB  
Opinions are available on the ECB’s website at www.ecb.europa.eu.  
3  See paragraphs 2.2 to 2.8 of Opinion CON/2008/5.  
ECB -PUBLIC  
3 3.2 The draft law impairs the institutional  and financial independence of the BN B and may also impair 
its functional independence . In this respect, the following elements are relevant. First, it interferes 
with the investment, management and reporting of reserves , which is  a task of the BNB under  the 
Law on the BNB in order to guarant ee the soundness of the national currency and the fixed 
exchange rate in Bulgaria4. Second,  depending on the amount of the loan and the period of time 
for which it is granted, which remain unspecified in the draft law,  granting such a loan may 
considerably  limit the financial resources available to the BNB and its reserves , posing a threat to 
the performance of its tasks  relating to the European System of Central Banks , as well as to  the 
stability of the currency board in Bulgaria and thus to the BNB’s  price stability  mandate.  Third, t he 
provision specifying the exact source within  the BNB’s financial resources to  be used by the BNB to 
grant  a loan to the Fund interferes  with the BNB’s powers to administer its own financial resources . 
 
4. Financing by credit  institutions of a shortfall in the financial resources of the Fund  
4.1 The draft law provides for ex -post contributions by member banks to be paid in advance in the 
event that the Fund’s resources are insufficient to cover its liabilities5. In this respec t, an 
adequately funded deposit guarantee scheme provides protection for smaller depositors, while 
enhancing financial stability. Sound funding arrangements ensure an effective deposit guarantee and foster the maintenance of public confidence.  
4.2 The ECB supports the requirement that banks pay increased annual premiums and make such payments in advance where the Fund’s available financial resources are insufficient to repay depositors. Indeed, as stated in earlier ECB opinions
6, an ex -ante funding scheme s hould also 
include  the possibility to call on the private sector for additional financial support, as pre- collected 
funds from the industry may be insufficient in a crisis situation. The ECB notes that the principle of ex-post financing from the private sector should promote additional market discipline and address 
the risk of moral hazard.  
4.3 Nevertheless, the ECB recommends that the measures described in paragraph 1.3 above should be carefully assessed as they have the potential to influence the stabilit y of credit institutions and 
the banking sector. In particular, too high ex -post funding requirements might become procyclical, if 
required during an economic downturn. In this vein, Directive 2014/49/EU of the European 
Parliament and of the Council
7, sche duled for transposition into national law by mid- 2015, 
envisages extraordinary contributions by credit institutions of up to 0.5 % of covered deposits per 
calendar year, unless higher contributions are warranted due to exceptional circumstances  with the 
consent of the competent  authority8. Furthermore, it contains a provision according to which the 
competent  authority may defer, in whole or in part, a credit institution’s payment of extraordinary 
                                                 
4  See Chapter s II and V of the Law on the BNB.  
5  See paragraph 1.3 above.  
6  See paragraph 3.2.2 of ECB Opinion CON/2011/76 and CON/2011/12.  
7  Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes 
(OJ L 173, 12.6.2014, p. 149).  
8  See Article 10(8) of Directive 2014/49/EU.  
ECB -PUBLIC  
4 ex-post contributions if such contributions  would jeopardise its liquidity or solvency9. In accordance 
with these observations, the ECB recommends that the powers under the draft law be exercised in 
a manner ensuring a well -funded deposit guarantee scheme,  while preserving credit institutions’ 
ability to maintain sufficient liquidity and regulatory capital.  
4.4 The ECB notes that additional temporary financing going beyond the ex -post contributions by the 
member credit institutions may be needed in a severe crisis requiring, for example,  activation of 
deposit guarant ees for a major credit institution10. While the primary responsibility for adequately  
funding the deposit guarantee scheme should lie with  the banks11, opportunities  for backup funding 
for liquidity purposes may be available, e.g. market borrowing by the Fund (possibly supported by a 
government guarantee) or a line of credit from the G overnment. The ECB understands  that the 
authorities are currently taking steps to make  available to the Fund a significant line of credit from 
the central budget that is secured on assets of the Fund, including future claims against banks for 
annual premium s12. 
 
This opinion will be published on the ECB’s website.  
  
Done at Frankfurt am Main, 9  December  2014.  
 
[signed]  
 
The President of the ECB  
Mario DRAGHI  
                                                 
9  See Article 10(8) of Directive 2014/49/ EU. This principle is also applied in related areas of Union law (see Article 104(3) of 
Directive 2014/59/EU  of the European Parliament and of the Council of 15  May 2014 establishing a framework for the 
recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and 
Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and 
Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament a nd of the Council 
(OJ L 173, 12.6.2014, p. 190) . 
10  See paragraph 3.2.2 of ECB Opinion CON/2011/76.  
11  See Essential Criterion no. 3 of Principle 11 of the Basel Committee on Banking Supervision/International Association of 
Deposit Insurers , ‘Core Principl es for Effective Deposit Insurance Systems’, December 2010.  
12  See paragraph 5 of the draft law amending and supplementing the Law on the s tate budget  of the Republic of Bulgaria 
2014, available on the Bulgarian National Assembly ’s website at www.parliament.bg.