EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 3 October 2008 
at the request of the Irish Minister for Finance  
on a draft Credit Institutions (Financial Support) Bill 2008 
(CON/2008/44) 
 
Introduction and legal basis  
On 1 October 2008 the European Central Bank (ECB) received a request from the Irish Minister for 
Finance for an opinion on a draft Credit Institutions (F inancial Support) Bill 2008 (hereinafter the ‘draft 
law’).  
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 law relates to a national cen tral bank (the Central Bank and Financial 
Services Authority of Ireland (hereinafter the ‘Central  Bank’)) and contains rules applicable to financial 
institutions insofar as they materially influence th e stability of financial institutions 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 provides that, as from 30 September 2008, the Minister for Finance (hereinafter the 
‘Minister’) may provide financial support in respect of the borrowi ngs, liabilities and obligations of 
any credit institution or subsidiary (including to the Central Bank or any person) which the 
Minister may specify by order where the Minister is of the opinion, after consulting the Governor 
of the Central Bank and the Irish Financial Se rvices Regulatory Authority (the ‘Financial 
Regulator’), that there is a serious threat to th e stability of credit institutions in Ireland generally
2. 
Such financial support may be provided in any fo rm and manner and determined by the Minister 
and on such commercial or other terms and conditions as the Minister thinks fit. The draft law 
contains provisions to the effect that all fi nancial support provided should be, as far as possible, 
ultimately recouped3. The draft law also contains provisions authorising the Minister to purchase 
shares in a credit institution or subsidiary  to which financial support is provided4. All money to be 
                                                 
1  OJ L 189, 3.7.1998, p. 42. 
2  See Sections 1 (definition of ‘financial s upport’), 2(1), 3 and 6(1) of the draft law. 
3  See Section 6(4) of the draft law. 
4  See Section 6(9) of the draft law. 
2 paid out may be paid out of Government funds5. Financial support would not be provided beyond 
29 September 20106. 
1.2 The draft law also provides that a notification of a merger or acquisition that involves a credit 
institution or subsidiary is required to be given to the Minister, and not to the Irish Competition 
Authority, in the case where the Minister is of the opinion that the proposed merger or acquisition 
is necessary to maintain the stability of the financial system in Ireland7. The Governor of the 
Central Bank and the Competition Authority will provide advice, information and assistance to the 
Minister regarding this matter8. The Minister may approve a merger or acquisition even if he is of 
the opinion that the result of the merger or acquisition will substantially lessen competition in 
markets for goods or services in Ireland but that the merger or acquisition is necessary for financial 
stability reasons9. 
 2. General observations 2.1 On 30 September 2008 the Irish Government annou nced that it has decided to put in place with 
immediate effect a guarantee arrangement to safegua rd all deposits (retail, commercial, institutional 
and interbank), covered bonds, senio r debt and dated subordinated de bt (lower tier II), with six 
explicitly named Irish credit institutions and such  specific subsidiaries as may be approved by the 
Government following consultation with the Cent ral Bank and the Financial Regulator. According 
to the announcement, this guarantee arrangement  will cover all existing aforementioned facilities 
with these institutions on 29 September 2008 and any new facilities issued thereafter, and will expire on 28 September 2010. 
2.2 The draft law is scheduled to be adopted under an accelerated parliamentary procedure, with the 
ECB consultation requested on an urgent basis. Ma ny of the provisions of the draft law are general 
in nature and will be implemented by means of  secondary legislation to be adopted by the 
Minister
10. This implementing legislation would, in the ECB’s understanding, contain draft 
legislative provisions that would flesh out the details of the draft law11. Consequently, the ECB 
expects to be consulted on any proposed implemen ting legislation to be adopted under the draft law 
that materially influences the stability of  financial institutions and markets.  
2.3 As a general matter, the ECB wishes to under line the importance it attaches to ensuring that the 
draft law and subsequent implemen ting legislation fully comply with the relevant provisions of 
Community law, in particular as regards competition (including in the area of cross-border bank mergers and acquisitions) and State aid rules, as well as EU financial services legislation and the 
                                                 
5  See Section 4 of the draft law. 
6  See Section 6(3) of the draft law. 
7  See Section 7(1) of the draft law. 
8  See Section 7(7) of the draft law. 
9  See Section 7(11) of the draft law. 
10  See Section 5 of the draft law. 
11  See definition of the ‘draft legislative provisions’ under Ar ticle 1(1) of Council Decision 98/415/EC together with the 
sixth indent of Article 2(1) of this Council Decision. 
3 single market principles. In this regard the E CB wants to point out that the measures announced by 
the Irish Government raise concerns as their r estriction to specifically named banks under the 
concept of safeguarding the Irish financial system appears to provide preferential treatment to these 
banks. The ECB understands that the Commissi on will assess and express its opinion on the 
compatibility of specific measures included in the draft law with Community law. The ECB 
expects that the Commission’s opinion will be appr opriately taken into account and reflected in the 
Irish legislative and regulatory framework adopted under the draft law.  
2.4 As a further general comment, the ECB notes that the Irish authorities have opted for an individual 
response to the current financial situation and not sought to consult their EU partners. In view of 
the similarities of the causes and consequences of the current financial distress across EU Member 
States and the potential interdependencies of polic y responses, it would have been advisable to 
properly consult other EU authorities on the envisaged legislative plans.  
2.5  A further point relates to the risks to the Government’s budgetar y position arising from any 
financial support to Irish credit institutions. While the ECB appreciates that any guarantees 
provided by the Minister under the draft law would be  contingent in nature, given that the financial 
exposure of the Irish State under such guarantees is  potentially very large, the Irish Government 
could be obliged to make significant payments in  case these guarantees are called over the next two 
years. At a point in time when the Irish budgetary position is deteriorating and may risk exceeding 
the 3 % of GDP reference value for public deficits, as specified under Community law12, this is a 
cause for concern, even when the provision of financial support would, under the draft law, as far as possible ultimately have to be recouped from th e credit institution or subsidiary in question. 
 3.  Central bank independence and the monetary financing prohibition 3.1 The draft law provides that the Minister may use th e financial support powers in the public interest, 
provided that, in the Minister’s assessment, made af ter consulting the Governor of the Central Bank 
and the Regulatory Authority, the statutory conditi ons for the exercise of such powers are met. In 
the exercise of the financial support powers, the Minister may further consult with the Governor of the Central Bank and the Regulatory Authority
13. Other provisions directly affecting the Governor 
and the Central Bank include, inter alia: (i) the possibility for the supported credit institution or 
subsidiary to receive financial support as regards its borrowings, liabilities and obligations vis-à-vis 
the Central Bank14; (ii) the possibility for the Minister to require the supported credit institution to 
comply with the requirements ‘imposed by the Central Bank or equivalent authority’15; and (iii) the 
consultative role which the Governor and the Cent ral Bank are to have in the exercise of the 
Minister’s powers in relation to merg ers and acquisitions in the banking sector16.  
                                                 
12  See Article 1 of the Protocol on the excessi ve deficit procedure, annexed to the Treaty. 
13  See Section 2(2) of the draft law.  
14  See Section 6(2) of the draft law. 
15  See Section 6(7) of the draft law. 
16  See Section 6(a) and Section 7(1)(a) of the draft law. 
4 3.2 The ECB notes that the draft law specifies that nothing in its provisions prevents the performance 
by the Central Bank or the Regulatory Authority of its functions in relation to any credit 
institution17. The ECB recommends that this provision is made more precise by including three 
additional stipulations, specifying that nothing in the draft law shall prejudice the: (i) performance by the Governor of his powers and functions with respect to the stability of the State’s financial 
system under the Central Bank Act 1942; (ii) pe rformance of any other functions and powers 
conferred on the Governor by the Treaty and the ESCB Statute; and (iii) compliance by the Central Bank with the prohibition of monetary fi nancing under Article 101 of the Treaty
18. In addition to 
reinforcing the Governor’s financia l stability role at a national level,  these clarifications would help 
to specify that the advice of the Governor is s ought with due respect paid to the responsibilities and 
tasks assigned to the Governor and the Central Ba nk within the ECB and the Eurosystem, including 
the independence required of the Governor and the Central Bank under the Treaty and the ESCB 
Statute19. 
3.3 The draft law contains a provision exempting char ges created by a credit institution in favour of the 
Minister, any agent of the Minister or the Central Bank from company law requirements relating to the registration of charges with th e Irish Companies Registration Office
20. In the Central Bank’s 
Eurosystem credit operations, the Central Bank m obilises much collateral, including mortgage and 
other loan portfolios of bank counterparties, by  means of a floating ch arge technique. Careful 
consideration would therefore need to be given to  the implications of this provision in connection 
with the collateralisation of the Central Bank’ s Eurosystem credit operations. The Central Bank’s 
current practice of disclosing its floating charges,  together with any negative pledges contained 
therein, through public registration with the Co mpanies Registration Office ensures that parties 
dealing with the Central Bank’s bank counterparti es have notice of any floating charge or negative 
pledge. This in turn ensures that in any wind ing-up or a receivership of such a company or 
counterparty the Central Bank would, subject to the claims of certain preferential creditors (if any), 
take priority over all other claims, including clai ms based on charges created subsequent to the 
creation of the floating charge. The ECB would like to stress that the financial interests of the Central Bank and the Eurosystem have to be pr eserved, and would therefore recommend that this 
provision be amended accordingly. 
                                                 
17  See Section 2(3) of the draft law. 
18  For example, ‘State guarantees … used as  collateral in connection with  emergency liquidity assist ance’ are subject to ‘the 
requirement that the supported credit in stitution remains solvent.’ See paragr aph 4.11 of ECB Opinion CON/2008/42 of 
10 September 2008 at the request of the Banque centrale du Luxembourg on amendments to the draft law improving the 
legislative framework for Luxembourg as a financial cen tre and amending the Law of 23 December 1998 on monetary 
status and on the Banque centrale du Luxembourg.  
19  See Article 108 of the Treaty and Article 7 of the ESCB Statute. 
20  See Section 6(17) of the draft law. 
5  
4.  Banking mergers and acquisitions and financial stability 4.1 The ECB has already taken the view in previous opinions on draft national legislation that ‘it is 
appropriate to maintain a clear distinction be tween procedures leading to antitrust and banking 
supervision decisions’
21 and that draft national laws should reflect in these circumstances ‘the 
principle of allocating powers to authoriti es in accordance with th eir respective objectives’22. In the 
present case, the above dual competence of the Mi nister for these banking mergers and the mere 
consultative or advisory role conferred on the Governor and the Financial Regulator23 as well as on 
the Competition Authority24, would conflict with these principles. 
4.2 Moreover, the ECB has pointed out in previous opinions the need to find a balance between ‘the 
potentially conflicting objectives of market comp etition and financial stability by introducing 
safeguards similar to those wh ich apply under Community law’25. While acknowledging that ‘cases 
might occur in which a banking merger would be necessary on stability groun ds, although it raises 
concerns for its effects on competition’26, the ECB stressed that these cases should remain 
‘exceptional’ and should ‘not unduly restrain competition’27. In such circumstances, the ECB 
suggested for instance that the national compe tition authority may be entitled to authorise 
concentrations on request of the [central bank] based on stability grounds28. The ECB would 
recommend that the prerogatives of the Minister under  the draft law be applied in accordance with 
the principle of proportionality an d with appropriate safeguards. 
                                                 
21  See paragraph 8 of ECB Opinion CON/2005/58 of 23 December  2005 at the request of the Italian Ministry of Economy 
and Finance on an amendment to the draft law on the protection of savings concerning the Banca d’Italia. 
22  See paragraph 4 of ECB Opinion CON/2007/17 of 18 June 200 7 at the request of the Italian Ministry of Economic 
Affairs and Finance on a draft law on the regulation and supe rvision of markets and the functioning of the competent 
independent authorities. 
23  Section 7(1)(a) of the draft law. 
24  Section 7(7) of the draft law. 
25  See paragraph 3(3), last sentence of ECB Opinion C ON/2006/51 of 3 November 2006 at the request of the Italian 
Ministry of Economic Affairs and Finance on a draft legi slative decree exercising powers delegated under the Law on the 
protection of savings. 
26  See paragraph 8, second sentence of ECB Opinion C ON/2005/58 of 23 December 2005 at th e request of the Italian 
Ministry of Economy and Finance on an amendment to the draft law on the protection of savings concerning the Banca 
d’Italia. 
27  See paragraph 3(3), second sentence of ECB Opinion C ON/2006/51 of 3 November 2006 at the request of the Italian 
Ministry of Economic Affairs and Finance on a draft legi slative decree exercising powers delegated under the Law on the 
protection of savings. 
28  See paragraph 8, last sentence of  ECB Opinion CON/2005/58 of 23 December 2005 at  the request of the Italian Ministry 
of Economy and Finance on an amendment to the draft law on the protection of savings concerning the Banca d’Italia. 
6  
4.3 Finally, the ECB notes that measures which are adopted with the aim of safeguarding financial 
stability should involve cooperation with the releva nt authorities of the Member States involved, in 
line with the applicable Community legislati on and the arrangements in place, such as the 
Memorandum of Understanding on cooperation between the financial supervisory authorities, 
central banks and finance ministries of the Eu ropean Union on cross-border financial stability29. 
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 3 October 2008. 
 
[signed]
   
The President of the ECB 
Jean-Claude TRICHET 
                                                 
29 As published on the ECB website, www.ecb.europa.eu.