EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 13 April 2010 
on the amendment to the Law on credit institutio ns and financial undertakings introducing further 
financial market stabilisation measures 
(CON/2010/31) 
 Introduction and legal basis
 
On 11 March 2010, the European Central Bank (ECB) received a request from the Hungarian Ministry of 
Finance for an opinion on a draft law amending the Law on credit institutions and financial enterprises1 
(CIFE) and the Law on the Financial Supervisory Authority (FSA)2 (hereinafter referred to as 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 
Functioning of the European Union and the third and sixth indent of Article 2(1) of Council Decision 
98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national authorities 
regarding draft legislative provisions3, as the draft law relates to the Magyar Nemzeti Bank (MNB) and 
rules applicable to financial institutions in so far as they materially influence the stability of financial 
institutions and markets. In accordance with the first sen tence 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 is motivated by the financial mark et crisis and, in particular, the need to avoid 
potential systemic risks, thus maintaining c onfidence in the national financial system and 
enhancing its stability and solvency. Ensuring the un interrupted operation of key banking services 
is important to maintain investor confidence, wh ile the interests of the individual institutions and 
that of the public need to be balanced. The H ungarian Government has already taken steps to 
stabilise the financial markets
4. The provisions of the draft law aim at strengthening the supervisory 
framework by providing the FSA with enhanced powers in crisis prevention and resolution. 
                                                 
1  Law CXII of 1996, Magyar Közlöny , 1996/109 XII. 12. 
2  Law CXXXV of 2007, Magyar Közlöny,  2007/162 XI. 28. 
3  OJ L 189, 3.7.1998, p. 42. 
4  For previous stabilisation measures taken by the H ungarian Government see ECB Opinions CON/2009/28 and 
CON/2008/81. All ECB opinions are available on  the ECB’s website at  www.ecb.europa.eu. 
2 1.2 Against this background, the draft law enhances th e supervisory and resolu tion powers of the FSA 
by providing, inter alia , for: (i) a recovery plan for the fina ncial institutions; (ii) the possibility of 
appointing a supervisory commissioner and his/her tasks; (iii) specific procedures aimed at financially distressed financial institutions, including, inter alia , the transfer of assets and liabilities 
from a credit institution and the possible establishm ent of a ‘bridge bank’ based on a Government 
decision; (iv) basic valuation principles and pro cedures to determine the acquisition value of assets 
and liabilities; (v) the rules and conditions for co mpensating a credit institution; (vi) the possible 
legal remedies against certain FSA decisions ; (vii) specific administrative deadlines.  
1.3 The draft law specifies qualitative and quantitative th resholds triggering FSA specific powers that 
would increase in intensity, depending on the serious ness of the situation of the ailing financial 
institution. Under the new proposed Article 151(4) of the CIFE to maintain the stability of the 
financial intermediary system and to protect the interest of depositors and account holders, and to 
minimise public expenditure, the FSA will be liable to take the exceptiona l and necessary measures 
subject to the fulfilment of each of the following conditions: (i) the owners of a credit institution 
refuse to cooperate with the FSA or the supervis ory commissioner; (ii) the credit institution is 
likely to fail to fulfil its obligations; (iii) th e credit institution’s insolvency would potentially 
jeopardise the stability of the financial system; and (iv) other measures taken by the FSA have 
failed to achieve their purpose.  
1.4 Moreover, the draft law establishes a legal frame work which would enable the FSA to transfer 
assets and liabilities from the balance sheet of a syst emically important credit institution to either 
another credit institution or to a wholly State-owne d special purpose bank, i.e. a ‘bridge bank’ to be 
established as explained in paragraph 2.2 below. 
 2.  General observations  2.1 The ECB has issued a number of opinions at the request of the Member States on national 
measures adopted in response to the global fina ncial crisis. The ECB invites the Ministry of 
Finance to take into account the relevant  observations made in its recent opinions
5 on similar draft 
legislative provisions in other Member States, so me of which are repeated below. The ECB also 
refers to the importance of the gui dance provided by the Ecofin Council6, as well as the Declaration 
issued by the Heads of State of the euro area7. In particular, the ECB emphasises that any initiatives 
put in place by the competent national authorities to restore confidence in the financial markets 
should be coordinated and should aim to implement the common principles, in a spirit of close cooperation with other Member States and the Uni on institutions. As a general remark in this 
                                                 
5  See Opinions CON/2009/34,  CON/2010/7 and CON/2010/12. 
6  For guidance to the Member States in the conclusions of  the Ecofin meeting see ‘Imme diate responses to financial 
turmoil’, Ecofin Council Conclusions of 7 Oct ober 2008, available on th e Council’s website at 
www.consilium.europa.eu.  
7  The text of the Declaration of 12 Oc tober 2008 is available on th e former French Presidency ’s website at www.ue2008.fr.  
3 context, the ECB, in line with its previous opinions8, notes the importance of a transparent and 
predictable framework as regard s the parameters of and limitations to the exercise by the 
authorities of their powers. 
2.2 Under the new legal framework proposed by the dr aft law, the FSA will have  the right to transfer 
assets and liabilities from the balance sheet of a systemically important credit institution to a sound institution, that is to another operational cr edit institution or to a newly established and 
organisationally and financially independent br idge bank, wholly owned by the State and 
separately established for this specific purpose.  The establishment of a bridge bank may be 
necessary if, at the relevant time, no credit institu tion is available on the market to take over the 
assets and liabilities of an ailing credit institution. The ECB welcomes the introduction in the draft law of the option of addressing a possible crisis situa tion through the transfer of a distressed bank’s 
assets and liabilities to a bridge bank. The Eurosy stem highlighted the importance of such a 
resolution tool in ensuring the continuity of essen tial business operations of systemically important 
credit institutions when replying to the Commission’ s initial analysis of the possible orientation of 
a future Union framework for cr isis management and resolution
9. The availability of a bridge bank 
is recognised as part of the trend towards enhanced  convergence of national legal schemes for crisis 
management and resolution developing at  both international and European level10. Taking the 
growing inter-dependencies between financial syst ems into account and the need for appropriate 
action to address the possible systemic impact  of failing cross-border institutions, the ECB 
highlights that the domestic legal framework for cr isis management and resolution may need to be 
further adapted to future regulatory initiatives at Union level addressing existing problems in the 
coordination of resolution and insolvency proceedings concerning cross-border banks. 
2.3 With these general observations in mind, and against the background of the guidance previously 
given by the ECB and the Union institutions in this regard, the ECB has the following specific observations on the draft law.  
3. Specific observations 
3.1 Role of the MNB  
Under the new proposed Article 168A(2) of the CIFE,  the draft law provides for the conditions for 
the MNB’s involvement, which is limited only to the process of issuing an assessment at the request of the FSA of whether a credit instituti on’s insolvency would potentially jeopardise the 
stability of the financial system in Hungary under the new proposed Article 151(4)(c). The ECB 
welcomes the recognition of the MNB’s expertise in assessing financial stability. Moreover, to 
                                                 
8  See CON/2009/62 and CON/2009/93. 
9  See Eurosystem’s reply of 8 February 2010 to the public consultation by the Commission launched in its Communication 
on an EU Framework for Cross-Border Crisis Mana gement in the Banking Sector on 20 October 2009. 
10  See in particular ‘Report and Recommendations of the Cross-border Bank Resolution Group’, March 2010, available at 
www.bis.org and ‘Practical Guide on Cross-Border Insolv ency Cooperation’ adopted by UNCITRAL on 1 July 2009, 
available at www.uncitral.org. 
4 make such assessment, a smooth exchange of in formation on the situation of individual credit 
institutions must be in place. The ECB emphasises that functions to be performed by the MNB in 
this regard for the benefit of the resolution regime  must be conducted in a manner that will fully 
comply with the Treaty obligations. In particular, it is expected that the MNB’s new task laid down 
in the draft law will neither affect the MNB’s in stitutional, functional and financial independence, 
nor the performance of its tasks under the Treaty and the Statute of the European System of Central Banks and of the European Central Bank.  
3.2 Transfer of assets  
According to the new proposed Article 168A of th e CIFE, the establishment of a bridge bank will 
be restricted to cases where no other resolution to the financial difficulties of a credit institution was 
effective and it is necessary to ensu re the stability of the financial system. This Article furthermore 
broadly formulates rules for the terms and conditi ons for bidding on the transfer of assets and 
liabilities to another operational credit institution, as it specifically leaves the FSA to determine the 
detailed rules for the bidding process in an ad hoc decision. For reasons of legal clarity, the basic 
rules for bidding could also be reflected in th e draft law. Additionally, the draft law does not 
specify the criteria for an operating credit institu tion to qualify as eligible to take over these assets 
based on the bidding process. The ECB would welcom e further clarifications of the conditions for 
transferring assets to operating credit institutions. 
The ECB also advises considering the possibility of including further provisions in the draft law to 
provide for a smooth and swift continuation of the legal relationship with clients relating to the 
debts taken over and the new credit institution taking over the debts. 
3.3 Valuation of the transferred assets and the pricing of compensation 
Under the new proposed Article 168A(7) to (9) of th e CIFE, the draft law provides that transferred 
assets will be valued at a rate applicable on the day before transfer. The same article sets out further 
requirements concerning the valuation. In particular, the valuation will also have to be regarded as a 
revaluation affecting the book value of assets and liabilities which will also be reflected in the 
income of the transferring credit institution.  
Under the new proposed Article 168C of the CIFE, the draft law regulates the pricing rules and the 
conditions for compensation. The transparency of crite ria for valuation is of the essence in pricing. 
In this respect, it may be advisable to further specify how a valuation is obtained when no valid 
market prices are available for the assets in ques tion. Furthermore, the ECB suggests including in 
the draft law the possibility of bringing a judicial appeal against the pricing of compensation. Such 
court procedure should be expedited to avoid jeopardising the aim of the transfer of the assets. 
3.4 Property rights  
According to the new proposed Article 168B(3) of  the CIFE, the cost of purchasing assets by the 
bridge bank will be covered by the central bud get and, as detailed in the new proposed Article 
168C(3), compensation will only be due if the equity  capital of the transferring credit institution (i) 
5 has been decreased as a result of the FSA’s decision to transfer the assets, and (ii) was positive on 
the day before the time of transfer. The compen sation also has to be in accordance with the 
provisions of the Hungarian Constitution on prop erty rights. The ECB notes that any such 
compensation must be ‘fair’ according to law. 
3.5 The possible winding up of affected credit institutions and going concerns 
The draft law is silent on whether after removing certain assets and liabilities from the portfolio of a 
credit institution, the transferring institution will c ontinue as a going concern, or be wound up after 
the transfer takes place. Therefore, the ECB suggests including further provisions on these matters in the draft law, ensuring that if the transfe rring credit institution continues its operations, it will 
base its transactions on a sound business policy and a solid business model. 
3.6 The future role, operation and temporary nature of the bridge bank 
The ECB reiterates the importance of ensuring that th e State’s involvement is limited in time to the 
extent deemed necessary for the success of th e reorganisation measure. Transferring assets from 
credit institutions in distress should remain a meas ure for use in clearly defined and exceptional 
circumstances. The ECB str esses that it should be ensured that such a measure is only used as a last 
resort, that disruption of the level playing-field is  minimised and that the State’s role is limited in 
time. Against this background, the ECB notes that in the new proposed Article 168A of the CIFE, 
the draft law provides for the possibility for the FSA to propose the establishment of a bridge bank 
as a general measure if any other measures have proved inefficient, but the draft law does not 
specify a possible end-date for the operations of a bridge bank. Since the duration of the operation 
of the bridge bank has to reflect the amount and th e nature of the assets and, in particular, their 
maturity structure, the ECB would welcome a genera lly defined exit strategy in the draft law for the 
operations of a bridge bank based on, for example,  the basis of a period of time or the development 
of market conditions, to ensure the temporary natu re of the State’s involvement and at the same 
time preserve the value of the transferred assets and liabilities. 
3.7 Procedural issues 
The ECB is aware that the draft law was submitted to  the Hungarian Parliament  at a time when it 
was no longer possible for the legislators to discuss the draft law in detail as the Parliament has 
been dissolved due to the general elections in Hungary. The ECB would like to remind the consulting authority of the guidance given on Counc il Decision 98/415/EC and, in particular, that 
the duty to consult the ECB also applies to additi onal substantial amendments to draft legislative 
provisions that have already been submitted to the ECB for an opinion. 
 
This opinion will be published on the ECB’s website.   
6  
Done at Frankfurt am Main, 13 April 2010. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET