EN ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 11 May 2018  
on the governance and financial independence of the Central Bank of Cyprus  
(CON/20 18/23) 
 
Introduction and legal basis  
On 8 February 2018 the European Central Bank (ECB) received a request from the Minist ry of Finance of 
the Republic of Cyprus for an opinion on a draft law amending the Central Bank of Cyprus Law of 20021 
(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 
Functioning of the European Union and the third indent of Article 2(1) of Council Decision 98/415/EC2, as 
the draft law relates to the Central Bank of Cyprus (CBC) . In accordance with the first sentence of 
Article  17.5 of the Rules of Procedure of the Europea n Central Bank, the Governing Council has adopted 
this opinion.  
 
1. Purpose of the draft law  
1.1 The draft law introduces amendments to the Central Bank of Cyprus Law of 2002 (hereinafter the 
‘CBC Law’) in respect of  (a) the governance structure of the CBC; (b) t he provisions relating to the 
independence of the directors of the CBC; and (c) the capital of the CBC and its alteration.  The 
draft law also contains a provision that removes the task of managing public debt from the CBC, as 
this function is performed by the Public Debt Management Office ( Γραφείο Διαχείρισης Δημόσιου 
Χρέους) pursuant to the Law of 2012 on public debt management3.  
1.2 The CBC’s governance structure  
1.2.1  The explanatory memorandum  for this opinion  notes that  the draft law reorganises the governance 
of the CBC with a view to rendering  it more efficient and effective. The draft law establishes a new 
decision -making body, the executive committee, comprised of the governor, the deputy governor 
and two executive directors. The composition of the board of d irectors remains as it is , consist ing of 
the governor, the deputy governor, two executive directors and five non- executive directors.  
1.2.2  The draft law redefines the duties of the CBC’s decision- making bodies in order to reflect the new 
governance structure. In particular, the b oard of d irecto rs is responsible, inter alia , for (a) oversight 
of the CBC’s administration;  (b) defining the CBC’s strategy, except for matters falling  within  the 
                                                 
1  Ο περί της Κεντρικής Τράπεζας της Κύπρου Νόμος του 2002 (Ν. 138( I)/2002).  
2  Council Decision 98/415/EC o f 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).  
3  Ο Περί της Διαχείρισης του Δημόσιου Χρέους Νόμος του 2012 (Ν. 195( I)/2012).  
ECB -PUBLIC  
2 fields of competence of the E uropean System of C entral Banks (ESCB) , the competence of the 
ECB pursuant to Council Regulation (EU) No 1024/20134, and the competent of the Single 
Resolution Board (SRB) pursuant to Regulation (EU) No 806/2014  of the European Parliament and 
of the Council5; (c) the approval  of the CBC’s  budget, annual accounts and financial statem ents; 
and (d) the organisation of the CBC, including the general framework establishing the powers and 
duties of the CBC’s employees , the framework for the appointment, promotion and disciplinary 
procedure of the CBC’s employees  and the internal procedures  of the CBC. The draft law confers 
on the board of directors all powers under the CBC  Law that are not specifically reserved for the 
governor, the d eputy governor or the e xecutive committee. The b oard may from time to time 
delegate any of its powers to any  of its members , to the executive committee or to any employees 
of the CBC on such terms and for such periods as the board will decide.  
1.2.3  The executive committee is responsible, amongst other tasks, for (a) the day -to-day activities  of the 
CBC  and the management of the CBC’s business ; (b) the implementation of policy decisions taken 
by the ECB and SRB ; (c) the carrying out of tasks and the exercise of powers granted to the CBC 
by virtue of the Treaty and the Statute of the European System of Central Banks and of the 
European Central Bank (hereinafter the ‘Statute of the ESCB’) ; (d) the implementation of the CBC’s 
objectives , in particular the CBC’s primary objective to ensure price stability,  and the CBC’s tasks 
pursuant to Articles 5, 5A and 6 of the CBC  Law, including the CBC’s ESCB -related tasks, the 
supervision of authorised credit institutions, the macroprudential supervision of the financial system 
and the provision of services or performance of the role of banker and financial agent for Cyprus  in 
financi al matters6; (e) the oversight of payment, clearing and settlement systems ; and (f) the 
submission of recommendations to the b oard with respect to the CBC’s strategy , except for matters 
which fall within the fields of competence of the ESCB,  the competence of the ECB pursuant to 
Council Regulation (EU) No 1024/2013 , and the competence of the SRB pursuant to Regulation 
(EU) No 806/2014.  
1.2.4  In addition, the draft law removes the provisions on the establishment and operation of the CBC 
personnel committee and confers on the executive committee the power to appoint, suspend or 
dismiss any employees of the CBC, except as regards  senior directors whose appointment, 
suspension and dismissal falls  within the competence of the b oard of directors , and to conduct 
other r elevant tasks of the personnel committee and generally act as a personnel committee.  
1.2.5  The draft law further provides that the members of the e xecutive committee will head certain 
directorates  and/or departments of the CBC  and will each be responsible for s eparate executive 
                                                 
4  Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank 
concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p.  63). 
5  Regulation (EU) No 806/2014 of the European Par liament and of the Council of 15 July 2014 establishing uniform 
rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of 
a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010 ( OJ L 
225, 30.7.2014, p. 1).  
6  According to Article 5 of the CBC Law, the primary objective of the CBC is to ensure price stability. Without prejudice 
to this primary objective, the CBC shall support the general economic poli cy of the State. Article 5A provides that the 
CBC is an integral part of the ESCB. The CBC shall perform all tasks required for the achievement of its objectives 
including those under Article 6. Article 6 lists the main tasks of the CBC, which reflect the basic ESCB tasks under 
Article 127 (2) of the Treaty and which also include, among others, the licensing and supervision of authorised credit 
institutions, the macroprudential supervision of the financial system in order to ensure the stability of the financial 
system and the provision of services  or performance of the role of banker and financial agent  for Cyprus in financial 
matters.  
ECB -PUBLIC  
3 tasks within the CBC . The e xecutive committee will confer on each executive director executive 
responsibility for one or more divisions of the CBC. The draft law  also requires the executive 
committee to provide the board of directors, on a regular basis or as requested, with detailed 
information required for the exercise of the board’s powers. The executive committee members will 
have no voting rights at meetings of the b oard of d irectors on matters pertaining to the oversight of 
the administration of the CBC , for which the board is responsible,  and in connection with the 
management of the day -to-day activities of the CBC , for which the executive committee is 
responsible.  
1.2.6  The draft law replaces the section on the tasks of the governor and provides that the governor (a) 
participates ex officio, as an independent personality , in the  Governing  Council  and the General 
Council  of the ECB ; (b) represents the CBC  in its relations with external persons, including the 
Cypriot government , and in lega l proceedings to which the CBC is a party ; and (c) signs any 
contracts concluded by the CBC, its annual reports, financial statements and other documents on 
behalf of the CBC. In addition, the governor will chair the meetings of the b oard of directors and the 
executive committee and will have the casting vote.  
1.2.7  Under t he draft law the g overnor  will no longer be responsible for  the tasks of implementing the 
CBC’s policy ; managing and controlling the CBC’s business ; appointing, suspending or dismissing 
CBC em ployees ; carrying out the tasks and powers granted to the CBC by virtue of the Treaty  and 
the Statute  of the ESCB ; and overseeing the payment, clearing and settlement systems. The 
provision granting the governor the power to take decisions as to the issuin g of licenses  to credit 
institutions  and the carrying out   of the business of credit institutions is also removed from the CBC  
Law.  In addition, the draft law introduces a new provision stating that without prejudice to the 
provisions of Article 10.2 of the Statute of the ESCB , the Governor may appoint an alternate as a 
member of the Governing Council of the ECB.  
1.3 The independence of directors  
1.3.1  The draft law introduces a fit and proper criterion to the eligibility criteria for the appointment of the 
CBC’s ex ecutive and non- executive directors . This criterion aims to fulfil the requirements laid 
down in Article 11 of the CBC’s Directive of 2014 on the assessment of the fitness and probity of 
the members of the management body and managers of authorised credit institutions7. The 
Directive sets out the reputational criteria to be complied with by member s of the management 
body and managers of  authorised credit institutions and the means of assessment . A number of 
factors  are taken into account  during the assessment , including criminal record, the cumulative 
effect of more minor incidents , which individually do not impinge on a person’s reputation, but may 
in sum have a material impact , as well as other factors, such as evidence that the relevant person 
has not been transparent, open and cooperative in his/her dealings with supervisory or regulatory 
authorities, a declaration of personal bankruptcy or inclusion on a list of unreliable debtors. A 
person may be considered to be of good repute if there is no evidence t o suggest otherwise and 
nothing to cast  reasonable doubt on the presumption of his/her good repute. A person will not be 
considered to be of good repute if his/her personal or business conduct gives rise to any material 
                                                 
7  Η περί της Αξιολόγησης της Ικανότητας και Καταλληλότητας Μελών Διοικητικού Οργάνου και Διευθυντών των 
Αδειοδοτημένων Πιστωτικών Ιδρυμάτων Οδηγία του 2014.  
ECB -PUBLIC  
4 doubt as to his/her ability to ensur e the sound and prudent management of an  authorised credit 
institution. The draft law adds that the eligible candidate should also have recognised and 
continuous professional experience in monetary, financial and banking matters.  
1.3.2  The draft law also sets ou t the procedure for the appointment  of the CBC’s directors. The Cypriot  
Council of Ministers appoints the directors following receipt of a formal reasoned opinion by a 
newly -established independent selection committee. This selection committee will be comprised of 
three members appointed by the C ouncil of Mini sters for a term of five years and will have the 
mandate of identifying at least three eligible and qualified candidates for every vacancy. Directors 
are appointed for a period of five years and may be re-appointed for one additional term of office, 
provided that the term of office f or three of the five members appointed for the first time after the 
entry into force of the draft l aw would be three years and the term of office of two members would 
be four years.  
1.3.3  The draft law extends the grounds  for the dismissal of b oard members  to include (i) a conviction  for 
infringement of a confidentiality or  professional secrecy  obligation ; (ii) a conviction for  a 
dishonourable or morally reprehensible offence that constitutes an impediment to the appointment 
of public office;  or (iii) a sentenc ing to a term of imprisonment for any offence. Where such grounds 
are applicable, the member , on a proposal from the Minister for Finance,  will be dismissed from the 
board of d irectors by the Council of Ministers, after  she/he has been invited to present her/his 
defence.  
1.3.4  A conflict of interest provision has been added whereby persons who themselves or whose 
relatives up to the first degree have an interest in entities or are me mbers of the board of entities 
under the supervision of the CBC are ineligible to be appointed as executive or non- executive 
directors. A similar provision has been  added in relation to the appointment of the governor and 
deputy governor.  
1.3.5  The draft law further provides that any expenses and damages awarded by the courts in relation to 
any act or omission of the g overnor, the d eputy governor and any members of the board in the 
exercise of their duties will be borne by the CBC. This provision will apply  irrespective of whether 
their term of office has expired.  
1.3.6  Finally, the draft law contains a transitional provision according to which a person who holds a 
position on the board of directors of the CBC on the date on which the draft law enters into force 
will retain that position on the same terms until the expiry of his/her term of office.  
1.4 The CBC’s capital and its alteration  
1.4.1  The draft law provides for an automatic recapitalisation of the CBC whenever the CBC’s net equity 
falls below the level of the CBC’s capital provided in the CBC Law. Under the draft law, the level of 
CBC’s capital will be raised from EUR 30 million  to EUR 90 million. The capital of the CBC can be 
altered by a decision of the board of directors , which must  be notified to the Council of Mini sters, 
provided that any increase in capital entailing  additional payment s by the State is agreed  between 
the CBC and the Council of Ministers. In addition, the general reserve of the CBC should not 
exceed twice its capital.  
ECB -PUBLIC  
5 1.4.2  Furthermore, the draft law confers on the board of directors  the power to set the  maximum level of 
possible reserves, which include capital, general reserves and provisions . Any additional net profit 
will be attributed to the State irrespective of any other provision in the CBC  Law. Th e precise level 
of reserves will be based on an annual report which takes  into account the possible risks  and 
means of addressing them , as well as the provisions and the total amount of reserves that need to 
be held.  
 
2. General observations   
2.1 When a statute of a national central bank (NCB) (in this case the CBC Law) is amended, the 
amending law should ensure that central bank independence, guaranteed under Article 130 of the 
Treaty and Articles 7 and 14.2 of the Statute of the ESCB, is respected. The compatibi lity of a 
Member State’s legislation, including its NCB’s statute, with the requirements of the Treaty and the 
Statute of the ESCB concerning central bank independence must be ensured on accession to the 
Union. Compatibility with Article 130 of the Treaty and Article 7 of the Statute of the ESCB is a 
fundamental aspect of the legal convergence in a Member State, which is examined in the 
convergence reports required by Article 140(1) of the Treaty to assess a country’s readiness to join 
the euro area8. 
2.2 The E CB notes the establishment of an executive committee  and the restructuring of the CBC’s 
decision -making structure.  The introduction of a collegiate decision- making process aims at  
strengthening the quality of the CBC internal deliberations with respect to the exercise of its tasks  
and is comparable with the regimes applicable in other jurisdictions across the EU . The ECB 
therefore understands that  the establishment of a new collegiate decision -making body serves the 
purpose of greater responsibility -sharing .  
2.3 The ECB welcomes the amendments introduced into  the CBC Law clarifying the division of 
competences between the decision- making bodies of the CBC, in line with past ECB opinions on 
the CBC’s governance9. The ECB understands that the e xecutive committee will be  exclusively  
responsible for carrying out all of the CBC’s tasks and exercising all of the CBC’s powers under the 
Treaty and the Statute of the ESCB . The ECB further understands that the executive committee will 
be responsible for carrying out the CB C’s tasks in relation to the supervision of, but not the granting 
of licenses  to, credit institutions, without prejudice to the provisions of the SSM Regulation10. In this 
respect the ECB recommends that Article 6(2)(d) of the CBC Law be amended so as to remove the 
licensing of credit institutions as one of the tasks of the CBC and to note that the supervision of 
credit institutions is without prejudice to the SSM Regulation.  
2.4 With respect to the provision of the draft law on the limited voting rights of mem bers of the 
executive committee (see paragraph 1.2.5 above), the ECB understands that this provision applies 
only to the CBC’s day -to-day activities and management of its work under the newly amended 
Article 17A(1)(a) of the CBC Law and that it will not, i n any case, affect the independenc e and 
                                                 
8  See paragraph 3.1 of Opinion CON/2010/56.  
9   See paragraphs 2.3 and 2.4 of Opinion CON/2013/41 and paragraph 4 of Opinion CON/2013/78.  
10  Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank 
concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63).   
ECB -PUBLIC  
6 powers  of the executive committee to carry out its ESCB -related and other tasks . For the sake of 
legal certainty it is suggested to reformulate this provision to reflect this understanding.  
2.5 The ECB understands that u nder Article 119 of the Constitution of the Republic of Cyprus11 the 
governor is responsible for the management of the CBC and exercises  all powers and perform s all 
functions and duties within the scope of the CBC’s competences , assisted by the d eputy governor. 
The ECB therefore understands that given that the draft law confers on the e xecutive committee all 
ESCB- related competences and on the board of directors all residual competences , the draft law 
and Article 119 of the Constitution may need to be aligned12. In such  an event , the ECB would like 
to remind the consulting authority of the obligation to consult the ECB on any relevant draft 
legislation.  
2.6 The ECB notes  the amendments in relation to the appointment, suspension and dismissal of the 
CBC employees and understands that the removal of the provisions relating to the personnel 
committee will facilitate the internal functioning of the CBC13. 
2.7 As regards the provision of the draft law which confers upon the b oard of d irectors the power to 
adopt the accounting policies and procedures of the CBC  in accordance with international 
accounting standards14, the ECB understands that for the purpose of Eurosystem financial 
reporting the CBC adheres to the Eurosystem accounting and financial reporting framework as set 
out in Guideline (EU) 2016/2249 of the European Central Bank ( ECB/2016/34)15.  
2.8 The ECB notes that the provision of the draft law concerning the appointment of an alternate as a 
member of the Governing Council of the ECB should be in line with Article 10.2 of the Statute of the 
ESCB and with  the relevant provisions of  the Rules of Procedure of the ECB . The provisions  
stipulate , inter alia,  that, if a member of the Governing Council is prevented from voting for a 
prolonged period (i.e. more than one month), he/s he may appoint an alternate as member of the 
Governing Council .  
 
3. Specific observations   
3.1 Central bank independence  
Personal independence  
3.1.1  The personal independence of the CBC would be at stake if the same rules for the security of 
tenure and grounds for di smissal of g overnors did not also apply to other members of the decision-
making bodies of NCBs involved in the performance of ESCB -related tasks. As the draft law 
entrusts the executive committee with the performance of the CBC’s ESCB- related tasks, then t he 
same rules must  be applicable to the executive directors  of the CBC .  
3.1.2  With regard to security of tenure, the draft law ensures that all b oard members have a term of office 
                                                 
11  Το Σύνταγμα της Κυπριακής Δημοκρατίας.  
12   See paragraph 3.4.2 of Opinion CON/2017/17.  
13  See paragraph 1 of Opinion CON/2016/9 where it was noted that the CBC could not recruit permanent staff or 
promote, dismiss or suspend employees when there was a vacant position on its personnel committee.  
14   See Article 15(1)(k) of the draft law.  
15  Guideline (EU) 2016/2249 of the ECB of 3 November 2016 on the legal framework for accounting and financial 
reporting in the European System of Central Banks  (ECB/2016/34) (OJ  L 347, 20.12.2016,  p. 3). 
ECB -PUBLIC  
7 of five years . There is, however, a transitional period in which the term of offi ce of three of the five 
members appointed for the first time after the entry into force of the draft law would be three years 
and the term of office of two members would be four years . The ECB understands that the 
transitional period would be applicable on ly in relation to the non- executive directors  of the CBC , 
since members of the e xecutive committee must have a term of office of five years . The ECB  notes  
that the reasons for the different periods of appointment for members of the board of directors and  
the relevant criteria for appointing some members for three years and others for four years  are not 
clear16.  
3.1.3  As noted in the ECB Convergence Report s, NCB statutes must ensure that g overnors are not 
dismissed for reasons other than those mentioned in Article 14.2 of the Statute of the ESCB, that 
is, where they no longer fulfil the conditions required for the performance of their duties or have 
been guilty of serious misconduct. Th is principle also applies to other members of NCB decision 
making -bodies involved in the performance of ESCB -related tasks , especially where a governor is 
‘first among equals’ with colleagues with equivalent voting rights, or where other such members are 
involved in the performance of ESCB -related tasks17. With respect t o the governor and the deputy 
governor, the current version of the CBC Law is in line with  Article  14.2 of the Statute of the ESCB . 
The introduction under the draft law of new grounds for the dismissal of e xecutive committee 
members , including for the governor and the deputy governor,  raises concerns  as these are not 
aligned with Article 14.2 of the Statute of the ESCB. In the light of this , the ECB would support 
using the current wording of the CBC Law  in respect of members of the executive committee.  It is 
also noted th at on the basis of Article 14. 2 of the Statute of the ESCB, a decision to relieve a 
Governor from office may be referred to the Court of Justice by the Governor concerned or the 
ECB Governing Council on grounds of infringement of the TFEU  or of any rule of  law relating to its 
application.   
3.1.4  Personal independence also entails ensuring that no conflict of interest arises between the duties 
of members of NCB decision- making bodies involved in the performance of ESCB -related tasks in 
relation to their respectiv e NCBs (and of Governors in relation to the ECB) and any other functions 
which such members of decision- making bodies may have and which may jeopardise their 
personal independence. As a matter of principle, m embership of a decision- making body involved 
in the performance of ESCB -related tasks is incompatible with the exercise  of other functions that 
might create a conflict of interest. In particular, members of such decision- making bodies may not 
have an office or have an interest that may influence their activities, whether through office in the 
executive or legislative branches of the S tate or in regional or local administrations, or through 
involvement in a business organisation. Particular care should be taken to prevent potential 
conflicts of interest on the part of non- executive members of decision- making bodies18. The ECB 
therefore welcomes the new provisions on  the eligibility criteria for  the appointment of individuals to 
                                                 
16   It is recall ed that Article 13(3) of the CBC  Law previously gave the Council of Ministers the right to appoint a member 
to the board of directors for a term of less than five year . This provision was removed following a  recommendation in 
the ECB Convergence Report of December 2006 that  the relevant  provision needed to comply with Article 14.2 of 
the Statute of the ESCB.  The ECB Convergence Report of May 2007 confirmed the removal of the aforementioned 
incompatibility.  
17   See paragraph 2.2 of Opinion CON/2014/51.  
18  See page 24 of the ECB Convergence Report of June 2016.  
ECB -PUBLIC  
8 the positions of  executive director , deputy governor  and governor of the CBC , wh ich aim to 
strengthen the independence of  these posts . These new provisions reinforce the current provisions 
of the CBC Law which require the executive directors , the deputy governor and the g overnor to 
perform their duties full -time and not to take up any  other employment19. In addition, and 
considering that the board of d irectors is comprised of five non- executive directors, the ECB 
understands that the obligation imposed by the draft law  on the e xecutive committee to provide the 
board of directors  with de tailed information required for the exercise of the board’s  powers would 
not compromise the independence of the g overnor and the rest of the e xecutive committee.  
Financial independence  
3.1.5  The independence of an NCB, as required under Article 130 of the Treaty  and Article 7 of the 
Statute of the ESCB , would be at stake if it could not autonomously avail itself of sufficient financial 
resources to fulfil its mandate (i.e. the performance of ESCB- related tasks required under the 
Treaty and the Statute of the ESCB )20. The principle of financial independence requires  an NCB to 
have sufficient means not only to perform its ESCB -related tasks but also its own national tasks, 
e.g. financing its administration and own operations. Therefore, a Member State may not put its  
NCB in a position where it has insufficient financial resources and inadequate net equity to carry 
out its tasks. For these reasons, financial independence implies that an NCB should always be 
sufficiently capitalised21. In particular, any situation should be avoided whereby for a prolonged 
period of time an NCB’s net equity is below the level of its statutory capital or is even negative, 
including where losses beyond the level of capital and the reserves are carried over22. Any such 
situation may negatively  impact on the NCB’s ability to perform both its national tasks and its 
ESCB- related tasks. Moreover, such a situation may affect the credibility of the Eurosystem’s 
monetary policy. Therefore, where  an NCB’s net equity is less than its statutory capital or even 
negative the respective Member State must provide  the NCB with sufficient  financial means  to 
raise the net equity level at least up to that of the statutory capital within a reasonable period of 
time so as  to avoid compromising the principle of financial independence.  
3.1.6  In light of this , the ECB welcomes  the provision of the draft law providing that the CBC will be 
recapital ised to the level prescribed under the CBC Law whenever the net equity of the CBC falls 
below this level.  The CBC must  have, at al l times, sufficient  financial resources and adequate net 
equity  for the performance of  its ESCB- related tasks23. In this context, t he ECB takes note of the 
proposed increase of the CBC’s capital from EUR 30 million to EUR 90 million and of the fact that 
the current  capital  of the CBC amounts to  EUR 150 million. The ECB understands that the capital 
of the CBC has been raised to its current level by a decision of the board of directors pursuant to 
Article 56(2) of the CBC Law. The ECB understands that the proposed increase of the capital 
under the draft law will not impact the current level of the CBC’s capital. In view  of this, the 
difference between the capital referred to under the draft law and the actual capital of the CBC 
could result in uncertainty and w ill, therefore, require further clarification.  
                                                 
19   See Articles 17A(2) and 19(1) of the CBC Law.  
20  See paragraph 2.3 of Opinion CON/2017/17.  
21  See, e.g., page 25 of the ECB Convergence Report of June 2016.  
22  See paragraph 2.5 of Opinion CON/2016/55.  
23  See paragraph 3.3.7 of Opinion CON/2017/17.  
ECB -PUBLIC  
9 3.1.7  Furthermore, clarifications may be needed in respect of the requirement in the draft law that the 
general reserve of the CBC should not exceed twice its capital , in particular, whether this 
requirement  refers to the amount of the capital  proposed under the draft law or of the actual capital 
of the CBC . The ECB also wishes to emphasise that the CBC  is best positioned to assess the risks 
involved in its operations and what financial precautions need to be taken t o guard against these 
risks, including the establishment of the necessary level of general reserves within the limits set by 
the legislator or any other types of appropriate financial buffers.  In addition, it should be considered 
whether the  power to defin e the level and the limit of the general reserves  should be conferred only 
on the board of  directors, which has the overall responsibility for the financial soundness of the 
CBC .  
3.1.8  With regard to the alteration of the capital,  the ECB understands that accor ding to the newly 
inserted provisions of the draft law , the CBC will be entitled to be automatically recapitalised up to 
the level of the prescribed capital referred to in the CBC Law (as amended by the draft law).  
3.1.9  Under the principle of f inancial independence,  an NCB , in the performance of its tasks,  can 
independently assess the risks involved and has the power to decide on any necessary 
precautions to take. An NCB is best placed to make these assessments and must  have the 
necessary tools to evaluate the relevant circumstances and to make forecasts24. In particular, the 
ECB is of the view that the higher the level of capital, reserves and provisions against financial 
risks, the higher the safeguards will be against future losses25. Consequently  NCBs  should be 
given the ability to safeguard the real value of their capital  and assets by being free to 
independently create adequate financial buffers . The ECB therefore welcomes the provision of the 
draft law conferring powers on the board of d irectors to determine the level  of “maximum reserves ” 
and understands that this provision intends to address financial buffers comprising  general 
reserves , capital and financial risk provisions . The ECB furthermore understands that the 
“maximum reserves” exclude (i) specific p rovisions against already incurred losses and (ii) any 
amounts recorded by the CBC on revaluation accounts , and that the profit to be distributed by the 
CBC to the g eneral government account is determined following the establishment of adequate 
“maximum re serves”.   
 
This opinion will be published on the ECB’s website.  
 
 
Done at Frankfurt am Main, 11 May  2018 . 
 
[signed]  
 
The President of the ECB  
Mario DRAGHI  
                                                 
24  See paragraph 2.3 of Opinion CON/2017/17.  
25  See paragraph 3.1 of Opinion CON/2013/96.