EN ECB-P UBLIC  
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 21 October 2011  
on recovery and resolution measures for credit institutions  
(CON/2011/84) 
 
Introduction and legal basis  
On 28 September 2011, the European Central Bank (ECB) received a request from the Irish Minister for 
Finance for an opinion on the proposed parliamentary committee stage amendments to the Central Bank and Credit Institutions (Resolution) (No 2) Bill 2011 (h ereinafter the ‘draft law’). On 11 October 2011, 
the ECB received a letter from the Minister indi cating the report stage amendments for the ECB’s 
consideration.  
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 indents 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 provisions
1, as the draft law relates to the Central Bank of Ireland (CBI) and 
contains rules applicable to financial institutions in sofar as they materially influence the 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  
The ECB published Opinion CON/2011/39
2 on the draft Central Bank and Credit Institutions (Resolution) 
Bill 2011 (the ‘No 1 Bill’) on 26 April 2011. Following a change in government, the No 1 Bill lapsed and was reintroduced to Parliament in the near identical  form of the draft law. This Opinion concerns the 
amendments. 
The draft law was one of the actions implementing the financial assistance programme agreed between 
the Minister, the European Commission, the ECB a nd the International Monetary Fund, to restore 
confidence in the banking se ctor and achieve financial stability in the Irish economy
3, alongside the 
Credit Institutions (Stabilisation) Act 2010 on  which the ECB issued Opinion CON/2010/92 on 
17 December 2010 (the ‘2010 Act’). 
                                                     
1  OJ L 189, 3.7.1998, p. 42. 
2  All ECB opinions are available on th e ECB’s website at www.ecb.europa.eu. 
3  See the Memorandum of Understanding on specific economic policy conditionality, 3.12.2010, p. 4, available on the 
Commission’s website at www.ec.europa.eu.  
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2 The amendments to the No 1 Bill include the follow ing: (i) a new section to provide for cooperation 
between the CBI and relevant foreign authorities in respect of the CBI’s resolution powers under the draft 
law; (ii) extra provisions to allow the CBI to require authorised credit institutions, and their subsidiary or 
holding companies, to provide information in connectio n with transfer orders in respect of their assets 
and/or liabilities; (iii) a new sectio n to deal with valuations of such assets and liabilities; (iv) new 
provisions on which creditors of authorised credit in stitutions or their subsidiary or holding companies 
may apply for compensation where they are subject to tr ansfer orders and how such compensation is to be 
calculated; (v) new provisions to extend the scope of the CBI’s powers in respect of the liquidation of 
authorised credit institutions; and (vi) amendments to  other legislation, including to the 2010 Act. 
 
2. General observations  
2.1 The ECB welcomes that the amendments address several specific issues raised by the ECB in 
Opinion CON/2011/39, whilst the comments in that Opinion remain valid for the issues not addressed. 
2.2 Prior to the amendments, the draft law would apply to banks, building societies and credit unions 
licensed in Ireland (herei nafter ‘authorised credit institutions’), but only to the extent that such 
institutions were not ‘rele vant institutions’ under the 2010 Act,  which includes Irish licensed banks 
to which financial support has been given by the Minister. Thus, relevant Irish licensed banks 
would not have been subject to both the draft law’s resolution regime and the 2010 Act’s 
stabilisation regime contemporaneously. This has b een amended by the draft law, where the CBI’s 
liquidation powers under the draft law are concerned. Relevant institutions are now to be included within the definition of ‘authorised credit instituti ons’. Therefore, under the draft law, the CBI will 
be able to exercise its liquidation resolution powe rs over all authorised cr edit institutions, including 
Irish licensed banks credit institutions which are su bject of the 2010 Act and which have received 
financial support from the Minister, which is welcomed by the ECB. 
2.3 Under the draft law in its current form, credit un ions are no longer ‘relevant institutions’ under the 
2010 Act, as Part 5 of Schedule 2 of the draft la w will delete the reference to credit unions in the 
definition of ‘relevant institution’. Consequently, the 2010 Act will no longer apply to credit unions 
except to the extent that any orders or requiremen ts have been made in regard to them under the 
2010 Act and therefor e, credit unions will be fully subject to the draft law’s resolution regime. 
Furthermore, the ECB understands and welcomes th at legislation will shortly be introduced which 
will provide for a strengthened regulatory fr amework for credit unions, including effective 
governance and stabilisation requirements.  
2.4 Opinion CON/2011/39 welcomed the wider powers under the draft law that will be available to the 
CBI to manage and resolve financial institutions which are financially distressed and whose demise 
would threaten the stability of the financial sy stem. The ECB notes, however, that in certain 
instances, the draft law does not clearly link the exer cise of resolution tools to the objectives of the 
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3 draft law and would welcome further clarity in this regard. By way of example, section 10(2) of the 
draft law provides that the purpose of the resolu tion fund (hereinafter the ‘Fund’) is to provide a 
source of funding for the resolution of financial instability or a serious threat thereto in an 
authorised credit institution. The ECB would welcome the draft law clarifying that the use of 
resolution tools, such as the establishment of th e Fund, should be linked to the objectives of the 
draft law, for example by making specific referenc e to the requirement to satisfy the intervention 
conditions prior to the exercise of any resolution tool provided for in the draft law. 
 
3. Adaptation of the Irish reso lution framework to future Unio n legislation on a Union crisis 
management and bank resolution regime  
The Irish resolution framework may have to be adap ted in the light of the forthcoming Commission’s 
legislative proposals on a Union crisis management and bank resolution regime. 
 
4.  Resolution Fund 
The draft law provides that ‘the Minister may contribute to the Fund such sums as he or she considers 
appropriate from the Central Fund or th e growing produce of the Central Fund’4. Such contributions 
would be in addition to, amongst other sources of funding, contributions made by authorised credit 
institutions to the Fund. The ECB recommends that the draft law should provide that the level of such 
additional contributions by the Minister should be lin ked to the purpose of the Fund as set out in 
section 10(2) of the draft law.  
 
5.  Bridge banks  
The ECB welcomes that a bridge bank is to be wholly owned by the CBI or its nominees5. However, the 
ECB assumes that the nominees will be another State entity, for example the National Treasury 
Management Agency, and would welc ome clarification in this rega rd. Moreover, the ECB reiterates6 that 
it would welcome an express provision in the draft law th at the CBI as a shareholder in a bridge bank will 
in no event assume or finance any obligation of a br idge bank, and that this role will remain, under any 
circumstances, consistent with the prohibition on monetary financing under Article 123 of the Treaty. In 
this respect, the ECB would welcome fu rther clarification in the draft la w to address any potential liability 
that might attach to the CBI or its nominees in regard to its ownership of the bridge bank.  
Second, the ECB notes that draft amended section 17 provides that the CBI may set up a bridge bank only 
if, having regard to any of the matters  in section 9(6) of the draft law that  appear to be relevant to the CBI 
in the circumstances, it would be in th e public interest to do so. The ECB notes that this need to show that 
                                                     
4  Section 12(1) of the draft law. 
5  Section 17(3) of the draft law. 
6  See Opinion ECB/2011/39, paragraph 3.6. 
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4 the setting up of the bridge bank is in the public inte rest does not expressly apply to the other resolution 
tools and therefore appears to set the bridge bank apart from the other tools in this respect. In that case, 
however, it is unclear whether the decision to set up a bridge bank requires the intervention conditions in 
section 8 of the draft law to be first fulfilled, as is the case with the other resolution tools (section 21(1)(a) 
in respect of transfer of assets and liabilities and section 55(a) in respect of special management). These 
matters should be further clarified in the draft law for the bridge bank to rema in effective and of equal 
rank with the other resolution tools. 
 
6.  Disclosure of information  
The ECB notes the inclusion, in respect of transfer orders, of the new section 23 which providing that 
notwithstanding any other rule of law, the CBI may disclose information that it obtains to a potential 
transferee. The ECB would welcome clarification in the draft law to address either (i) how such disclosure is to interact with other disclosure obligations or disclosure prohibitions provisions of national and Union law, for example Directives 2003/6/EC
7, 2004/109/EC8, 2006/48/EC9 and 2006/49/EC10, and 
the stock exchange rules etc., that might apply to tr ansferors and transferees, or (ii) where such other 
obligations or prohibitions do apply, that they ar e to be disregarded when section 23 applies. 
 
7.  Transfer orders  
7.1 Valuation and compensation  
 Paragraph 3.8 of Opinion CON/2011/39 noted that the draft law did not set out any specific 
approach to valuation of assets to be transferred by virtue of a transfer order. The ECB therefore 
welcomes the inclusion of extensive new provisions to deal with (i) the calculation of the value of 
the assets to be transferred ‘m arket value’ (section 28), (ii) circumstances where creditors of 
transferor institutions may appl y for compensation (section 35) and (iii) the appointment of an 
‘assessor’ to calculate any such compensation due to such a creditor (section 36).   
 The ECB also welcomes the elaboration in the draft law dealing with where a transferor may 
dispute the valuation of transferre d assets and/or liabilities determin ed by the CBI for the purposes 
of a transfer order (section 48). The ECB notes that, where such a dispute arises, the CBI must 
appoint an independent valuer to determine whet her a competitive process was carried out by the 
CBI and if not, what the likely market value woul d have been had such a competitive process been 
                                                     
7  Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market 
manipulation (market abuse) (OJ L 96, 12.4.2003, p. 16) .  
8  Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of 
transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated 
market and amending Directive 2001/34/EC (OJ L 390, 31.12.2004, p. 38). 
9  Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and 
pursuit of the business of credit institutions  (OJ L 177, 30.6.2006, p. 1). 
10  Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of 
investment firms and credit institutions  (OJ L 177, 30.6.2006, p. 201). 
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5 carried out (section 48(3)). In determining the likely market value in such circumstances, the 
independent valuer is to assume various particul ars set out in section 48 (5)(a) to (e). The ECB 
would recommend the inclusion of a further point (f), whereby the independent valuer should also 
assume that the competitive proce ss would have been carried out on the basis that the institution 
concerned had not received any state financial assistance.  
7.2 Consideration for the transfer and publication 
 The ECB notes that the draft law now includes a spec ific obligation on the CBI to publish details of 
the consideration calculated for assets and/or  liabilities transferred und er a transfer order 
(section 29 in conjunction with section 31(1)(b)).  The ECB also notes that Union law already 
imposes are specific disclosure obligations and prohibitions. While the ECB welcomes the 
obligation to publish the consideration from a transparency perspective, it would welcome 
clarification in the draft law as to the interactio n and priority between the consideration disclosure 
to be made pursuant to the draft law and disclosu re obligations or prohibitions under Union law and 
the national regulations transpos ing it. The ECB also queries whether the draft law should provide 
some flexibility to the CBI as regards whether to pu blish all the contents of a transfer order, in 
particular details of the consideration.   
 8. Prohibition on monetary financing  
The ECB emphasises that it is important that nationa l provisions comply with the monetary financing 
prohibition under Article 123 of the Treaty. This provision prohibits central banks from providing overdraft facilities or any other type of credit facility to the public sect or, including any financing of the 
public sector’s obligations vis-à-vis third parties
11.  
The draft law12 provides that the CBI may make payments and charge them to the deposit protection 
account, to facilitate the transfer of accounts of eligible depositors of an authorised credit institution 
subject to the CBI’s liquidation powers under the draft law and for the purpose of cooperating in the 
pursuit of Objective 113 of a liquidator. The draft law further provides that, where the CBI makes such 
payments and charges them to the deposit protection account, the amount of the payments, with the approval of the Minister, must be repaid to the CBI out of the Central Fund or the growing produce of that Fund within three months. Furthermore, any amount paid out of the Central Fund to the CBI must be 
repaid to the Central Fund from the deposit protection account with interest at th e rate or rates that the 
Minister determines, or without interest
14.   
Thus, the ECB understands that the draft law implie s that the CBI may temporarily finance the Irish 
DGS’ tasks, until it is reimbursed by the Central Fund, and that the CBI may not be entitled to be 
                                                     
11   See Article 1(b)(ii) of Council Regulation (EC) No 3603/93 of 13 December 1993 specifying definitions for the 
application of the prohibitions referred to in Articles 10 4 and 104(b)(1) of the Treaty (OJ L 332, 31.12.1993, p. 1).   
12   Section 81(1)(b) of the draft law. 
13   See section 80(1) (a) of the draft law.  
14   See section 81(2) of the draft law.   
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6 reimbursed if the Minister does not consent15. Such advance payments by the CBI in the context of the 
operation of its liquidation powers under the draft law are incompatible with  the monetary financing 
prohibition and consequently, the draft law needs to be amended. The only compatible forms of central 
bank financing of deposit guarante e schemes are: (a) intraday credit in line with the general rules on 
provision of such credit by the central bank; and (b) short-term emergency liquidity financing under strict 
conditions established in the ECB’s Convergence Report s, i.e. if such funding is short term, addresses 
urgent situations, systemic stability aspects are at stake and decisions are at the NCB’s discretion16. These 
conditions need to be listed in the draft law17 where emergency liquidity financing by the CBI of the Irish 
DGS is foreseen by the draft law. In this respect, it is noted that central bank support extended to deposit 
guarantee schemes should not amount to a systematic ‘pre-funding’ operation. 
Consequently, the ECB proposes amending the draft law either to (i) clarify that there will be no such 
advance financing by the CBI, or (ii) specify in s ection 81 that the Minister  transfers the necessary 
amounts from the Central Fund to the CBI before the CBI makes any payments related to the performance 
of the Irish DGS’ tasks. Alternatively, it should pr ovide expressly that any advance payments by the CBI 
are only intraday. If, in addition, short-term emerge ncy liquidity financing of Irish DGS operations by the 
CBI is foreseen, conditions for such financing referre d to above should be expressly listed in the draft 
law. In such case, when exercising its discretion to grant a loan, the CBI has to ensure that by doing so it is de facto  not taking over a State task. Moreover, to rule out any breach of the monetary financing 
prohibition, it may be useful to specify in the draft law that the credit facilities extended by the CBI to the 
Irish DGS are based on adequate collateral and are granted without prejudice to Article 123 of the 
Treaty
18. 
 
9. Central bank independence 
In relation to the same provisions of the draf t law as mentioned in the previous paragraph,  the ECB refers 
to the principle of financial independence under whic h a national central bank (NCB ) must have sufficient 
means not only to perform its tasks related to the Eu ropean System of Central Banks (ESCB), but also its 
national tasks, e.g. financing its administration and own operations19. Financial independence also implies 
that an NCB should always be sufficiently capitalised20. Previous ECB opinions pointed out that the 
allocation to the NCBs of specific non-ESCB related tasks, such as tasks in the area of financial 
supervision or consumer protection, needs to be a ccompanied by the allocation of adequate human and 
financial resources allowing such tasks to be carri ed out in a manner which will not affect the NCBs’ 
operational capacity to carry out their ESCB-related tasks21. In particular, the ECB has advocated a 
                                                     
15  See section 8(1) of the Financial Services (Deposit Guarantee Scheme) Act 2009.   
16   See the ECB’s Convergence Report, May 2010, p. 25. 
17   See paragraphs 2.2 to 2.8 of ECB Opinion CON/2008/5 and paragraph 3.1.3 of ECB Opinion CON/2011/76. 
18  See paragraph 13 of the ECB Opinion CON/2001/32 and paragraph 2.7 of the ECB Opinion CON/2008/5. 
19   See the ECB’s Convergence Report, May 2010, p. 21.   
20  See the ECB’s Convergence Report, May 2010, p. 21. 
21   See for instance paragraph 3 of ECB Opinion CON/2007/8 and paragraph 3.3 of ECB Opinion CON/2011/76. 
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7 prudent approach in this respect when reimbursement arrangements are proposed in national legislation to 
finance the non-ESCB related tasks23. In addition to the monetary financing prohibition observations 
made in paragraph 8, the respective provision of the draft law, in conjunction with the provision of the 
Financial Services (Deposit Guarantee Scheme) Act 2009 that the CBI may not be entitled to be 
reimbursed if the Minister does not consent, rais es concerns in respect of the CBI’s financial and 
institutional independence to the extent that in practice the CBI will not be able to autonomously avail itself of sufficient financial resources to fulfil its mandate
22.  
Opinion CON/2011/39 noted that the draft law allowed the Minister in certain circumstances to make 
orders mitigating any unfairness or undue hardship caus ed by the operation of an effective ‘switch-off’ of 
certain rights, such as netting and set-off, of counterparties dealing with authorised credit institutions under relevant agreements. The ECB recommended amendi ng the relevant section to require the Minister 
to consult with the CBI prior to making any such order and the ECB welcomes that the draft law has now 
been amended
23.  
 
10. 2010 Act amendments 
The draft law will make substantial amendments to  the 2010 Act. The ECB understands that such 
amendments are mainly designed to mirror the amendm ents made to the No 1 Bill to ensure coherent, 
robust and effective resolution and stabilisation mech anisms and to reflect the authorities’ experience 
from litigation of a number of resolution orders under the 2010 Ac t. The ECB notes for example the 
mirror insertions relating to, for example, (i) applications to set aside transfer orders under the 2010 Act (14 day window now instead of 5 da y window under both the stabilisat ion and resolution regimes), (ii) 
the publication and effectiveness of transfer orders. In addition, the ECB welcomes the clarification that 
stabilisation orders made under the 2010 Act are inte nded to fall within Directive 2001/24/EC of the 
European Parliament and of the Council of 4 April 2001 on the reorganisation and winding up of credit 
institutions
24.   
 
This opinion will be published on the ECB’s website.   
Done at Frankfurt am Main, 21 October 2011. 
[signed] 
The President of the ECB 
Jean-Claude TRICHET 
                                                     
22  See the ECB’s Convergence Report, May 2010, p. 21.   
23  Section 101(1) of the draft law. Opinion CON/2011/39 also re fers to the need for a ‘relationship framework’ between the 
Minister and the Governor. See also Opinions CON/2010/9 2 and CON/2009/93 concerning th e ‘relationship framework’. 
24  OJ L 125, 5.5.2001, p. 15. See for example the insertion of a new sub-section 2A in section 29 of the 2010 Act dealing 
with subordinated liabilities orders.