EN ECB-P UBLIC  
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 26 April 2011  
on recovery and resolution measures for credit institutions  
(CON/2011/39) 
 
Introduction and legal basis  
On 28 February 2011, the European Central Bank (ECB)  received a request from the Irish Minister for 
Finance (hereinafter the ‘Minister’) for an opini on on the Central Bank and Credit Institutions 
(Resolution) Bill 2011 (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 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 provisions
1, as the draft law relates to the Ce ntral Bank of Ireland (hereinafter 
the ‘Central Bank’) and contains rules applicable to  financial institutions insofar as they materially 
influence the stability of financial institutions and markets. In accordance w ith the first sentence of 
Article 17.5 of the Rules of Procedure of the Eur opean Central Bank, the Governing Council has adopted 
this opinion.  
 1. Purpose of the draft law  
1.1 The draft law was foreseen as one of the actions implementing the financial assistance programme 
agreed between the Minister, the European Comm ission, the ECB and the International Monetary 
Fund to restore confidence in the banking sector and achieve financial stability in the Irish 
economy
2, alongside the Credit Institutions (Stabilisat ion) Act 2010 on which the ECB issued its 
opinion on 17 December 20103 (the ‘2010 Act’). The draft la w will apply to banks, building 
societies and credit unions licensed in Ireland (co llectively referred to as ‘authorised credit 
institutions’)4. However, the draft law will not apply to ‘relevant institutions’ to which the 2010 Act 
applies (which includes Irish licensed banks to which financial support has been given by the 
                                                      
1  OJ L 189, 3.7.1998, p. 42. 
2  See the Memorandum of Understanding on specific economic  policy conditionality of 3 December 2010, page 4, 
available on the Commission’s website at www.ec.europa.eu.  
3   Opinion CON/2010/92. All ECB opinions are availabl e on the ECB’s website at www.ecb.europa.eu.  
4  Section 2(1) of the draft law. 
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2 Minister) until they cease to be relevant institutions for the purposes of the 2010 Act5. The ECB 
notes that the draft law would, therefore, create a permanent crisis management and resolution regime for ‘authorised credit institutions’ only; th e temporary regime created by the 2010 Act will 
expire on 31 December 2012, unless extended. Given the exclusion
6 of ‘relevant institutions’ under 
the 2010 Act from being ‘authorised credit institu tions’ under the draft law, an Irish credit 
institution will be subject to one stabilisation a nd resolution regime only, at any given time. 
1.2 The draft law grants the Central Bank a set of  resolution powers over the authorised credit 
institutions. It provides that, amongst other thin gs, the Central Bank: (i) may, if specified 
‘intervention conditions’ are satisfied, propose speci al management orders to appoint a special 
manager to an authorised credit institution or propose transfer orders relating to all or any part of an 
authorised credit institution’s assets and/or liabilities; (ii) shall administer a fund to be applied to 
the resolution of financial instability in, or an immi nent serious threat to the financial stability of, 
authorised credit institutions; (iii) may establish a bridge bank which could on a temporary basis 
hold the assets and liabilities of an authorised credit institution and carry on a banking business; (iv) may petition for the winding up of an aut horised credit institution under a new liquidation 
regime for such institutions, and may nominate two members to the liquidation committee; (v) may 
direct an authorised credit institution to prepare and, when necessary or desirable, implement, a 
‘recovery plan’, and may itself prepare a ‘resoluti on plan’ in respect of any such institution. The 
draft law also foresees that the Minister: (i) has certain regulatory powers in relation to the abovementioned fund, bridge banks a nd the transfer of assets and liab ilities; (ii) is to be consulted 
before certain decisions in relation to an author ised credit institution are taken; and (iii) has the 
right to nominate one member to the liquidation committee. 
 2. General observations  2.1 In line with its previous opinions, the ECB em phasises that, when adopting resolution measures for 
financial institutions, Member States should act in a coordinated manner in order to avoid 
significant differences in national implementati on having a counterproductive effect, which may 
involve distortions in global banking markets. Against this background, any national measure 
should ensure a sufficiently level playing field with in the euro area, which is of key importance to 
maintaining the integrity of the euro area banking system. 
                                                      
5  Section 69(1) of the 2010 Act provides that it ceases to ha ve effect on 31 December 2012 unless extended; Section 69(2) 
and (3) clarify, however, that any order or requirement made continues to have effect and that the provisions of the Act 
remain effective with respect to such orders and requirements. At the current time, ‘relevant institutions’ under the 2010 
Act comprise: (i) all of the main Irish credit institutions, na mely: Allied Irish Banks, p.l.c., Anglo Irish Bank Corporation 
Limited, Bank of Ireland, , EBS Buildi ng Society, Irish Nationwide Building Soci ety and Irish Life and Permanent plc; 
(ii) any subsidiaries/holding companies of  those institutions; and (iii) all credit uni ons (of which there are more than 400). 
If the draft law is enacted as currently drafted, credit un ions will no longer be ‘relevant institutions’ under the 2010 Act 
(as Part 3 of Schedule 1 of the draft law will amend the de finition of ‘relevant institution’ by deleting the reference 
therein to credit unions) and the 2010 Act will no longer apply to  credit unions except to the extent that any orders or 
requirements have been made in re gard to them under the 2010 Act. 
6 It would be helpful if it was made clear that this exclusio n does not stop the relevant institution from being authorised to 
carry on banking business. 
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3 2.2 The ECB welcomes the wider powers under the draft law that will be available to the Central Bank, 
to manage and resolve financial institutions wh ich are financially distressed and whose demise 
would threaten the stability of the financial system. They will include, for instance, the 
appointment of special managers with the intent  of preserving or restoring a credit institution’s 
financial position. As in the case of the 2010 Act,  the resolution powers foreseen under the draft 
law, which are exercised by ex parte  application to a court without a full hearing on the merits7, 
have the potential to raise legal issues with r espect to the exercise of the property rights of 
institutions’ shareholders and creditors. Thus, it is  important for any regime to properly balance 
these fundamental rights with the general interest in  the financial system’s stability. In this regard, 
the ECB would welcome if the draft law would include some elaboration of the rights of 
transferors, creditors and other third parties as regards compensation and certain other rights and 
remedies, if any, in respect of the resolution orders.  
2.3 Measures that are intended to safeguard fina ncial stability should involve cooperation with the 
relevant Member State authorities, in line with Union legislation and the arrangements in place, such as the Memorandum of Understanding on c ooperation between the fi nancial supervisory 
authorities, central banks and finance ministries of the European Union on cross-border financial 
stability
8. 
 3. Specific observations   
Central Bank independence 3.1 The draft law specifies in Section 6 that nothing in its provisions prevents the performance by the 
Governor or the Central Bank of their functions in  relation to any credit institution authorised or 
regulated in the State, or affects any obligati on arising under the Treaties governing the European 
Union or the European Communities or the ESCB Statute. The ECB notes that Section 6 does not 
expressly refer to the Treaty principle of central bank independence nor state that it prevails over any incompatible draft law provision. However,  the ECB understands that it confirms the 
obligations arising under the Tr eaties, including the protection of central bank independence. 
3.2 In its opinion on the 2010 Act, the ECB recomme nded that any ‘relationship framework’ prepared 
under that measure should recognise the Central Ba nk’s institutional and financial independence 
and the Governor’s personal independence
9. The ECB notes that Section 89 of the draft law 
expressly limits the extent of any intervention by the Minister in the performance of the Central 
Bank’s functions in the context of any relations hip framework which may be prepared under the 
draft law. In this respect, an explicit reference should be made to the principle of central bank 
independence. 
                                                      
7  See, e.g., Section 23(1) concerning transfer orders a nd Section 41(1) concerning special management orders. 
8  Concluded on  1 June 2008. Available on the EC B’s website at www.ecb.europa.eu.  
9  Paragraph 3.3 of Opinion CON/2010/92; see also similar observa tions in paragraph 3.1.6 of Opinion CON/2009/93. 
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4 3.3 The ECB notes that Section 82(1) of the draft law states that the Minister may in certain 
circumstances make orders mitigating any unfairn ess or undue hardship caused by the operation of 
Section 81 of the Act which impacts on the rights of  counterparties dealing with authorised credit 
institutions under relevant ag reements. The ECB recommends that Section 82 be amended to 
require the Minister to consult with the Central Bank prior to making any such order. 
Extra-territorial effect 3.4 As set out above, the draft law will apply to ba nks, building societies and credit unions licensed in 
Ireland (‘authorised credit institutions’). However, the ECB notes that the draft law provides that a 
transfer order and a special management order may be made in relation to a ‘subsidiary’ or ‘holding 
company’ of an authorised credit institution, as well as in relation to the authorised credit 
institution itself (Sections 20 and 38 of the draft la w). The ECB understands that the definitions of 
‘subsidiary’ and ‘holding company’ under th e draft law may include foreign corporations
10. The 
ECB assumes therefore that the Irish legislator intends the resolution measures contained in the 
draft law to also apply to foreign incorporated  holding companies and subsidiaries of authorised 
credit institutions. The ECB notes that these meas ures may only be enforceable against such 
foreign legal entities to the extent permitted under the foreign law applicable to them.   
Bank levy 3.5 Section 12 of the draft law provides that authori sed credit institutions shall contribute to the Credit 
Institutions Resolution Fund (the 'Fund') in accord ance with regulations. While the ECB notes that 
such regulations are to be made by the Minister a nd that these regulations are to provide for the rate 
of contribution, or method of calculation of such rate (Section 14(1) of the draft law), the method 
of calculation is not sufficiently clear from the draft la w. In particular, it is not clear to what extent 
foreign assets and liabilities of authorised credit in stitutions, or indeed fo reign assets and liabilities 
of foreign subsidiaries of authorised credit ins titutions, would be included in the calculation. The 
ECB would welcome more explicit clarification in th e draft law as to which assets and liabilities of 
authorised credit institutions come within the sc ope of the Fund contribution calculations, and that 
assets and liabilities of foreign subsidiaries of such  authorised credit institutions are excluded from 
the calculation of the contribution.  
Establishment of ‘bridge banks’ 3.6 Under Section 16 of the draft law, the Central Bank may form private companies as bridge banks to 
which the assets and liabilities of an authorised credit institution may be transferred on a temporary 
basis pursuant to a transfer order. Sections 9(2) and 16(4) provide that any such bridge banks shall 
be capitalised from the fund with the consent of  the Minister. The ECB welcomes the introduction 
in the draft law of the option of addressing a possible crisis situation through the transfer of a distressed institution’s assets and liabilities to a bridge bank. The availability of a bridge bank is 
                                                      
10  The draft law defines ‘subsidiary’ and ‘holding company’ wi th reference to section 155 of the Irish Companies Act 1963 
and to the Irish European Communities (Companies: Group Accounts) Regulations 1992. 
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5 recognised as part of an enhanced convergence of  national legal schemes for crisis management 
and resolution which are developing at both international and European level11. The ECB welcomes 
in particular that Section 16(4) of the draft la w prohibits the Central Bank from providing capital to 
any bridge bank from its own resources. In this respect, the ECB would welcome an explicit mention in the draft law that the Central Bank as a shareholder in a bridge bank will in no event 
assume or finance any obligation of a bridge bank , and that this role will remain, under any 
circumstances, consistent with the prohibition of  monetary financing under Article 123 of the 
Treaty, as supplemented by Council Regulation (EC) No 3603/93
12, which prohibits, inter alia, any 
financing by a central bank of the obligations of th e public sector vis-à-vis third parties, and further 
that Sections 9(2)(c), 16 and 18 sh all be without prejudice to the independence of the Central Bank, 
in particular its financial a nd institutional independence.  
Recovery planning 3.7 Section 73 of the draft law entitles the Central Ba nk to direct an authorised credit institution to 
prepare and submit to the Central Bank, for review, a recovery plan to facilitate, without recourse 
to State aid, the continuation or securing of the bus iness of such an authorised credit institution. 
The Central Bank may direct the relevant authorised  credit institution to make such changes to its 
recovery plan as the Central Bank considers a ppropriate. The ECB notes that this provision is 
broadly in line with the recommendations of th e Commission’s DG Internal Market and Services 
latest working document on a possible EU framework for bank recovery and resolution
13. The ECB 
would welcome the incorporation of the detailed pr ovisions of the working document into any code 
of practice issued pursuant to Section 73(3) of the draft law.    
Valuation mechanism 3.8 The ECB notes that Sections 22(4) and 31 do not set out any specific approach to valuation of the 
assets transferred. The reliance on a competitive pro cess (Section 22(4)), and the appointment of an 
independent valuer only if the va luation is disputed (Section 31(1)), do not seem sufficient to allow 
for a transparent and legally certain valuation. Although a detailed methodology may not be necessary at the level of the law, it should minima lly set out the principles that will be used to 
determine the value of the assets. This is a precond ition for a fair treatment of creditors and other 
third parties, as their right of compensation may only  be duly assessed against this information. It is 
important that market participants are informed in advance what rights they will have to claim 
compensation and on what valuation basis.  
                                                      
11  See in particular the DG Internal Market and Services Working Document, Part 4 G3, referred to in footnote 8; the 
‘Report and Recommendations of the Cross-border Bank Resolution Group’, March 2010, available on the Bank for 
International Settlement’s we bsite at www.bis.org; and the ‘Practice Guide on Cross-Border  Insolvency Cooperation’ 
adopted by UNCITRAL on 1 July 2009, availabl e on UNCITRAL’s website at www.uncitral.org. 
12   Council Regulation (EC) No 3603/93 of 13 December 1993 specify ing definitions for the application of the prohibitions 
in Article 104 and 104b(1) of the Treaty (OJ L 332, 31.12.1993, p. 1). 
13  See http://ec.europa.eu/internal_m arket/consultations/docs/ 2011/crisis_management/cons ultation_paper_en.pdf. 
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6 Collateral and netting  
3.9 The ECB notes that Section 81 of the draft law w ould have the effect of ‘switching off’ the rights 
of counterparties to the authorised credit institutio ns under ‘relevant agreem ents’ in certain events. 
Those events include the adoption of the draft law and any order made under powers thereunder. 
Section 81(4) sets out a list of consequences that  are to be ‘switched off’. Those consequences 
include ‘any event of default or breach of any ri ght arising’ under a relevant agreement. At the 
same time Section 85 states that nothing in the dr aft law shall affect the operation of, inter alia, the 
Irish regulations implementing the Settlement Fi nality Directive and the Financial Collateral 
Arrangements Directive14 (FCAD), in relation to any agreement to which the authorised credit 
institution or its subsidiary is a party. 
Moreover, the draft law also amends the 2004 and 2010 Regulations implementing the FCAD in 
Ireland. For instance, Schedule 2, Part 2 of the dr aft law provides for an amendment to the effect 
that ‘for the avoidance of doubt, nothing in Regulation 6, 7, 10 and 11 or 12 [of the 2010 Regulations] shall affect the operation … of Section 81 of the draft law.’
15 
3.10 The ECB understands that the intention behind  Section 81 is to ensure that a measure adopted 
under the draft law is not deemed to be an ‘enforcement event’16 for the purposes of the FCAD as 
implemented in Ireland, but that it does not aim to interfere with the close-out netting rights per se 
of the counterparty under a relevant agreemen t. Also, Section 85 expressly leaves undisturbed 
Regulation 30 of the 2011 Regulations17, which states that the netting agreement is governed solely 
by the law of the contract that governs the agreement.  
Moreover, by denying to counterparties the c onsequences which normally would occur under their 
agreement in the event of the adoption of a meas ure under the draft law, it could be argued that 
these provisions prevent the close-out netting provis ions from ‘[taking] effect in accordance with 
their terms’ as required by the FCAD. The ECB recommends that the interaction of these provisions with the FCAD is clarified, if necessary in an explanatory note to the draft law. 
 This opinion will be published on the ECB’s website.  Done at Frankfurt am Main, 26 April 2011. 
[signed] 
The President of the ECB 
Jean-Claude TRICHET 
                                                      
14  Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and 
security settlement systems (O J L 166, 11.6.1998, p. 45); and Directive 2002/ 47/EC of the European Parliament and the 
Council of 6 June 2002 on financial collater al arrangements (OJ L 168, 27.6.2002, p. 43). 
15  Schedule 2, Part 2 of the draft law amends the European Communities (Financial Collateral Arrangements) Regulations 
2010. 
16   As defined in Article 2(1)(l) of the FCAD. 
17  European Communities (Reorganisation and Windi ng-Up of Credit Institutions) Regulations 2011.