EN ECB-PUBLIC  
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 6 August 2014 
on resolution of credit institutions and investment firms 
(CON/2014/62) 
 Introduction and legal basis 
On 2 June 2014 the European Central Bank (ECB) recei ved a request from the Hungarian Ministry for the 
National Economy (hereinafter the ‘consulting authorit y’) for an opinion on a draft law establishing a 
resolution framework for credit institutions and investme nt firms (hereinafter the ‘draft law’). Given the 
advanced stage of the legislative process, the cons ulting authority asked for the adoption of the ECB’s 
opinion on an urgent basis. 
On 20 June 2014 the consulting authority notified the ECB that the version of the draft law which had 
been submitted to Parliament for adoption was substa ntially different from the version sent to the ECB. 
The ECB has therefore adopted its opinion based on the version of the draft law available on the website 
of the Hungarian Parliament1. 
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 sixth i ndent of Article 2(1) of Council Decision 98/415/EC2, 
as the draft decree relates to rules applicable to fina ncial institutions insofar 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 Ba nk, the Governing Council has adopted this opinion. 
 1 Purpose of the draft law 1.1 According to the explanatory memorandum, th e draft law aims to transposing Directive 
2014/59/EU of the European Pa rliament and of the Council
3 (hereinafter the ‘BRRD’) by providing 
early intervention tools and resolution tools for the Magyar Nemzeti Bank (MNB) as the resolution 
authority designated to manage failing or likely to fail credit institutions and investment firms, in order to allow the MNB to ensure the continuity of the credit institutions’ and investment firms’ 
                                                 
1  Draft law No T/262, submitted to the Hungarian Parliament on 12 June 2014. 
2  Council Decision 98/415/EC of 29 June 1998 on the consultati on of the European Central Bank by national authorities 
regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 
3  Directive 2014/59/EU of the European Parliament and the Council of 15 May 2014 establishing a framework for the 
recovery and resolution of credit institutions and invest ment firms and amending Counc il Directive 82/891/EEC, and 
Directives 2001/24/EC, 2002/47/EC, 2004 /25/EC, 2005/56/EC, 2007/36/EC, 201 1/35/EU, 2012/30/EU and 2013/36/EU, 
and Regulations (EU) No 1093/2010 and (E U) No 648/2012, of the European Par liament and of the Council (OJ L 173, 
12.6.2014, p. 190.)  
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2 fundamental financial and economic functions wh ile minimising the impact on the financial 
system. The draft law also aims to maintain the st ability of the financial markets, and to minimise 
the cost to taxpayers of any potential resolution via the establishment of a resolution fund funded by levies on credit institutions and investment firms.  
1.2 To facilitate the above aims, the draft law also amends several Hungarian legal acts, including the 
Law on the Magyar Nemzeti Bank
4.  
1.3 The draft law is planned to enter into force thr ee days after its publication, with the exception of a 
number of provisions which will only enter in to force sixty days after its adoption. 
 2 General observations  
2.1 Appropriate time to consult the ECB  
The ECB received the request from the consulting au thority for an urgent consultation on the draft 
law on 2 June 2014. It requested the ECB’s opinion by 25 June 2014. On 20 June 2014 it informed the ECB of substantial changes to the draft law. 
The draft law was adopted on 4 July 2014 before the ECB could adopt this opinion
5. As a 
consequence, there was no possibility for the Hungari an legislator to take the ECB’s views into 
account before adopting the draft law. This made the request for an urgent ECB opinion obsolete. 
Furthermore, the draft law was enacted with subs tantial amendments which were not sent to the 
ECB for consultation. 
With regard to the consultation on the draft law,  the Hungarian authorities have not complied with 
their duty to consult the ECB. The adoption of this opinion in no way divests the Hungarian authorities of their duty to consult in compliance wi th this obligation, since this duty is important 
for the application and interpretation of the en acted law and any possible future amendments. 
The ECB reiterates that even cases of particular urgency do not relieve national authorities from 
their duty under Articles 127(4) and 282(5) of the Treaty to consult the ECB and to allow sufficient 
time to take its views into account, in accord ance with Decision 98/415/EC. Any significant 
amendments to the draft law, as in the case of the pr ovisions subject to this consultation, have to be 
submitted to the ECB in order to allow it to issue its opinion based on the most recent text. In cases 
of particular urgency which do not allow for a nor mal consultation period, the consulting authority 
may indicate urgency in the consultation request  and ask for a shorter deadline for the ECB’s 
opinion to be adopted, thereby indicating the estim ated course of the legislative process. However, 
the second sentence of Article 4 of Decision 98/415/EC provides that the ECB must be consulted ‘at an appropriate stage’ in the legislative pro cess. This implies that the consultation should take 
place at a point in the legislative process which gi ves the ECB sufficient time  to examine the draft 
legislative provisions and to adopt its opinion in  all required language ve rsions, and which also 
                                                 
4  Law CXXXIX of 2013 on the Magyar Nemzeti Bank. 
5  Law XXXVII of 2014, published in Magyar Közlöny 98/2014 on 18 July 2014. 
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3 enables the relevant national authorities to take the ECB’s opinion into consideration before the 
provisions are adopted. Article 3(4) of Decision 98/415/EC also obliges Member States to suspend the adoption process for draft legislative provi sions, pending receipt of the ECB’s opinion. 
The ECB would appreciate the consulting authority honouring its obligation to consult the ECB in 
line with the provisions of Decision 98/415/EC in the future. 
2.2 Independence of the MNB  
The ECB welcomes the new resolu tion tasks allocated to the MNB under the draft law, which are 
broadly consistent with its financial stability role. The ECB understands that these tasks will not 
interfere with the performance of its ESCB-re lated tasks under the Treaty or reduce the funds 
available to carry them out
6. The ECB reiterates that, in view of the MNB’s new role as resolution 
authority and in line with the principle of financ ial independence, appropria te resources will have 
to be made available to ensure that it is able to perform these new tasks7. In order to be compatible 
with the Treaty, any involvement on the part of  the MNB or the members of its decision-making 
bodies in measures to strengthen financial stab ility must safeguard the MNB’s functional, 
institutional and financial inde pendence and the personal independence of the members of its 
decision-making bodies, and the proper performance of their tasks from an operational and financial point of view under the Treaty and the St atute of the European System of Central Banks 
and of the European Central Bank.  
 3. Specific observations 3.1 Funding and replenishment of the resolution fund 
The ECB welcomes the fact that the initial capitalisation of the resolution fund will be achieved 
through the imposition of an ex ante levy on the financial services industry, as this will protect public funds and reduce moral haza rd. This is considered to be broadly in line with the 
countercyclical approach taken in the BRRD of  building up funds before a crisis. As funds 
accumulated ex ante may prove insufficient in a cr isis situation, the ECB welcomes the provisions 
of the draft law
8 requiring the banking sector to repay any funds provided by the State during a 
resolution, if these are not recovered during the r esolution process. This c oncept of extraordinary 
ex post levies, which is enshrined in the BRRD, pr omotes additional market discipline and is aimed 
at addressing moral hazard risk9. The ECB also welcomes the provision of the draft law10 stating 
that the MNB may not under any circumstances fina nce the resolution fund, which is in line with 
                                                 
6  See paragraph 4 of Opinion CON/2014/ 31, paragraph 3.3 of Opinion CON/ 2013/10, paragraph 2.3 of Opinion 
CON/2012/52, paragraph 3 of Opinion CON/2011/69, and paragraph 3.2.3 of Opinion CON/2010/33. All ECB opinions 
are published on the ECB’s we bsite at www.ecb.europa.eu. 
7  See paragraph 3.1.2 of Opinion CON/2013/56. 
8  See Articles 127, 132 and 140 of the draft law. 
9  See further paragraph 6.3 of Opinion CON/2010/83. 
10  See Article 132(3) of the draft law. 
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4 the prohibition of monetary financing11. The ECB understands that this provision applies to all of 
the MNB’s activities related to the resolution fund, including the management of the account of the 
resolution fund pursuant to Article 134 of the draft law. 
3.2 Cooperation with the ECB 
 Hungary is not a participating Member Stat e under Council Regulation (EU) No 1024/2013 of 15 
October 201312, i.e. it is not a Member State whose currency is the euro or a Member State whose 
currency is not the euro which has established cl ose cooperation in accordance with Article 7 of 
Regulation (EU) No 1024/2013. While there is no reference in the draft law to the MNB as the 
competent authority of a non-participating Member State cooperating with the ECB in the performance of supervisory tasks under Union la w, such cooperation is essential and should be 
carried out in accordance with Article 3( 6) of Regulation (EU) No 1024/2013.  
3.3 Operational separation of the MNB’s supervisory and resolution functions  
 In view of the MNB carrying out both resolution and supervisory functions, the ECB notes that, 
while the draft law states the principle that the resolution function will be operationally 
independent from the MNB’s othe r functions, it does not specify any particular arrangements that 
are to be put in place in order to safeguard this  independence. The BRRD ‘exceptionally’ allows an 
authority to carry out both resolution and superv isory functions on the condition that adequate 
structural arrangements are put in place to ensure  operational independence and to avoid conflicts 
of interest between the resolution function and the authority’s other functions. By way of example, 
the BRRD envisages structural separation being ach ieved through separate reporting lines for staff 
involved in carrying out resolution tasks from those involved in supervision activity. The ECB recommends introducing the requirements for adequa te structural separation as laid down in the 
BRRD
13, in order to ensure the operational indepe ndence of the resolution function within the 
MNB. That separation should not, however, prev ent the resolution function from having access to 
any necessary information which is ava ilable to the supervisory function. 
3.4 Independent valuation   
The MNB is required to determine the value of th e assets and liabilities of the institution that will 
undergo resolution by means of an independent valu ation. Article 23(8) of the draft law provides 
that the MNB, acting in its resolution capacity, has to approve the independent valuation by issuing 
an order. The order can only be overturned as part of a legal challenge to the decision ordering the 
resolution of the institution. The ECB considers th at it should be made clear that the valuation 
report is an integral part of the decision orderi ng the resolution and thus should not require separate 
approval. It is important that upon ordering a va luation report the MNB does not take any action 
                                                 
11  See the ECB’s June 2014 Convergence Report, p. 38. See al so paragraph 4 of Opinion CON/2011/103, paragraph 4.3 of 
Opinion CON/2011/93, paragraph 3.6 of Opinion C ON/2011/39 and paragraph 3.2 of Opinion CON/2008/59. 
12  Council Regulation (EU) No 1024/2013 of 15 October 2013 c onferring 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). 
13  Pursuant to the third indent of Article 288 of the Treaty, national authorities are free to choose the form and methods of 
implementing a directive. 
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5 during or after the preparation of the report that could cast doubt on the independence of the entity 
which prepared it. 
3.5 Legal remedies  
Article 116 of the draft law grants affected partie s the right to appeal against an MNB decision 
ordering a resolution or exercising resolution powers. However, the ECB notes that Article 116(4) of the draft law imposes a number of restrictions on the rights of appellants. The consulting authority is invited to consider whether these rest rictions are necessary to ensure the expeditious 
determination of such appeals, and consistent with the need to preserve a balance between the 
property rights of affected parties and the public interest in a prompt resolution being affected by the resolution authority. What is critical is th at the filing of the appeal does not suspend the 
resolution process.  
3.6 Sale of business tool  
 Article 36(2) of the draft law appears to allow the MNB in its capacity as resolution authority to 
require an institution to search for a buyer of its business, or even take over from the institution’s 
management in conducting such a search, althoug h the competent authorities have not yet placed 
the institution into resolution
14. In this context the ECB notes that Article 36(2) of the draft law is 
not fully in line with Article 27(2) of the BRRD. This provision of the BRRD sets out that if the conditions for early intervention are met, the r esolution authority may require the institution to 
contact potential purchasers in order to prepare for its resolution. In contrast, the draft law makes 
the power to require the institution to contact  potential purchasers conditional on the unsuccessful 
use of intervention measures. Furthermore, the BRRD also grants resolution authorities the power 
to decide on the timing for the potential application of the sale of business tool, without linking it to the unsuccessful application of intervention measures.  With a view to the above, Article 36(2) of 
the law would benefit from being brought in line with  the provisions set out in Article 27(2) of the 
BRRD. 
3.7 Depositor preference rules  
The ECB considers that a depositor preference as set out in Article 108 of the BRRD, i.e. ‘super 
priority’ for covered deposits in the ranking of cred itors in insolvency, and ‘simple priority’ for all 
eligible deposits held by natura l persons, and by micro, small and medium-sized enterprises in the 
ranking of creditors in insolvency, should be full y and clearly introduced into Hungarian law. The 
ECB understands that Article 154 read in conj unction with Article 160(6) of the draft law 
introduces some form of preference, which, however , does not clearly and fully reflect Article 108 
of the BRRD, because the distinction between cove red and eligible deposits is not reflected 
adequately, thereby allowing for multiple interpreta tions of these provisions of the draft law. The 
                                                 
14  In this connection see also the conditions for a resoluti on to commence and the procedure to be followed set out in 
Article 17 of the draft law. 
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6 ECB points out that it is necessary to fully and clearly implement the depositor preference in 
Hungarian legislation by the 31 December 2014 transposition deadline set by the BRRD.  
 
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 6. August 2014.  
[signed] 
 
The President of the ECB 
Mario DRAGHI