EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 25 February 2009 
at the request of the Irish Minister for Finance 
on a draft National Pensions Reserve Fund (Amendment) 
and Miscellaneous Provisions Bill 2009 
(CON/2009/16) 
 
Introduction and legal basis  
On 23 February 2009 the European Central Bank (ECB)  received a request from the Irish Minister for 
Finance (hereinafter the ‘Minister’) for an opinion on a draft National Pensions Reserve Fund 
(Amendment) and Miscellaneous Provisions B ill 2009 (hereinafter the ‘draft law’). 
The ECB’s competence to deliver an opinion is based on Articles 105(4) and 105(5) of the Treaty 
establishing the European Community and the third and si xth 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 provisions1, as the draft law contains provisions relating to the stability of 
Ireland’s financial system and the Central Bank and Fi nancial Services Authority of Ireland (hereinafter 
the ‘Central Bank’). In accordance wi th 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 
1.1 The draft law proposes amendments to the Nati onal Pensions Reserve Fund Act 2000 (hereinafter 
the ‘2000 Act’), and provides that the Minister may give a direction to the Commission of the National Pensions Reserve Fund (hereinafter the ‘Fund’) to: (i) invest in specified securities of a 
credit institution whose shares are admitted to tradin g on a regulated market; and (ii) underwrite or 
otherwise support the issue of any kind of securities of a credit institution whose shares are 
admitted to trading on a regulated market, where the Minister is of the opinion, after consulting the 
Governor of the Central Bank and the Irish Financ ial Services Regulatory Authority, that this is 
necessary to remedy a serious disturbance in the eco nomy or to prevent potential serious damage to 
the financial system in Ireland
2. The draft law authorises the Minister to direct the Commission in 
relation to the holding, management, exercise of voting rights attaching to and disposal of such investments. Under the draft law, a ‘credit instituti on’ is defined broadly to include an undertaking, 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2  Section 8 of the draft law. 
other than a credit union or friendly society , whos e business it is to receive deposits or other 
repay able fun ds from  the public and to  grant credit on its own account3.  
1.2 Under the draft law, the value of a shareholding or other inte rest held by  the Minister that is 
transferred to the Fund shall be taken to be i n satisfaction or pa rt-satisfaction of t he Mini ster’s 
obligation to make pay ments into t he Fund4. Commencing in 2001 and continuing until 2055, t he 
2000  Act requires the Min ister to pa y into the F und a sum  equivalent to 1 % of Ireland’s Gross 
National Product. Under the 2000 Act, the Fund is established under the ownership of the Minister 
and the managem ent and control of the Commission for the purpose of meeting  as much a s possible  
of the Exche quer’s cost o f soci al welfare and publi c service pen sions to be p aid from  2025 until  
2055  or later5.  
1.3 The draft law also provides for consequential a mendments to other provisio ns of Irish legislation i n 
order to facilitate the making of directed investm ents in credit inst itutions by the Co mmission or an 
invest ment vehicle establis hed by  the Commis sion6.  
1.4 The backgro und to  the dr aft law is the Irish Government’s annou ncem ent on 11 Februar y 2009 of  
the recapitali sation ter ms to be offered to two l eading Irish credit institutions, A llied Irish Bank and 
Bank of Ireland. Under the ter ms of the recap italisation, the Government would provide  
EUR 3.5 billion in core Tier 1 capital to each cred it institution, in return for which the Minister 
would receive preference shares with a  fixed divide nd of 8 % pay able in cash or ordinary  shares.  
These prefere nce shares c an be repurchased at par up to the fifth anniversary  of the issue and at 
125 % of the face value thereaft er. The Minister can appoint, in t otal, 25 % of the directors t o both 
credit institutions and would also receive 25 % of to tal ordinary  voting rights in respect of change 
of control an d board app ointments. Th e State would have an op tion in fi ve years to buy o rdinar y 
shares at a predeter mined strike price, which acco rding to the Government provides the State with  
the potential for a significant return. Of the total EUR 7 billion to be invested in the two credit 
institutions, EUR 4 billion would be f unded from  the Fund’s cur rent resources while EUR 3 billi on 
would be pro vided b y means of a frontloading of  the Exchequer contribut ions t o the Fund fo r 2009  
and 201 0. According to t he Irish Government’s anno uncem ent, the Govern ment does not int end to 
take control of these credit institutions. 
 
                                                 
3  Section 2 of th e draft law , whic h cross-refers to  the defi nition o f ‘credi t institu tion’ contai ned in  the Centr al Ban k Act 
1997, which in turn cross-refers to the defini tion of credit institution contain ed in the European Co mmunities (Licensing 
and Supervision  of Credit Institut ions) Regulation s, S.I. No 395/19 92. 
4  Section  6 of the draft law. 
5  Section  18(1), (2 ), (6)  and (7) of  the 2000 A ct 
6  Sections 5 and 9 of the draf t law. Th ese in clude the di sapplication of  certai n requirements of  Irish competition a nd 
takeov er law in r espect  of an  acquisition or  propo sed acqu isition  by the Com mission or a  Com mission investm ent vehicle 
of an interest in a credi t institution, clarification that the Commission and an y Commissi on investment vehicle are not 
subject to th e Irish regula tions i mplementing th e Marke ts in Financial Instruments (MiFID ) Direct ive and th at nothin g 
done b y the Minister or the Com mission for the purposes of a di rected investm ent in credi t instit utions constitut es a re-
organisation measure for the pu rposes of the Irish regulat ions i mplementing th e Direc tives on the reorg anisation and 
winding-up of credit institutions and insuran ce undertak ings.  
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2. General observations 
2.1 As stat ed in several EC B opinions on draft national laws r elating to emergen cy measures arising 
out of the current financial tur moil, including the recent opinions regarding such measures in 
Ireland7, it is i mportant for national authorities to coor dinate their r esponses to t he current fin ancial 
situation with their EU partners. Give n the si milarities of the causes and consequences of the  
financial crisi s across Me mber States and the pote ntial interdependencies of policy  responses, the 
ECB refers to the conclus ions adopted  at the Ecofin  Council m eeting o n 7 October 20 08, w hich 
highli ghted c ommon principles to guide  the action of  Mem ber States as follows: (i) interventions 
should be ti mely  and the support sho uld in princi ple be tem porary; (ii) the interests of taxpay ers 
should be protected; (iii) existing shareholde rs should bear the due consequences o f the 
intervention; (iv) the government should be in a position to bring about a change of management ; 
(v) management should n ot retain undue  benefits; (vi) governm ents may have, inter alia , the power 
to intervene in rem unerati on; (vii) the legiti mate interest of co mpetitors must be protect ed, in 
particular through the Stat e aid rules; and (v iii) negati ve spill-over effects should be avoided8.  
2.2 On 12 Octob er 2008 , the  Heads of State of the euro area issued a ‘Declaration on a co ncerted  
European action plan of t he euro area countries’ ( hereinafter the ‘Declaratio n’)9, in which they 
confirmed their co mmitment to act together in  a decisive and com prehens ive way  to restore  
confidence and the pr oper functioni ng of the financi al system , with the aim  of restoring appropriate  
and efficient financing conditi ons for  the econo my. The y agreed on common principles  to be 
followed b y governm ents, central banks and supe rvisors to avo id national measures ad versel y 
affecting the functioni ng of the single  market a nd the other Mem ber States. Such coordi nated  
approach includes initiatives ai med at providing addi tional capital resources to financial institutions  
and recapitalisation of dist ressed banks.  The Europe an Council endorsed these principles for all  
Mem ber States on 16  October 200 8. Ag ainst this b ackground, the ECB highlights that all initi atives 
put in place by  national governments to restore c onfidence in the fi nancial markets should be ai med 
at im plementing such common principles, in the spirit of close cooperation with other Mem ber 
States and EU institutions . 
 
3. Specific obse rvations 
3.1 Recapitalisati on pro posals  
3.1.1 In line with the Decl aratio n, Me mber St ates must act in a coordinated manner to avoid signific ant 
differences in national im plem entation having a co unter-productive  effect and creating distorti ons 
                                                 
7  ECB Opinion CON/2008/69 of 17 November 2 008 at the request  of the Irish Minister for Finan ce on a draft Financial 
Services (Deposit Guarant ee Schem e) Bill 2008 , ECB Opin ion CON/2008/48 of 15 October 2008 at the r equest of the 
Irish Minister f or Finance on  a draft Cr edit Instituti ons (F inancial Suppor t) Schem e 200 8, and ECB O pinion 
CON/2008/44 of 3 Octob er 2008  at the requ est o f the Irish Minis ter for  Finan ce on a dr aft Credi t Institutions (Fin ancial 
Support) Bill 20 08. 
8  See the press  release of th e 2894t h Cou ncil meeting ( 13784/08), av ailable on the Council’s website at 
www.consilium.europa.eu. 
9  The Declaration is availab le on th e French  Presidency ’s website at www.ue2008.fr. 
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in glo bal ban king m arkets. The Declaration ac knowl edges the need to wor k in cooperation with 
the ECB to ensure consistency  with the  Euros ystem’s managemen t of liquidi ty and com patibility 
with its oper ational framework. Agains t this b ackgr ound , the ECB reiterates that uncoor dinated 
decisions among Mem ber States should be avoided as they  may lead to a fragmentation of the  
euro area money market. I n this respect , the ECB makes the following observ ations, which are 
important from  a monetary  polic y perspective, as regards the proposed recapital isation measu res. 
3.1.2 The ECB notes that the recapitalis ation measure s considered in Member Stat es are aimed a t 
strengthening the capital position of f undam entally sound financial institutions, in order to 
improve the functioni ng and stabilit y of the banking system  and to ensure the proper financing of 
the econom y. In particular, a consistent approach  should be used in defining t he conditions  for 
recapitalis ations and the pricing of the instrument s intended to provide Tier 1 capital to financial 
institutions. The ECB underlines the im portance of appropriate pricing for r ecapitalisations to  
reflect  the goals of enhancing the stability  of th e financial sy stem , facilitating a return to normal  
market conditions and ens uring t he pro per financ ing of the econo my. Against this backgrou nd, 
the ECB ha s published reco mmendati ons on the pric ing of recapitalisations (hereinafte r the 
‘Reco mmend ations’)10. The ECB highlights that the prici ng conditions for cap ital support shoul d 
be risk-based and m arket- oriented, deter mined by taking into c onsideration the specific risks 
related to both the specific instrum ent chosen fo r injecting capital and the insti tution concerned.  
Specific features of the instrume nts for capital injections (such  as preference shares) should be 
appropriatel y chosen so that, while encouragi ng an  early  end to  the State’s capital support of 
banks, the y should  not res ult in an exce ssive increase in the cost of  capital.  
3.1.3 In line with the Decl aration, the ECB e mphasises that harm onisation regarding the expir y of 
national financial support  schemes across the EU and in particu lar within the euro area is of 
crucial im portance. Furtherm ore, in line with previou s ECB opinions11, it should be ensured that  
such m easures are in accordance wit h the requirements of  Community  com petition law, in  
particular Sta te aid rules,  and that the State’ s role as shareholder is limited in ti me. In this respect , 
the annou ncement by the Irish Govern ment on 1 1 February 20 09 states that the Government’s 
recapitalis ation proposals have been designed having regard to the European Co mmis sion’s 
Communicati on entitled ‘The recapital isation of fina ncial institutions in the current financial 
crisis: li mitation of  aid to the m inimum necessar y and safeguards against un due distortio ns of  
competition’12 and are subject to EU State aid approval. The announce ment sets o ut certain ter ms 
for the repurc hase of the preference shar es at par in the two credit institutions concerned up to the 
fifth anniversary  of the issue and at 125  % of th e face  value thereaf ter. While the Government has 
                                                 
10  See the Recommendations of the Governing C ouncil of th e Eu ropean Central Bank on the pr icing of reca pitalisations 
issued on 20  November 2008, av ailable on the ECB’s website at www.ecb.europ a.eu. 
11  See, e.g., par agraph 3.1.3 of EC B Opinion CON/2009/3 of 8 Januar y 2009 at the request of the Slovenian Minis try of 
Finance on a draft decree lay ing down crit eria an d conditions for the implementation of  State capital inv estments and for  
the conv ersion of State claims into cap ital shar es under Article 81.a of the Law on public fin ance and ECB Opinion  
CON/2009/6 of 26 Januar y 2009  at th e requ est o f the Dan ish Ministr y of Econo mic and Busines s Affairs on a pr oposal 
for a Law  on State investments in cred it institutio ns and a proposal for a Law amending the Law o n finan cial stability . 
12  OJ C 10, 15 .1.20 09, p . 2. 
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made clear th at it does not intend to take contro l of these two cr edit institutions, the State would 
have an opti on to buy ordinar y shares in five years at a predeterm ined strike price that would  
provide the  State with the potential for a significant return. In acc ordance wit h the  
Reco mmendations, the E CB considers that, while the pricing a nd ot her con ditions of  capital 
injections should pr otect the interests of taxpay ers by ensuring an equitable return on pu blic 
investm ent, term s should be set on the redem ption o f the instrum ents so as to  retain the tem porary 
nature of the State’s invol vement and to discour age financial institutions from  maintaining such 
involvem ent for an extensive period of t ime.  
3.2 Role of the C entral Bank Governor  
The Central Bank’s role  in relation t o the Fu nd w ill be lim ited to provi ding advice through 
consultation with the Gov ernor on  the directed investm ents of the Fund.  The ECB considers that  
this advisor y role of the G overnor is co nsistent  with the Governor ’s overall po wers and fun ctions 
with respect to the stabilit y of Ireland’s f inancial sy stem  under the Central Bank Act 1942. 
 
This opini on will be publis hed on t he ECB’s website.  
 
 
Done at Frankfurt am  Main, 25  February 20 09. 
 
[signed ] 
 
The President of the ECB 
Jean-Claude TRICHET 
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