EN ECB-PUBLIC 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 11 November 2014 
on the resolution of credit in stitutions and investment firms 
(CON/2014/80) 
 Introduction and legal basis 
On 2 October 2014, the European Central Bank (ECB) received a request from the Magyar Nemzeti Bank 
(MNB) for an opinion on a draft decree establishing certain specific criteria for the purposes of assessing whether a credit institution or an investment firm qualifie s as failing or likely to fail (hereinafter the ‘draft 
decree’). 
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 inde nt of Article 2(1) of Council Decision 98/415/EC
1, 
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 acc ordance 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 decree  
1.1 The Hungarian Parliament has re cently adopted Law XXXVII of 2014
2 on the resolution of credit 
institutions and investment firms (hereinafter th e ‘Law on resolution’) in order to transpose 
Directive 2014/59/EU of the Europe an Parliament and of the Council3 (hereinafter the ‘BRRD’) 
into Hungarian law. The ECB considered the Law on resolution, in its draft form, in Opinion CON/2014/62
4. This law provides for early intervention and resolution tools for use by the MNB as 
the resolution authority designated to manage credit institutions and investment firms that are 
failing or likely to fail. 
1.2 Article 32 of the BRRD sets out conditions fo r resolution which were transposed into Hungarian 
law by Article 17 of the Law on resolution. The Law on resolution5 also empowers the Governor of 
                                                 
1  Council Decision 98/415/EC of 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). 
2  Published in Magyar Közlöny  2014/98. 
3  Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the 
recovery and resolution of credit institutions and invest ment firms and amending Coun cil Directive 82/891/EEC, and 
Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC , 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, 
and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council (OJ L 173, 
12.6.2014, p. 190.) 
4  All ECB’s opinions are available on  its website at: www.ecb.europa.eu. 
5  See Article 145(2)(d)and (e ) of the Law on resolution. 
ECB-PUBLIC  
2 the MNB to adopt criteria applicable to the proc edure for the resolution of credit institutions and 
investment firms. Accordingly, in order to facilitate an assessment of whether the conditions set out in Article 17(2)(a) to (c) of the Law on  resolution are met, the draft decree:  
 sets out the quantitative criteria for establishing  if there has been an infringement of the 
requirements, for assessing whether a credit institutions or investment firm is failing or likely to fail; 
 sets out certain percentages applicable to the capital requirements of credit institutions and 
investment firms as an upper limit at which an institution may or will be deemed to be 
failing; 
 sets out detailed rules on the criteria the MNB will take into account when deciding whether 
a credit institution or an investment firm is likely to fail. 
1.3 The draft decree is expected to enter into force on 1 January 2015. According to the explanatory 
memorandum attached to the draft decree, the MN B intends to review the provisions of the draft 
decree following the European Banking Authority’s adoption of guidelines on the interpretation of 
the different circumstances in which an institution w ill be deemed to be failing or likely to fail, as 
foreseen in Article 32(6) of the BRRD. 
 2. Observations 
2.1 In accordance with Article 1(2) of Council Deci sion 98/415/EC, this opinion only addresses issues 
that go beyond the mere transposition of the BRRD into Hungarian law.  
2.2 Supervisory decisions deeming an institution to be failing or likely to fail should be taken on a 
case-by-case basis, after an assessment of all pe rtinent circumstances of the individual situation
6. 
Any such decision should therefore include discre tionary elements, which cannot be determined ex 
ante. This is reflected in Article 32(4)(a) of  the BRRD, which involves the consideration of 
whether the infringement or likely infringement of requirements for continuing authorisation 
justifies the withdrawal of the auth orisation, and refers to the deple tion of all or significant amounts 
of own funds without setting fixed thresholds. That said, a reference to thresholds relating to own 
funds requirements, below which an institution may be deemed to be failing, could provide guiding 
principles for the institutions involved, and may limit the scope for supervisory forbearance. Therefore, also with reference to Article 145(2)(d ) and (e) of the Law on resolution, which, in the 
understanding of the ECB, empowers the Governor of the MNB to adopt a set of quantitative 
criteria instead of binding thresholds,  such thresholds in the draft decree should be merely 
indicative. 
2.3 When laying down the abovementioned criteria, it is  important that a thorough impact analysis is 
carried out as regards the actual level of inadequacy  that would cause a specif ic institution to fail. 
The explanatory memorandum attached to the draft decree does not contain any information about 
                                                 
6  As an example for assessing other circumstances, see Article 3 and Article 4(2) of the draft decree.  
ECB-PUBLIC  
3 whether the MNB has carried out such an impact assessment. If such an impact analysis has not 
been carried out, the ECB would recommend that such an assessment be performed before the 
adoption of the draft decree, to make sure that th e percentage prescribed in Article 4(1)(b) do not 
need to be recalibrated in order to ensure an effective resolution regime. 
 
This opinion will be published on the ECB’s website.  
 
Done at Frankfurt am Main, 11 November 2014.  
[signed] 
 
The President of the ECB 
Mario DRAGHI