EN ECB-PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 17 November 2016  
on the conferral of powers on the Central Bank of Ireland to assess competition in the market for 
mortgage loans and  to issue lenders with directions on variable interest rates 
(CON/2016/54)  
 
Introduction and legal basis 
On 6 October 2016, the European Central Bank (ECB) received a request from the Chairman of the 
Oireachtas (Irish National Parliament) Joint Committe e on Finance, Public Expenditure and Reform, and 
Taoiseach (Irish Prime Minister), for an opinion on the Central Bank (Variable Rate Mortgages) Bill 2016 
(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/EC1, as the draft law relates to (a) the basic task of the European System of Central Banks 
(ESCB) to implement the monetary policy of the Union pursuant to the first indent of Article 127(2) of the 
Treaty, (b) the specific tasks conferred upon the ECB concerning policies relating to the prudential supervision of credit institutions pursuant to Article 127(6) of the Treaty, (c) the Central Bank of Ireland 
(CBI) and (d) rules applicable to financial 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 Bank, the Governing Council has adopted this opinion.  
 1.  Purpose of the draft law 
1.1  The draft law provides for measures intended to identify and address market failures in the market 
for principal dwelling house mortgage loans. In order to achieve this purpose, the draft law confers a number of tasks on the CBI. 
1.2  The draft law requires the CBI to carry out asse ssments on the state of competition in the market 
for principal dwelling house mortgage loans on at least a quarterly basis, and sets parameters for 
such assessment. The factors to be taken into account by the CBI in carrying out this assessment include: the variable interest rates being charged by lenders; the ease with which borrowers can 
switch their principal dwelling house mortgage loan s; the relationship and proportionality between 
the variable interest rates being charged by each lender and the cost of funds of that lender; 
lenders’ weighted average cost of capital and the trend in lenders’ weighted average costs of 
capital over time; lenders’ reasonable profit expectations in the prevailing market conditions; the 
                                                 
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). 
ECB-PUBLIC  
2 proportion of the principal dwelling house mortga ge loan market accounted for by each lender; and 
such other matters as the Governor of th e CBI may certify as being of relevance. 
1.3  Upon completion of its assessment, the draft law requires the CBI to form a conclusion whether the 
state of competition is such that a ‘market failure’  exists. The draft law defines a ‘market failure’ as 
a situation in which market conditions are such that a lender is charging a variable interest rate 
which is higher than the CBI considers can be reasonably and objectively justified. Where the CBI 
forms such a conclusion, the draft law confers powers on the CBI to issue directions to lenders not 
to charge a variable interest rate which exceeds certain thresholds. These thresholds can be: (a) 
rates specified by the CBI; (b) margins specified by the CBI above the lenders’ cost of funds; (c) margins specified by the CBI, above a rate set by the ECB; and/or (d) a proportion if not more than 
one-third, specified by the CBI, above the average variable interest rate charged in the market for comparable principal dwelling house mortgage loans as determined by the CBI. 
1.4 With regard to enforcement, the draft law confers powers on the CBI to enforce such directions on 
lenders that fail to comply, by applying to the High Court for an enforcement order. When granting the enforcement order, the High Court must also impose a fine on the lender, unless the High Court 
determines that it would be unjust to impose such a fine, in which case it may impose a lesser fine or dispense with the requirement to impose a fine.  
1.5 Furthermore, the draft law imposes a requirement on lenders not to discriminate between existing 
and new borrowers when setting a variable interest rate for a group, and confers powers on the 
CBI to enforce that prohibition. In this respect, the CBI may apply to the High Court to seek a 
rectification order requiring the lender to cease th e relevant discriminatory practice. The High Court 
may also make a compensation order to ensure that the lender compensates the borrowers for 
such discriminatory practice, and may also impose a fine on the lender. 
1.6 Finally, the draft law further specifies that ther e is no right of appeal to the Financial Services 
Appeals Tribunal or to the High Court in respect of the assessment of the CBI, a direction of the CBI to a lender, or a decision by the CBI to seek an enforcement or rectification order.  
 
2. Scope of the opinion 
This opinion focuses on: (1) specific aspects of the power to issue directions to lenders not to 
charge a variable interest rate which exceeds certain thresholds and the relationship of this power 
with the CBI’s existing functions with respect to  monetary policy, banking supervision and financial 
stability (Section 3.1); (2) the potential effect s of the draft law on the independence of the CBI 
(Section 3.2); and (3) the new tasks conferred on the CBI in relation to the prohibition of monetary financing under Article 123 of the Treaty (Section 3.3). 
 3.  Observations 
3.1  Specific aspects of the power to issue directions to lenders not to charge a variable interest rate 
which exceeds certain thresholds   
 As a starting point, the ECB wishes to emphasise that administrative control of market pricing by 
public authorities, such as issuing directions to lenders not to charge a rate exceeding certain 
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3 thresholds, should only be undertaken where it is clear which purpose the controls seek to achieve 
and that they are likely to achieve this purpose.  
3.1.1 Effects on the transmission of monetary policy 
 The ECB has concerns that the administrative control of the interest rates charged by lenders could 
interfere with the market determination of lending decisions. In turn, this could have a detrimental 
effect on the transmission of monetary policy.  
 On the one hand, the smooth pass-through of changes in the ECB policy rates to bank borrowers is 
a component of the monetary policy transmission mechanism, which relies on well-functioning and 
competitive markets for bank credit. For that reason, any measures aimed at ensuring the pass-
through of ECB rates or the proper functioning of the monetary policy transmission mechanism are, 
in principle, welcome.  
 However, the draft law seems instead to be motivated primarily by an assumption that, due to a 
lack of competition in the Irish market, lenders operating in Ireland are maintaining rates on 
variable rate mortgages in excess of the rates necessary to cover the lenders’ cost of funds, the credit risk associated with lending, operational costs and the cost of capital. Despite this, the 
measures specified in the draft law do not seek to  promote competition in the market, or to address 
other possible root causes influencing variable interest rates in Ireland, such as the large legacy 
portfolio of tracker mortgages, which have an adver se impact on bank profitability, the burden of 
non-performing loans on lenders’ balance sheets, and the pricing of credit risk in Ireland. 
 Against this background, imposing administrative controls on the variable interest rates for principal 
dwelling house mortgage loans may have several unintended side effects. This is particularly relevant given the prevalence of this type of mortgage in a very important segment of the Irish 
market for bank credit. This may not only affect the transmission mechanism of monetary policy but also run counter to the very objective of the draft law.  
 For example, imposing administrative controls could potentially affect the rates offered by lenders 
for other types of bank credit, impairing the pass-through of the ECB’s accommodative monetary policy stance to low interest rates on loans to other sectors of the economy. For example, lenders 
aiming to achieve a sustainable level of profitability may try to compensate for insufficient margins on their variable interest rate mortgage portfolio by charging higher rates on other types of bank 
loans. 
 In addition, lenders might adapt their credit standards, and offer variable interest rate mortgages 
only to new borrowers with a very low risk profile. This would effectively ration the supply of 
variable interest rate mortgages in the Irish market. Lenders could be motivated by a desire to sustain a risk-adjusted margin on variable interest rate mortgages which is comparable to the 
margin that would otherwise prevail. Riskier borrowers might instead be offered fixed-rate mortgages, which are outside the scope of the draft law.  
 Furthermore, the possibility of restrictions on the maximum rate that banks are allowed to charge 
for variable interest rate mortgages could potentially render the market less attractive and 
discourage new entrants. This would lead instead to lower competition in financial services in 
Ireland, effectively defeating the purpose of the draft law.  
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4  Overall, the power to issue directions to lenders not to set rates in excess of a certain threshold 
could interfere with the implementation of monetary policy by the CBI, one of its basic Eurosystem 
tasks, due to the potential for such directions to interfere with the monetary policy transmission 
mechanism. 
3.1.2  Effects on the banking sector 
 In the context of its direct responsibility for the supervision of significant banking groups within the 
euro area, the ECB monitors closely the profitability  of credit institutions. The CBI also closely 
monitors profitability, in the contex t of its responsibility for less signif icant credit institutions. One of 
the reasons for this is because low profitability has been identified as a business model risk, which warrants particular supervisory attention. It is important that banks are not prevented from 
generating sustainable profits which will result in  well capitalised banks operating competitively. 
The high level of non-performing loans in Ireland and the low level of repossessions have brought 
large credit losses to Irish banks in the recent past and indicate that Irish banks could expect higher 
credit losses over the economic cycle than banks in a number of other euro area countries. In 
addition, it is worth noting that, while tracker rate mortgage contracts are currently not offered to 
new customers in Ireland, a substantial share of Irish mortgage borrowers, as tracker mortgage holders, are currently paying an average interest rate considerably below the average rate offered 
to new borrowers in the euro area.  
 In general, when pricing mortgages, credit institutions should take account of many factors, 
including the actual and future cost of funding, expenses and overhead, the cost of capital, and 
expected credit losses. The factors the CBI must consider in carrying out its assessment under the draft law reflect these issues only to a limited extent, as they focus on the lenders’ cost of funds, 
the lenders’ weighted average cost of capital and re asonable profit expectations in the prevailing 
market conditions. While the draft law permits other matters to be taken into account by the CBI for 
the purposes of the assessment (provided that the Governor of the CBI certif ies these as relevant), 
it does not fully acknowledge the wider matrix of factors that credit institutions need to take into 
account in setting their interest rates.  
 The ECB would like to emphasise that extreme caution should be exercised when transferring the 
power to take commercial decisions from market actors to public authorities. The benefits need to 
be weighed against a number of risks including information asymmetry and moral hazard. 
 Thus from a supervisory perspective, the ECB also has concerns about the powers conferred on 
the CBI by the draft law. While the CBI is not obliged to exercise the rate-setting power, such intervention in the setting of rates by the market could affect overall profitability in the banking 
system, which is already challenged by the prevalence of tracker mortgages and the high level of 
non-performing loans. As a consequence, the exercise of the power conferred on the CBI could possibly conflict with the effective use of the supervisory powers conferred on the ECB as part of 
the single supervisory mechanism (SSM) in accordance with Council Regulation (EU) No 1024/2013
2.   
                                                 
2  Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring 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).  
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5 3.1.3  Effects on financial stability 
 The ECB notes that the implementation of the draft law and exercise of the powers thereunder by 
the CBI could entail financial costs for the bank ing sector. Consequently, the possibility to set 
administrative limits on the profitability of a core business activity of the banking system might induce more risk-taking behaviour with banks engaging in alternative projects that do not reflect 
prudent risk-taking behaviour thus potentially leading to financial instability. Overall, given the 
scope of the draft law and the importance of mortgage portfolios in total bank assets, these factors 
may have a negative impact on the profitability; capitalisation and the future lending capacity of the 
credit institutions affected, and ultimately ma y have implications for financial stability. 
3.1.4 Compliance with the principle of an open market economy with free competition 
 The Treaty provides that the ESCB shall act in accordance with the principle of an open market 
economy with free competition, favouring an efficient allocation of resources. Likewise, the Treaty 
provides that Member States’ economic policies shall be conducted in accordance with this 
principle. The ECB is generally not in favour of the regulation of interest rates charged by credit institutions, including for the reasons outlined in this paragraph 3 and more generally because such 
regulation would, under normal circumstances, diverge from basic economic and market principles
3. Conferring powers on a public authority to intervene in the market could undermine the 
principle of an open market economy with free competition and favouring an efficient allocation of 
resources. In particular, the ECB is concerned that such intervention by the CBI could create 
market distortions, and could be inconsistent with the gradual return of the banking system to full 
private ownership. As outlined above, the draft law presents challenges for the efficient transmission of monetary policy. It could also place possible additional earnings’ pressure on Irish 
credit institutions and result in a loss of investor confidence. Moreover, the decision to direct lenders as to the interest rate they can charge could even lead to a decrease in competition, and 
discourage foreign lenders from entering the market. 
3.1.5 Observations on the procedure to be followed by the CBI to assess, form conclusions and issue 
directions to lenders 
 In terms of procedure, the draft law requires the CBI first to assess and form a conclusion on the 
state of competition in the market as a whole. If the CBI concludes that a market failure exists, it 
may issue directions to a specific lender or lenders, or to lenders in general. The factors to which 
the CBI must have regard in conducting its assessment include both factors influencing the state of 
the market as a whole and factors influencing individual lenders. From a practical perspective, the ECB has concerns about a lack of coherence in the procedure to be followed. While conclusions 
must be drawn based on a market-wide assessment, this may result in targeted measures imposed 
on individual lenders, without an individual assessment being conducted in relation to those lenders. 
 With regard to the assessment of a ‘market failure’, it may need to be further examined whether the 
definition under the draft law is fully aligned with the understanding of that concept under 
                                                 
3  The ECB is also generally not in favour of the regulation of savings remuneration, as pointed out in its recent opinion 
CON/2016/51. All opinions are available on the ECB website at: www.ecb.europa.eu .  
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6 competition law, in particular, in order to encompass considerations relating to the market structure 
and entry barriers.   
 Moreover, with regard to the requirement under the draft law for the CBI to publish its assessment, 
the ECB wishes to stress that publication must be conducted in accordance with the Union law requirements on professional secrecy, including Article 53 of Directive
 2013/36/EU of the European 
Parliament and of the Council4, which provides that confidential information ‘may be disclosed only 
in summary or aggregate form, such that individu al credit institutions cannot be identified’. 
 In addition to these practical concerns, the ECB notes that is for the Irish authorities to assess 
whether the draft law complies with Irish constitutional and other legal principles. 
3.1.6 Interaction with the existing objectives and tasks of the CBI 
 The CBI does not currently have an objective re lated to competition policy or any function to 
assess competition in the financial sector: the co mpetition authority in Ireland is the Competition 
and Consumer Protection Commission.  
 As noted in paragraph 3.1.1 above, the power to issue directions to lenders not to set rates in 
excess of a certain threshold could interfere with the CBI’s basic Eurosystem task to implement 
monetary policy, due to the potential for such directions to interfere with the monetary policy transmission mechanism. Section 6A(1) of the Central Bank Act 1942 states that the primary 
objective of the CBI, in discharging its functions and exercising its powers as part of the ESCB, is 
to maintain price stability. This is in line with the primary objective of the Eurosystem under Article 
127(1) of the Treaty. It is difficult to see how the CBI could properly perform a task which could 
interfere with its overriding monetary policy task and objective.  
 The CBI also has other objectives as set out in section 6A(2) of the Central Bank Act 1942, i.e. the 
stability of the financial system overall; the prop er and effective regulation  of financial service 
providers and markets, while ensuring that the best interests of consumers of financial services are 
protected; the efficient and effective operation of payment and settlement systems; the resolution of 
financial difficulties in credit institutions; the provision of analysis and comment to support national economic policy development and the discharge of such other functions and powers as are 
conferred on the CBI by law.  
As the national authority responsible for banking supe rvision and contributing to the stability of the 
financial system, the CBI will have to mitigate any potential conflicts of interests between the 
proposed new competition tasks under the draft law and, inter alia , its banking supervision and 
financial stability mandates by always taking the latter into account when exercising its powers. 
Sufficient mitigation measures would be necessary to ensure that, in the event of a conflict of interest, financial stability and prudential supervisory considerations prevail. However, in light of the 
objectives of the CBI set out in the Central Bank Act 1942, it appears particularly difficult to ensure that sufficient mitigation measures can be put in place. As all of the secondary objectives under 
Section 6A(2) of the Central Bank Act 1942 must be regarded as equal by the CBI, it would not be able to mitigate the conflict of interest between the competition objectives of its new role and its 
                                                 
4  Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of 
credit institutions and the prudential supervision of credi t institutions and investment firms, amending Directive 
2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338).  
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7 existing financial stability and prudential supervision objectives, by giving precedence to the latter 
objectives when exercising its new powers. 
3.2 Central bank independence 
As noted in paragraphs 3.1.1 and 3.1.6, the power to issue directions to lenders not to set rates in 
excess of a certain threshold has the potential to interfere with the overriding monetary policy task 
and objective of the Eurosystem, including of the CBI. The ECB has concerns that the conflict of 
interest between this new task and the exercise of the CBI’s monetary policy and financial stability 
tasks, which have different objectives, may potentially have an impact on the institutional 
independence of the CBI and the personal independence of the Governor of the CBI. This could, by extension, potentially damage the credibility of the CBI, the ECB and the Eurosystem as a 
whole. 
In addition, as outlined in further detail in paragraph 3.3, the CBI itself will have to dedicate 
additional human and financial resources to carry out the assessments required under section 2 of 
the draft law and may also incur further costs in the context of monitoring compliance with directions, and applying to the High Court for relevant court orders. The CBI should be provided 
with sufficient resources to perform the new tasks.  
For these reasons, the ECB has concerns that the draft law could undermine the independence 
required of the CBI as a central bank of the Eurosystem, and of the Governor of the CBI as a 
member of the ECB Governing Council.  
Furthermore, the CBI is a national competent authority (NCA) of the Single Supervisory Mechanism 
(SSM) and in the exercise of the powers conferred upon the ECB by the SSM Regulation, and thus is, under Article 19 SSM Regulation, required to act independently. The ECB has concerns 
regarding the interaction of this new task with the exercise of the CBI’s supervisory tasks. The exercise of the powers assigned by the draft law could potentially conflict with the effective use of 
the supervisory powers conferred on the ECB on the basis of the SSM Regulation, and therefore 
may potentially impact on the CBI’s inde pendence as an NCA member of the SSM.  
 
3.3 Conferral of new tasks on the CBI 3.3.1  As noted in paragraph 1, the draft law confers a number of new tasks on the CBI regarding the 
assessment of whether the state of competition in the market for principal dwelling house mortgage 
loans is such that a ‘market failure’ exists, the issuance of directions in such circumstances to 
lenders not to charge a variable interest rate which exceeds certain thresholds, and related 
enforcement powers. 
3.3.2  The ECB underlines that, in the context of a pr oposed conferral of tasks on a national central bank 
(NCB) in the ESCB, it is necessary to assess such conferral against the prohibition on monetary financing under Article 123 of the Treaty. For the pur poses of that prohibition, Article 1(1)(b)(ii) of 
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8 Council Regulation (EC) No 3603/935 defines ‘other type of credit facility’, inter alia, as ‘any 
financing of the public sector’s obligations vis-à-vis third parties’.  As the objective of the monetary financing prohibition of maintaining a sound budgetary policy of 
Member States may not be circumvented, the task of financing measures which are normally the responsibility of the Member States , and financed from their budgetary sources rather than by the 
NCBs, must not be entrusted to NCBs by law. In order to decide what constitutes a form of 
financing of the public sector’s obligations vis-à-vis third parties – which can be translated as the 
provision of central bank financing outside the scope of the central bank tasks – an assessment of 
whether the task to be undertaken by an NCB is a central bank task or a government task, i.e. a task within the responsibility of the Member States, needs to be carried out on a case-by-case 
basis. In other words, sufficient safeguards must be in place to ensure that circumventions of the objective of the monetary financing prohibition of maintaining a sound budgetary policy of Member 
States do not take place. 
3.3.3 As part of its discretion in the exercise of its duty, on the basis of Article 271(d) of the Treaty and 
Article 35.6 of the Statute of the ESCB, to ensure that NCBs honour the obligations laid down by 
the Treaty, the Governing Council has endorsed safeguar ds of that kind in the form of criteria for 
determining what may be seen as falling within the scope of a public sector’s obligation within the 
meaning of Article 1(1)(b)(ii) of Regulation (EC) No 3603/93 or, in other words, constitute a government task as follows: 
First, central bank tasks are in particular those tasks that are related to the tasks that have been 
conferred upon the ECB and the NCBs by the Treaty
6 and the Statute of the ESCB. These tasks 
are mainly defined in Article 127(2), (5) and (6) and Article 128(1) of the Treaty, as well as Article 
22 and Article 25.1 of the Statute of the ESCB.  
Second , as Article 14.4 of the Statute of the ESCB allows NCBs to perform ‘other functions’, new 
tasks, i.e. tasks that are not related to tasks that have been conferred upo n the ECB and the NCBs, 
are not precluded per se. However, new tasks that are undertaken by an NCB and which are 
atypical of NCB tasks or which are clearly discharged on behalf of and in the exclusive interest of 
the government or of other public sector entities should be considered government tasks. 
Third , an important criterion for qualifying a new task as  atypical of an NCB task or as being clearly 
discharged on behalf of and in the exclusive interest of the government or other public sector entities is the impact of the task on the institutional, financial and personal independence of that 
NCB.  In particular, the following aspects should be taken into account: 
(a) Whether the performance of the new task creates conflicts of interest with existing central bank 
tasks which are not adequately addressed and does not necessarily complement those existing 
central bank tasks. If a conflict of interest arises between existing and new tasks, sufficient 
safeguards to mitigate that conflict should be in place. The complementarity between a new 
task and the existing central bank tasks should not be interpreted broadly, so as to lead to the 
                                                 
5  Council Regulation (EC) No 3603/93 of 13 December 1993 specifying definitions for the application of the 
prohibitions referred to in Articles 104 and 104b(1) of the Treaty (OJ L 332, 31.12.1993, p. 1). Articles 104 and 104b of the Treaty are now Articles 123 and 124 of the Treaty. 
6  This includes the Treaty on European Union and the Treaty on the Functioning of the European Union.  
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9 creation of an indefinite chain of ancillary ta sks. Such complementarity should be examined 
also in relation to the financing of those tasks. 
(b) Whether without new financial resources the performance of the new task is disproportionate to 
the NCB’s financial or organisational capacity and may negatively impact on the capacity to perform properly the existing central bank tasks. 
(c) Whether the performance of the new task fits into the institutional set-up of the NCB in light of 
central bank independence and accountability considerations. 
(d) Whether the performance of the new task harbours substantial financial risks. 
(e) Whether the performance of the new task exposes the members of the NCB decision-making 
bodies to political risks which are disproportionate and may also impact on their personal 
independence and, in particular, on the guarantee of term of office set out in Article 14.2 of the Statute of the ESCB. 
 
3.3.4 On the basis of the criteria set out above, the following paragraphs assess whether the CBI’s new 
tasks are in line with the monetary financing prohibition. 
3.3.4.1 Tasks related to the tasks conferred upon the ECB and the NCBs by the Treaty and the Statute 
of the ESCB  
The powers conferred on the CBI by the draft law are expressly characterised as powers for the 
purposes of protecting competition in the mortgage loan market. These powers could also be 
seen as being related to the protection of consumers of mortgage loan services. However, the goal of consumer protection appears to be subsidiary to the draft law’s overriding goal of 
protecting competition in the mortgage loan market.  
It has to be examined to what extent these powers are related to the performance of 
Eurosystem tasks, including the implementation of monetary policy, the specific tasks conferred 
upon the ECB concerning policies relating to the prudential supervision of credit institutions and contributing to the smooth conduct of policies pursued by the competent authorities relating to 
the stability of the financial system in accordanc e with the first indent of Article 127(2), Article 
127(5) and (6) and Article 128(1) of the Treaty,  as well as Article 22 and Article 25.1 of the 
Statute of the ESCB. Importantly, although in accordance with Article 127(1) of the Treaty the 
Eurosystem must act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, the Eurosystem has not itself been 
conferred with any tasks in the area of competition policy.  
As noted in paragraph 3.1.1, the power to issue directions to lenders not to set rates in excess 
of a certain threshold could interfere with the CBI’s basic Eurosystem task to implement 
monetary policy, due to the potential for such directions to interfere with the monetary policy transmission mechanism. As noted in paragraph 3.1.2, the exercise of this power by the CBI 
could also possibly conflict with the effective use of the supervisory powers conferred on the ECB on the basis of the SSM, and therefore has the potential to create tensions with the CBI’s 
role as a NCA within the SSM.  
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10 The supervision of consumer credit providers7, as well as the oversight of the market for credit 
agreements relating to residential immovable property8, can be considered tasks related to 
those referred to in Article 127(5) and (6) of the Treaty, based on the understanding that they 
are complementary to the banking supervision tasks exercised by NCBs and are linked to the 
task of contributing to the stability of the financial system. In Ireland, the CBI’s responsibilities 
include ensuring compliance with, inter alia , the Consumer Protection Act 2007, the European 
Communities (Unfair Terms in Consumer Contracts) Regulations 1995 and 2000 and with the 
European Union (Consumer Mortgage Credit Agreements) Regulations 2016. However, in light 
of the fact that the draft law is primarily aimed at addressing market failures and enhancing competition in the banking sector, rather than directly aimed at protecting the consumers of 
banking services, it is difficult to characterise the draft law as complementary to the banking supervision tasks of the CBI, also taking account of the implications of the draft law for the 
banking sector and on financial stability, as out outlined in paragraphs 3.1.2 and 3.1.3. 
For these reasons, the tasks conferred on the CBI by the draft law cannot be considered as 
related to the tasks of monetary policy implem entation and contribution to financial stability 
referred to in the first indent of Article 127(2) and Article 127(5) of the Treaty, or to the tasks exercised by the CBI as part of the SSM, in accordance with Regulation (EU) No 1024/2013.  
3.3.4.2 Tasks which are atypical of NCB tasks 
As outlined above, the powers
 conferred on the CBI by the draft law are expressly characterised 
as powers for the purposes of protecting compet ition in the mortgage loan market. However, the 
ECB has not identified any other NCB in the ESCB which has been conferred with or exercises similar powers for the purposes of protecting competition.  
With regard to ensuring the protection of consumers of mortgage loan services, the ECB has 
generally accepted the allocation of consumer protection tasks to NCBs, including supervisory 
tasks related to the provision of consumer credit
9 and the fight against usury10, provided such 
tasks do not interfere with the performance of the NCB’s ESCB-related tasks11 and provided 
that those tasks ‘complement existing supervisory powers and thus contribute to the soundness 
of the financial market and the preservation of confidence in the market place’12. In light of the 
CBI’s statutory responsibility for banking supervision and financial st ability, further powers in the 
area of consumer protection could be argued to be not atypical of a central bank.  
The ECB understands that the laws in a number of Member States have put in place limitations 
on the maximum interest rates that can be charged by lenders13 for consumer loans14, including 
                                                 
7  See paragraph 3.3 of Opinion CON/2015/54 and paragraph 3.3 of Opinion CON/2016/31.  
8  See paragraph 4.3 of Opinion CON/2016/34.  
9  See paragraph 3.4 of Opinion CON/2015/54 and paragraph 4.4 of Opinion CON/2016/34. 
10  See paragraph 4 of Opinion CON/2004/16. 
11  See, for example, paragraphs 2.1 to 2.3 of Opinion CON/2006/38, paragraphs 2.1 and 2.2 of Opinion CON/2006/47, 
paragraphs 2.1 to 2.5 of Opinion CON/2007/29 and paragraph 2 of Opinion CON/2009/71.  
12  See paragraph 3.1 of Opinion CON/2015/21.  
13  The national laws may apply to credit institutions, to entities other than credit institutions, or to both, depending on 
the jurisdiction.   
ECB-PUBLIC  
11 those relating to immovable property15. The national legislation in those Member States either: 
(a) sets out the methodology for determining the relevant reference index or reference interest rate, and the maximum margin above the reference interest rate which the interest rate charged 
by the lender cannot exceed
16; or (b) determines the maximum interest rate in the law itself or in 
a decree adopted thereunder17. The role of the NCB in relation to the reference rates can 
include: (i) the provision of advice to the legislature or government on the setting of the rate, 
taking into account evolutions in the market18; or (ii) the periodic calculation and publication of a 
reference interest rate19. In many cases, the NCB must calculate the reference interest rate 
based on the average interest rate charged by market participants20. The national authority 
responsible for monitoring and enforcement of compliance with such national laws varies, 
depending on the Member State, and may be conducted by the Ministry for Economics21, the 
national consumer protection authority22, national competition authority23 the national competent 
authority for prudential supervision24, the NCB25 or by the courts, as a matter of civil26 or 
criminal27 law. It is noted that in one Member State28, a specific consumer protection power is 
given to the NCB, in its capacity as supervisor y authority, to monitor compliance of certain 
institutions with rules on business-to-consumer commercial practices. Further, it may impose 
sanctions on financial institutions in the event of a serious infringement of the provisions of the 
banking laws29. Some Member States also seek to control the interest rate for savings 
deposits30, including by means of tax incentives31.  
                                                                                                                                                             
14  See, for example, Belgium: Royal decree of 4 August 1992; Bulgaria: Article 19(4) of the Law on consumer credits; 
Cyprus: Section 314A of the Cyprus Criminal Code, Cap. 154; this does not apply  to credit granted by credit institutions and in some other specified cases; Estonia: Section 406 of the Law on obligations; France: Article L. 314-6 (1) of the Consumer Code; Croatia: Article 11c of the Law on consumer credit (Official Gazette 75/2009, 112/2012, 143/2013, 9/2015, 78/2015, 102/2015 and 52/2016); Hungary: Law CLXII of 2009 on consumer credit, as amended 
by Law LCCVIII of 2014; Italy: Law on usury (Law 108/1996); ; Malta: Article 1852 of the Civil Code: this does not 
apply to credit granted by credit institutions;  Poland: Article 359 of the Civil Code and Article 304 of the Penal Code; Portugal: Decree-law 133/2009 of 2 June; Slovenia: Article 24 of the Law on consumer credit; and Slovakia: Article 
53(6) of Law No 40/1964 Coll. Civil Code as amended, and Article 1a of Government Regulation No 87/1995 Coll., 
as amended. 
15  See, for example, Belgium: Royal decree of 11 January 1993; Bulgaria: Article 29(9) of the Law on consumer credits 
related to immoveable property; France: Article L. 314-6 (1 ) of the Consumer Code; Croatia: Article 11b of the Law 
on consumer credit; Hungary: Law CLXII of 2009 on consumer credit, as amended by Law LCCVIII of 2014; Italy: Law on usury (Law 108/1996); and Poland: Article 359 of the Civil Code and Article 304 of the Penal Code. 
16  This applies in Belgium, Cyprus, Estonia, France, Croatia, Hungary, Italy, Portugal and Slovenia. 
17   The rate is set by law in, Malta, Poland and Slovakia. In Bulgaria, the Council of Ministers sets the limitation.  
18  This is the case in Belgium.  
19  This is the case in Cyprus, Estonia, France, Croatia, Hungary, Italy, Portugal and Slovenia.  
20  This applies in Cyprus, Estonia, France , Croatia, Italy, Portugal and Slovenia.  
21  This is the case in Belgium and Slovenia.  
22  This is the case in Bulgaria and Latvia. It is also the case in Hungary in specific instances, depending on the type of 
breach. 
23  The Hungarian Competition Authority carries tasks relating to competitive discipline (see Law XLVII of 2008 on the 
prohibition of unfair business-to-consumer commercial practices).  
 
24  This is the case in France (Autorité de contrôle prudentiel et de résolution). 
25  This is the case in Croatia, Italy, Portugal, Slovakia. This is the case in Hungary in specific instances. 
26  This is the case in Estonia, France, Poland and Malta.  
27  This is the case in Cyprus, France and Poland. 
28  Hungary: Law CCXXXVII of 2013 on credit institutions and financial enterprises and Law XLVII of 2008 on the 
prohibition of unfair business-to-consumer commercial practices. 
29  In those circumstances, the NCB may determine the highest rate of interest that may be charged by that credit institution.  
30  France: Regulation n° 86-13 regarding the remuneration of funds received by credit institutions. 
ECB-PUBLIC  
12 However, the key difference between the national laws mentioned and the Irish draft law relates 
to the powers conferred on the CBI. None of the above examples confer broad discretionary decision-making powers on an NCB to determine the appropriate level of interest rates which 
lenders may charge, as this kind of power is exercised by the legislature or by the government. Where NCBs play a role under such laws, this role is limited to the calculation and publication of 
a reference rate, based on predefined criteria, or to the enforcement of such laws against the 
relevant lenders, as an aspect of the NCB’s mandate for consumer protection.  
Thus, the decision-making powers conferred on the CBI by the draft law, to issue directions to 
lenders not to charge a variable interest rate which exceeds certain thresholds, may be considered atypical of a central bank, even if they could be characterised as consumer 
protection and not competition powers. 
For the sake of completeness, the powers under the draft law also cannot be characterised as 
macroprudential powers, as it is difficult to conclude that they pursue a legitimate 
macroprudential objective. The legitimate objectives of macroprudential policy can be understood by reference to Recommendation ESRB /2013/1 of the European Systemic Risk 
Board on intermediate objectives and instruments of macroprudential policy
32, which considers 
the objectives of macroprudential policy to include the mitigation and prevention of excessive 
credit growth and leverage, the mitigation and prevention of excess maturity mismatches and 
market illiquidity, the limitation of concentration  of exposures, the limitation of the systemic 
impact of misaligned incentives, and the strengthening of the resilience of financial 
infrastructures. 
To conclude, the conferral of these new powers on the CBI should be regarded as atypical of a 
central bank. 
3.3.4.3 Impact  of the tasks on the independence of the CBI  
The draft law designates the CBI as the sole authority with the power to assess the state of 
competition in the market for principal dwelling house mortgage loans and to issue directions to lenders not to charge a variable interest rate which exceeds certain thresholds. Given the 
factual assessment that this task is atypical of a central bank, it should be considered, in addition, whether the task is being discharged on behalf of and in the exclusive interest of the 
government
33. An important criterion for this qualification is the impact of the task on the 
independence of the CBI. Such impact is analysed in paragraph 3.2 of this Opinion. 
3.3.4.3.1  Extent to which performance of the new ta sk creates conflicts of interest with existing central 
bank tasks 
As noted above, the power to issue directions to lenders not set to rates in excess of a certain 
threshold could interfere with the CBI’s basic Eurosystem task to implement monetary policy, 
                                                                                                                                                             
31  Belgium: Article 21, 5° Code of Income Tax and Royal decree of 27 August 1993.  
32  Recommendation ESRB/2013/1 of the European Systemic Risk Board of 4 April 2013 on intermediate objectives and 
instruments of macroprudential policy (OJ C 170, 15.6.2013, p. 1).  
33  In the context of the regulation of savings remuneration by an NCB, the ECB has pointed out that it considered such 
a role to be carried out on behalf of the government, and exercising this government task has the potential to place the NCB and its Governor in a position in which there is a conflict of interest between the exercise of this task and 
the exercise of the NCB’s central banking tasks. See ECB Opinion CON/2016/51. 
ECB-PUBLIC  
13 due to the potential for such directions to interfere with the monetary policy transmission 
mechanism. The exercise of this power by the CBI could also possibly conflict with the effective use of the supervisory powers conferred on the ECB on the basis of the SSM, and therefore has 
the potential to create tensions with the CB I’s role as an NCA within the SSM. The ECB 
discourages the concentration of decision-makin g powers in the areas of competition and 
banking supervision in one body
34. In fact, the ECB has previously welcomed  draft national laws 
transferring the responsibilities for the enforcement of competition policy in the banking sector 
away from the NCB to a national competition authority35 and discouraged the concentration of 
decision-making powers in the areas of antitrust and banking supervision in one body36. In 
doing so, the ECB highlighted the need to balance the potentially conflicting objectives of 
market competition and financial stability37. While coordination is highly necessary to avoid an 
overly complex framework for supervised entities, it would seem appropriate to maintain a clear 
distinction between procedures that are pursuing distinct public interests38 in particular for 
procedures leading to antitrust and banking supervision decisions39. For that reason the ECB 
considers that in these circumstances draft national laws should reflect the principle of 
allocating powers to authorities in accordance with their respective objectives40. 
3.3.4.3.2 Extent to which performance of the new task is disproportionate to the CBI’s financial or 
organisational capacity  
The principle of financial independence requires NCBs to have sufficient means to carry out not 
only their ESCB-related tasks but also their national tasks, both from an operational and 
financial perspective41. Under the draft law, the CBI is obliged to carry out detailed assessments 
on the state of competition in the market for pr incipal dwelling house mortgage loans on a at 
least a quarterly basis, taking into account a wide range of factors. This may require the CBI to impose additional reporting requirements on mortgage lenders, which will impose costs on 
those mortgage lenders. Moreover, the CBI itself will have to dedicate additional human and financial resources to compile the relevant indicators and methodology, to collect, process and 
analyse the relevant data in order to carry out that assessment, and to present and report the 
data. Moreover, the CBI may incur further costs in the context of monitoring compliance with 
directions, and applying to the High Court for court orders.
 The draft law contains no provision 
for the reimbursement of the CBI for this additional burden. 
3.3.4.3.3 Extent to which performance of the new task fi ts into the CBI’s institutional set-up, in light of 
central bank independence and accountability considerations 
As discussed in paragraph 3.1.6 above, it is difficult to see how the CBI could properly perform 
a task which could interfere with its overriding monetary policy task and objective. Moreover, the 
                                                 
34  See paragraph 4 of Opinion CON/2008/44. 
35  See paragraph 14 of Opinion CON/2004/16. 
36  See paragraph 4 of Opinion CON/2008/44. 
37  See paragraph 3.3 of Opinion CON/2006/51. 
38  See paragraph 14 of Opinion CON/2004/16. 
39  See paragraph 8 of Opinion CON/2005/58. 
40  See paragraph 4 of Opinion CON/2007/17.  
41  See the ECB’s 2016 Convergence Report, p. 25. 
ECB-PUBLIC  
14 exercise of this power by the CBI could also possibly conflict with the effective use of the 
supervisory powers conferred on the ECB on the basis of the SSM, and therefore has the potential to create tensions with the CBI’s role as an NCA within the SSM. As the national 
authority responsible for banking supervision and contributing to the stability of the financial system, the CBI will have to mitigate any potentia l conflicts of interests between its competition 
tasks and its banking supervision and financial stability mandates, by always taking the latter 
into account when exercising its powers. Sufficient mitigation measures would be necessary to 
ensure that, in the event of a conflict of intere st, financial stability and prudential supervisory 
considerations prevail. However, in light of the objectives of the CBI set out in the Central Bank Act 1942, it appears particularly difficult to ensure that sufficient mitigation measures can be put 
in place. As all of the secondary objectives under Section 6A(2) of the Central Bank Act 1942 must be regarded as equal by the CBI, it would not be able to mitigate the conflict of interest 
between the competition objectives of its new role and its existing financial stability and 
prudential supervision objectives, by giving precedence to the latter objectives when exercising 
its new powers.   
Finally, there is the reputational risk that t he CBI could be held accountable by the general 
public for problems related to the divergent treatment of holders of variable rate mortgages and 
tracker mortgages by commercial banks, even where the CBI’s assessment concludes that the 
variable rates can be reasonably and objectively justified, by reference to the various factors 
outlined in paragraph 3.1.2. 
Thus, given the absence of complementarity with the CBI’s existing tasks, the new tasks do not 
appear to fit into the CBI’s current institutional set-up. 
3.3.4.3.4  Extent to which the performance of tasks harbours substantial financial risks 
The draft law specifies that there is no right of appeal to the Financial Services Appeals Tribunal 
or to the High Court in respect of the assessment of the CBI, a direction of the CBI to a lender, or a decision by the CBI to seek an enforcement or rectification order. In that respect, the CBI 
may not be exposed to substantial financial risks. However, it is for the Irish authorities to 
assess whether the draft law complies with Irish legal and constitutional principles in this 
particular respect. 
3.3.4.3.5 Extent to which performance of the new task exposes members of the CBI’s decision-making 
bodies to disproportionate political risks and impacts on their personal independence  
As noted in paragraph 3.1.2 and paragraph 3.2, while the CBI is not obliged to exercise its new 
interest rate setting power, the ECB would be concerned that new task could create a conflict of interest with the CBI’s existing monetary policy and supervisory tasks, which would undermine 
the independence required of the CBI as a centra l bank of the Eurosystem and of the Governor 
of the CBI as a member of the Governing Council.  
3.3.4.4 Conclusion regarding the compatibility of the draft law with the prohibition on monetary financing 
The ECB considers that the CBI’s new tasks relating to the variable rate mortgages qualify as 
government tasks, in the sense that they are, first, not linked to and do not complement the 
CBI’s existing monetary policy, supervisory or fina ncial stability tasks and, second, atypical of 
ECB-PUBLIC  
15 central banks. In addition, given that the draft law is primarily aimed at addressing market 
failures and enhancing competition in the mortgage loan market, the conferral of this task on the CBI creates a conflict of interest with the CBI’s monetary policy, banking supervision and 
financial stability tasks and objectives and raises concerns with regard to the independence of the CBI. Thus, the task is clearly discharged on behalf of and in the exclusive interest of the 
government. This conclusion is particularly evident with regard to the CBI’s discretionary, 
decision-making powers under the draft law to issue directions to lenders, but is also true with 
regard to the requirement to assess competition and form a conclusion on whether the state of 
competition is such that a ‘marke t failure’ exists. The carrying out of  this government task by the 
CBI would only be compatible with the monetary financing prohibition if this task were fully and 
adequately remunerated
42. As this is not currently provided for in the draft law, the conferral of 
these new tasks on the CBI would not, therefore, appear to be compatible with the monetary 
financing prohibition.  
 
This opinion will be published on the ECB’s website. 
  
Done at Frankfurt am Main, 17 November 2016. 
 
[signed] 
 The President of the ECB 
Mario DRAGHI 
                                                 
42  See the subsection headed ‘Financing of the public sector or  of public sector obligations to third parties’ in Section 
2.2.5.1 (‘Prohibition on monetary financing’) of the ECB’s 2016 Convergence Report.