EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 23 October 2009  
on the distribution of Lie
tuvos bankas’s profits 
(CON/2009/83) 
 
Introduction and legal basis  
On 14 October 2009 the European Central Bank (ECB) received a request from the Lithuanian Ministry 
of Finance for an opinion on a draft law amending Article 23 of the Law on Lietuvos bankas as regards 
the rules on the distribution of the profits of Lietuvos bankas (hereinafter the ‘draft law’). 
The ECB’s competence to deliver an  opinion is based on Article 105(4) of the Treaty establishing the 
European Community and the third indent 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 relates to Lietuvos bankas.  In accordance with th e 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 provides that Lietuvos bankas shoul d contribute 70 % of its profit for the financial 
year to the State budget, instead of 50 % of its profit, as currently provided for in the Law on 
Lietuvos bankas. The contribution to the State budge t is to be made only after making a deduction 
to cover any losses carried forward from previous financial years. 
1.2 According to Article 23(3) of the Law on Lietuvos bankas as it currently stands, the profit for a 
financial year is to be allocated as follows: fi rst, to cover losses carried forward from previous 
financial years; second, to contribute to the St ate budget 50 % of the profit of Lietuvos bankas for 
the financial year in question, after making any deduction to cover losses carried forward from 
previous financial years; and third, until th e authorised capital reaches 200 million litas, the 
remaining profit is allocated in equal parts between the authorised capital and the reserve capital, 
thereafter any residual amount is allocated to the reserve capital.  
 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2.
 General observations  
2.1 On 24 March 2009 the ECB adopted Opinion CON/2009/26 at the request of Lietuvos bankas on 
behalf of the Ministry of Finance of Lithuania on a draft law amending the Law on Lietuvos bankas 
as regards the rules on the distribution of the profits of Lietuvos bankas (this draft law hereinafter the ‘March draft law’). The March draft law provided that Lietuvos bankas should contribute, extraordinarily, 100 % of its profit for the financial year 2008 to the State budget, instead of 50 % of its profit, as provided for in the Law on Li etuvos bankas. If the March draft law had been 
adopted, Lietuvos bankas would have  had no funds to transfer to the authorised and/or reserve 
capital for 2008. 
2.2 In Opinion CON/2009/26 the ECB noted that, first,  the March draft law raised concerns regarding 
its compatibility with the institutional independence of Lietuvos bankas to the extent that it could have been construed as an instruc tion to Lietuvos bankas; and, second,  it also raised concerns about 
the financial independence of Lietuvos bankas, as al l its profit was to be contributed to the State 
budget. The ECB concluded that an ad hoc change to the rules on the distribution of profits, which reflected a particular financial need of the main shareholder and which took all the profits from the 
central bank, was a cause of particular concern and was not compatible with the Treaty or the 
Statute of the European System of Central Banks and of the European Central Bank (hereinafter the ‘Statute of the ESCB’). The ECB notes that its remarks were taken into account. 
2.3 The draft law proposes to increase the part of the profits of Lietuvos bankas to be transferred to the 
State budget from 50 % to 70 %, which is not an ad hoc change but an amendment of the permanent rule. The ECB’s remarks on the fina ncial independence of Lietuvos bankas and the 
requirement to comply with the monetary  financing prohibition expressed in Opinion 
CON/2009/26, and in other subsequent opinions, remain valid.  
2.4 Central bank financial independence 
2.4.1 Each Member State is obliged to safeguard the institutional and financ ial independence of its 
national central bank (NCB), thus ensuring the pr oper performance of its tasks under the Treaty and 
the Statute of the ESCB
2. In particular, the compatibility of the Law on Lietuvos bankas with the 
requirements of Article 108 of the Treaty and the provisions of the Statute of the ESCB on central bank independence is of utmost importance, as Lietuvos bankas’s primary objective of price 
stability is best served by it being a fully inde pendent institution with a precisely defined mandate
3. 
2.4.2 The concept of financial independence shoul d be assessed from the perspective of whether any 
third party is able to exercise either direct or indirect influence not only over an NCB’s tasks but 
also over its ability (understood both operationally in terms of manpower, a nd financially in terms 
of appropriate financial resources) to fulfil its mandate4. Therefore, a Member State may not put its 
                                                 
2  Opinion CON/2009/53, paragraph 2.1. All ECB opinions are published on the ECB’s we bsite at www.ecb.europa.eu. 
3 Opinion CON/2009/26, paragraph 2.1.  
4 
 The ECB’s Convergence Report May 2008, pp. 20-21; and ECB Opinions CON/2008/ 9, CON/2008/10, CON/2008/34, 
CON/2008/82, CON/2009/4, C ON/2009/26, and CON/2009/53. 
2 
NCB in a pos
ition where it has insufficient financia l resources to carry out its ESCB-related tasks5. 
NCBs must also have sufficient financial means to carry out their other functions at all times, i.e. 
they must be able to perform their national task s, to meet their international obligations and 
properly to cover their administrative and operational expenses6. 
2.4.3 The ECB also reminds the consulting authority that Articles 28.1 and 30.4 of the Statute of the 
ESCB (the latter applies to Member States that have adopted the euro) provide for the possibility of 
further calls being made on the NCBs to make c ontributions to the ECB’s capital and to make 
further transfers of foreign reserves7. The principle of financial independence requires that 
compliance with these provisions would leave an NCB’s ability to perform its functions 
unimpaired. 
2.5 The monetary financing prohibition 
2.5.1 National rules on the distribution of an NCB’s profits must comply with the monetary financing 
prohibition laid down in Article 101(1) of the Treaty and Council Regulation (EC) No 3603/93 of 13 December 1993 specifying definitions for the a pplication of the prohibitions referred to in 
Articles 104 and 104b(1) [now Articles 101 and 103(1)] of the Treaty
8.  
2.5.2 As referred in ECB Opinion CON/2009/59 of 14 July 2009 on the taxation of the Banca d’Italia’s 
gold reserves, those provisions prohibit central bank (ECB or NCB) credit facilities in favour of Community institutions or bodies or in favour of the Member States or their public sector bodies, as well as direct central bank purchases of debt in struments from such entities. With a view to 
preserving the integrity of the central bank’s balan ce sheet, the monetary financing prohibition is of 
key importance to ensuring the primary monetary policy objective of price stability
9, which must 
not be impeded. Therefore, the prohibition must be  interpreted extensively to ensure its strict 
application10. Thus, even though Article 101(1) of the Treat y refers to ‘credit facilities’, i.e. with 
the obligation to repay such credit, this prohibition may also apply a fortiori  to other forms of 
funding, i.e. without the obligation to repay, si nce Article 101 of the Treaty has the overall aim of 
public financial discipline and of prohibiting N CBs from financing the public sector. Both the 
ultimate objective and the spirit of these provisions must be taken into account in their interpretation
11. 
 
                                                 
5 The ECB’s Convergence Report May 2008, p. 20; and Opinion CON/2009/53, paragraph 2.2. 
6 Opinion CON/2009/26, paragraph 2.3; an d Opinion CON/2009/53, paragraph 2.2. 
7  The ECB’s Convergence Report May 2008, p. 20. 
8 OJ L 332, 31.12.1993, p. 1. 
9 Article 105(1) of the Treaty; and Article 2 of the Statute of the ESCB. 
10  The ECB’s Convergence Report May 2008, p. 22.  
11  Opinion CON/2003/27, paragraph 9. 
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3. 
Specific comments  
3.1 The draft law modifies the rules on the alloca tion of Lietuvos bankas’s profits in the current 
financial turmoil. While, according to the consul ting authority, the aim of the draft law is to 
enhance the stability and credibility of the Lithuani an financial system, the ECB stresses that it is, 
in any circumstances, particularly important to secure and strengthen the independence of Lietuvos 
bankas, and even more so in periods of crisis. Moreover, overcoming the cu rrent financial turmoil 
depends on the ability of central banks to  carry out their functions independently12. 
3.2 With regard to profit allocation, an NCB’s stat utes may prescribe how its profits are to be allocated. 
Even though amendments to such rules are possible,  they should not be changed frequently. It is 
important to protect the rules relating to the distri bution of profits from third-party interests and to 
ensure a legal framework that provides a stable and long-term basis for the central bank’s 
functioning13. 
3.3 As the ECB noted in its Convergence Report of May 200814, the distribution of its profits is one of 
the areas of financial independence where an NCB is most vulnerable to outside influence. In this 
context the ECB understands that the draft law will reduce the financial means available to 
Lietuvos bankas for allocation to its authorised and/ or reserve capital. According to the principle of 
financial independence (as stressed by the ECB in all its convergence reports, including the Convergence Report of May 2006 regarding Lithuania), with regard to making financial provisions or buffers an NCB must be free to decide independently on making fi nancial provisions to 
safeguard the real value of its capital and assets.  
3.4  The economic purpose of central bank capital and r eserves is to ensure that the central bank will 
always and in all circumstances have at its di sposal the necessary financial resources to conduct 
monetary policy. According to Article 23(2) of the Law on Lietuvos bankas, Lietuvos bankas uses the reserve capital to cover possible losses of a fi nancial year. There must be regard for the long-
term perspective of the distribution of profits. It  is of the utmost importance to make sufficient 
provisions of reserve capital during years of profit to allow Lietuvos bankas to face possible losses without weakening its financial means for implementing its monetary policy
15. 
3.5 In principle it is not optimal for a central bank to create reserves only after transferring a large 
portion of its profits to the State budget16. Should Lietuvos bankas experience negative equity in 
the future (i.e. losses exceeding accumulated reserv es), it would be hard to rebuild it out of the 
stream of future profits under such an arrangement. Although Lietuvos  bankas had positive net 
equity at the end of 2008 and expects it to be positiv e also at the end of 2009, prudence is required 
to ensure stable and sufficient financial resources in the long term. 
                                                 
12  Opinion CON/2009/26, paragraph 3.2. 
13 Opinion CON/2007/14, paragraph 2.2; an d Opinion CON/2009/26, paragraph 3.4. 
14  The ECB’s Convergence Report May 2008, p. 21. 
15  Opinion CON/2009/53, paragraph 3.2. 
16  Opinion CON/2009/53, second subpa ragraph of paragraph 3.2. 
4 
3.6
 The ECB recommends that, in view of Liet uvos bankas’s obligations under the Treaty and the 
Statute of the ESCB, any changes to its financial obligations towards the State should be decided in 
cooperation with the Board of Lietuvos bankas, ta king into account its specific central bank tasks17. 
 It is not clear from the consultation letter whethe r the consulting authority initiated the draft law in 
cooperation with Lietuvos bankas, after careful an d cautious assessment of the current status of 
Lietuvos bankas’s reserve capital, including projections of negative scenarios. Since an NCB is 
best placed and has all the necessar y tools to evaluate these circumstances and to make forecasts, 
any new regime for the allocation of profits to th e State should be made in close coordination with 
Lietuvos bankas.  
3.7 The data available to the ECB shows that, relativ ely, the net equity (including capital and reserves) 
of non-Eurosystem NCBs is much lower than that of the Eurosystem NCBs; the data also shows that the ratio between risk-bearing assets and net equity is several times higher in non-Eurosystem NCBs than in the Eurosystem NCBs (the higher the ratio is in absolute terms, the lower the ability 
of a central bank to cover the risk of adver se asset price movements or defaults). The ECB 
understands that Lietuvos bankas is still in the pr ocess of building up its reserve capital to a level 
corresponding to that of the Eurosystem NCBs. 
 
4. Final observations  
4.1 Summarising the above arguments, the ECB concl udes that the reduction of the financial means 
available to Lietuvos bankas for allocation to its reserve capital could hamper Lietuvos bankas 
from continuing the process of building up its reserve capital to a level corresponding to that of the 
Eurosystem NCBs. It could undermine Lietuvos ba nkas’ financial independence as, in the worst 
scenario, if the reserve capital of Lietuvos bankas we re not sufficient to cover possible losses, there 
could be a threat that Lietuvos bankas would not autonomously be able to avail itself of sufficient financial resources to fulfil its mandate. This c ould impair its independe nt functioning. Each 
Member State must ensure that its NCB has su fficient financial resources to carry out its ESCB-
related tasks.  
4.2 Moreover, any amendment to the rules on the distribution of Lietuvos bankas’s profits should only 
be initiated in coordination with Lietuvos bankas, which is best placed to provide an expert assessment of the amount or ratio of the reserve capital necessary to cover its possible needs or losses related to its operational activities, including performance of its ESCB-related tasks. Only once such a detailed impact assessment has been  made, can the ECB make a final analysis of 
compliance with the monetary financing prohibition. 
 
                                                 
17  Opinion CON/2009/53, paragraph 3.3. 
5 
6 This opinion will be published on the ECB’s website. 
  Done at Frankfurt am Main, 23 October 2009. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET