OPINION OF THE EUROPEAN MONETARY INSTITUTE
on a consultation from the Irish Department of  Finance under Article 109f (6) of the Treaty
establishing the European Community (the “Treat y”) and Article 5.3 of the Statute of the EMI as
elaborated in the Council D ecision of 22nd November 1993 (93/ 717/EC) (the “Decision”) on a
proposal for legislation entitled the Central Bank Bill (the “Bill”).
CON/96/04
1. The above consultation was initiated on 25th Ma rch 1996 by the Irish Department of Finance,
which requested an opinion of the EMI within one  month of receipt of the consultation, i.e. by
1st May 1996.  For this purpose, the Department of Finance submitted the text of the above
draft legislation together with explanatory memoranda.
2. The EMI’s competence to deliver an opinion is based on Article 1, section 1 of the Decision, as
the Bill relates, inter alia, to th e following: the status and powers of the Central Bank of Ireland
(second indent of section 1); the collecti on, compilation, and dissemination of balance of
payments, national accounts and other financial sta tistics (third indent of section 1); approval
and supervision of clearing and payment systems (fourth indent of section 1); and, rules which
are applicable to the regulation by the Central Bank of Ireland of financial institutions and
which may have an impact upon the stability of fi nancial institutions and markets (fifth indent
of section 1).  In this opinion, the EMI will rest rict comments to those parts of the Bill which
relate to the above areas of competence.  It shoul d also be noted that, in giving this opinion, the
EMI has not reviewed all the existing provisions of  Irish legislation to which the Bill refers and
relates.
3. The EMI welcomes those provisions in the Bill which would enhance the influence of the
Central Bank in relation to the oversight of payment systems established in Ireland.
The EMI notes that sections 14 and 15 of the Bill will give the Central Bank wide powers tosuspend operations of the system where terms of the original or subsequent approval of the
system are breached and to revoke its approval in certain circumstances.  However, the exercise
of the Bank’s powers to order a payment system to cease activities or to suspend operations onan immediate basis is dependent upon the Bank having first imposed a condition or requirement
on the system which has, subsequently not been  complied with.  To ensure that emergency
situations can always be adequately dealt w ith the EMI recommends consideration of an ability
for the Bank, where extreme circumstances exist,  to require immediate suspension of operations
by a system or by one or more of its members, irrespective of the prior imposition of anycondition or requirement.  Albeit that such pow ers would clearly require to be subject to
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subsequent review by the courts and would also require to be tied in effectively with all other
powers of the Central Bank in this area, includi ng the provisions contained in sections 14 and
15 of the Bill as drafted, so as to ensure a coherent set of powers in this area.
4. The EMI expressly welcomes the provisions contained in sections 21, 22 and 23 of the Bill
which are designed to enshrine the following prin ciples in Irish law: finality of payments; the
immediate ability of lenders to realise collatera l; and, the legal enforceab ility of bilateral and
multilateral netting arrangements.
However, the EMI would suggest consideration of amendments to each of sections 21 and 22.
In the case of section 21 it might prove advisable to include a more detailed provision stating at
what point in the process of settlement payments  are to be considered final and irrevocable -
will this occur upon transmission of instructions  to settle or does settlement require to have
taken place?  In the absence of such additional detail there is a danger that confusion may ariseas to when this provision comes into effect.  It is also noted that the provision only provides for
finality and irrevocability between the credit ins titutions concerned, thereby implying that this
will not be enforceable against third parties.  The EMI would encourage consideration of a
wider provision expressly stating that finality  and irrevocability would also be enforceable
against third parties (e.g. a liquidator or third party creditor).
The EMI welcomes the provision in section 22 whic h would have the effect of ensuring that the
Central Bank may realise collateral or secu rities immediately upon the default of a credit
institution in relation to the loan against which such collateral or secur ity is held - thereby
presumably overriding any provisions of Ir ish law which would obstruct such immediate
realisation.  In view of Stage Three of EMU and the operation of a single monetary policy
among participating member states, the EMI w ould suggest that consideration be given to
extension of this provision so that its benefits  not only cover the Central Bank but also extend
to both the European Central Ba nk and other EU central banks.
The EMI also welcomes the provision contained in section 50 whereby the Central Bank is to
be notified of any application for the winding -up of a licensed bank before the petition is
presented and considers that this will be a poten tially valuable tool in enabling the Central Bank
to protect payment systems, particularly t hose over which it exercises supervisory powers.
However, it is noted that the explanatory memo randum relating to this provision in the Bill
states that the reasoning for its introduction is  the avoidance of potential damage which might
otherwise be caused by the existence of zero  hour rules.  The explanatory memorandum also
notes that there is no precedent under Irish law for a zero hour ruling, but that this is not
precluded.  The EMI would therefore encourage th e Irish authorities to consider a provision
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(either within the Bill or within  future legislation) which w ould put this issue beyond doubt by
stating that there is no possibility of a zero hour ruling having effect in relation to validly
constituted payments and financial contracts.  Such a provision would be of great potential
benefit in enhancing the stability and security of  financial markets where an entity which would
be subject to Irish insolvency law participates.  This effect could be achieved, for example, byan expanded section 21, as suggested above.
5. The EMI notes the provision, contained in secti on 28 of the Bill, requiring the Governor of the
Central Bank to appear before a relevant Select Committee of the Dail Eireann.  Such a
provision is not in principle inconsistent w ith the requirement for independence of central
banks, imposed by Article 107 of the Treaty as reflected in Article 7 of the ESCB/ ECB Statute.
6. The EMI notes the further extension of th e prohibition imposed upon the Governor of the
Central Bank from being a direct or or holding shares in a bank  and that this prohibition will
now cover all commercial credit institutions a nd financial institutions and welcomes the
additional degree of independence which this will ensure for the office of Governor.  However,
one NCB has stated that this view should not  prejudice further discussions on criteria for
central bank statutory requi rements to become an integral part of the ESCB. 
7. The EMI welcomes the simplification of the te nure of office of the di rectors of the Central
Bank, to a standard period of five years from the date of appointment.
8. In the light of the progress achieved by the EMI, in close co-operation with the Commission,
with respect to the preparatory work in the fi eld of statistics, an expansion of section 8,
subsection (a) of the Central Bank Act 1942 along the following lines is suggested:
“(a) make provision for the definition, collecti on and study of data relating to monetary,
financial, balance of payments and credit developments and publish related material;”
Subject to this expansion, the EMI welcomes th e provision contained within section 30 of the
proposal since it embodies the desired level of co-operation between central banks and relevant
national statistical institutes w ithin the limits of their respec tive competences.  However, to
ensure that, in the future, the Central Bank w ill be fully able to comp ly with its obligations
under Article 5 of the ESCB/ECB St atute as a member of the ES CB in Stage Three of EMU the
EMI also considers that it would be important to insert “without prejudice to subsection (a)
above,” at the start of the envisaged, new subsection (d).
9. The EMI notes the additional powers which are proposed for the Central Bank in the field of
supervision and regulation of credit institutions and other financial institutions.  To the extent
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that these changes provide the Central Bank w ith greater abilities to e nhance the stability and
security of financial institutions and market s, they are a welcome addition to the Irish
regulatory environment.
10. The EMI welcomes the provisions contained in section 52 to 57 having the effect of removing
provisions which previously allowed the Central Bank of Ireland to provide financing to the
public sector, noting that these changes have b een initiated with the intention of compliance
with Article 104 of the Treaty.
11. The EMI notes that it is the intention of the Ir ish authorities to bring forward further legislation
to ensure that, by the date of the establishment of the ESCB, Irish legislation is compatible with
the Treaty and the ESCB Statute and thereby to comply with the terms of Article 108 of the
Treaty and Article 14.1 of the ESCB/ECB Statute.  The EMI also notes that adaptations will be
required to allow national central banks to function as an integral part of the ESCB, as stated in
Article 14.3 of the ESCB/ECB St atute and it may be foreseen that amendments to the
legislation relating to the Central Bank are also likely to be required for this purpose.
12. The EMI confirms that it has no objection to this opinion being made public.
28th May 1996