EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 4 February 2009 
at the request of the Latvian Financial and Capital Market Commission  
on draft amendments to certain legal acts  in connection with the financial turmoil 
(CON/2009/10) 
 Introduction and legal basis
 
On 2 February 2009 the European Central Bank (ECB) received a request from the Latvian Financial and 
Capital Market Commission (FCMC) for an opinion on draft amendments to the following legal acts 
(hereinafter the ‘draft amendments’): (a) the Law on deposit guarantees; (b) the Law on credit institutions; (c) the Law on civil procedure; and (d) the Law on the Financial and Capital Market 
Commission.  
The ECB’s competence to deliver an  opinion is based on Article 105(4) of the Treaty establishing the 
European Community and the sixth 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 
provisions
1, as the draft amendments relate to rules appli cable to financial institutions insofar as they 
materially influence the stability of financial ins titutions 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 amendments 1.1 The main objectives of the draft amendments to the Law on deposit guarantees are: (a) to clarify 
further the definition of the ‘unavailability’ of de posits; (b) to provide that compensation will be 
paid within a maximum period of twenty working da ys; and (c) to provide that if the resources of 
the Latvian Deposit Guarantee Fund are insufficient,  compensation will be paid to depositors from 
the State budget. 
1.2 The main objective of the draft amendments to  the Law on credit institutions is to extend the 
FCMC’s powers to allow it to deal mo re effectively with troubled banks. 
In particular, the FCMC is authorised to take me asures in any of the following circumstances: (a) if 
a credit institution fails to comply with nationa l or EU laws and regulations; (b) if a credit 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2 institution’s operations threaten its own stability or solvency, the security or stability of the banking 
sector in Latvia, or to cause significant losses to the economy of the State: (c) if a there is an 
excessive outflow of deposits or other secured funds from a credit institution.  
The measures that the FCMC may take include: (a) requiring the credit institution to take the 
necessary steps to remedy such situation or submit a plan of action to the FCMC by a set deadline; 
(b) issuing a warning to the credit institution; (c ) giving the credit institution’s decision-making 
bodies, managers and members binding written orde rs necessary to remedy such situation; 
(d) establishing restrictions on the rights and actions of the credit institution, including entirely or 
partially suspending its authority to provide financ ial services, as well as restrictions on fulfilment 
of its obligations; (e) imposing restrictions on the credit institution in relation to execution of 
deposit obligations; (f) appointing one or more au thorised representatives from the FCMC to the 
credit institution; (g) imposing on the credit institutio n the responsibility to reduce the level of risk 
in relation to its transactions, services and systems; (h) requesting Latvijas Banka to suspend the provision of credit to the credit institution; (i) imposing fines. 
Under the draft amendments, an authorised represen tative of the FCMC may be appointed to take 
over the management of the credit institution with a wide range of powers to administer it. The 
operations of the credit institution’s shareholders in general meeting, its council, board and other 
executive institutions, as well as the persons author ised to bind the credit institution, will be 
suspended. The authorised represen tative will be authorised to call and participate in meetings of 
the credit institution’s shareholders, council or bo ard with the right to propose issues to be 
reviewed. No decision may be adopted if it is  opposed by the authorised representative. 
1.3 The main objective of the draft amendments to the Law on civil procedure is to reduce the period 
for the Court to decide on an insolvency from 15 days to five days. 
1.4 The main objective of the draft amendments to the Law on the Financial and Capital Market 
Commission is to provide for the FCMC’s rights to take decisions to restrict the rights, obligations and operations of market participants. 
 2. General observations 
2.1 In line with the ‘Declaration on a concerted European action plan of  the euro area countries’ issued 
by the Heads of State of the euro area on 12 October 2008 (hereinafter the ‘Declaration’)
2, the ECB 
notes that Member States must act in a coordinated manner to avoid significant differences in national implementation having a counter-productive  effect and creating distortions in global 
banking markets. This coordinated approach in cludes initiatives aimed at ensuring appropriate 
liquidity, facilitating the funding of banks by va rious means, providing additional capital resources 
to financial institutions and recapitalising distr essed banks. These principles were also endorsed for 
                                                 
2  The Declaration is available on the French Presidency’s website at www.ue2008.fr 
3 all Member States by the European Council on 16 October 2008. The Declaration also 
acknowledges the need to work in  cooperation with the ECB.  
2.2 As a general remark and in line with its previous opinions3, the ECB reiterates the importance of 
ensuring that the regulatory practice under the draft amendments will be conducted in full 
compliance with the relevant Community law prov isions, including EU single market principles 
and financial services legislation, as well as competition and State aid rules. In the latter respect, the ECB draws the consulting authority’s attenti on to the Commission’s r ecently adopted guidance 
on compliance by financial sector support schemes with EU State aid rules
4. 
 3. Specific observations 
3.1 Draft amendments to the Law on deposit guarantees 
As noted in past ECB opinions, deposit protection is an important element of the financial safety 
net and contributes to safeguarding financial stability
5. The ECB notes, with reference to the 
proposed shortening of the payout periods for the gua ranteed deposits, that this is also the objective 
of the amendments currently proposed to Directiv e 94/19/EC of the European Parliament and of the 
Council of 30 May 1994 on deposit-guarantee schemes6. In line with its opinion on the proposed 
amendments to Directive 94/19/EC7, the ECB welcomes the Latvian authorities’ intention to 
significantly reduce delays in payouts of guarant eed deposits and thereby strengthen depositors’ 
confidence. At the same time, a pragmatic appr oach should be taken to introducing the necessary 
reduction in payout delays, thereby preserving the credibility of the deposit-guarantee scheme. This 
implies, inter alia , establishing efficient operational processes for verifying claims and paying 
depositors. 
Further, and as confirmed also by international standards, sound funding arrangements are critical 
to the effectiveness of deposit-guarantee schemes a nd to the maintenance of public confidence in 
                                                 
3  See, for example, paragraph 3.3 of Opinion CON/2008/57 of 21 October 2008 at the request of the German Ministry of 
Finance on a Law on the implementation of a package of meas ures to stabilise the financial market and an order on its 
implementation. 
4  See ‘Communication from the Commission – The application of St ate aid rules to measures ta ken in relation to financial 
institutions in the context of the curre nt global financial crisis’ (OJ C 208 of  25.10.2008, p. 8). Also ‘Communication 
from the Commission – The recapitalisation of financial institutions  in the current financial crisis: limitation of aid to the 
minimum necessary and safeguards agains t undue distortions of competition’, ava ilable on the Commission’s website at 
www.ec.europa.eu 
5  See paragraph 8 of ECB Opinion CON/2005/50 of 1 Decembe r 2005 at the request of Národná banka Slovenska on a 
draft law amending the Act No 118/1996 Coll. on the protecti on of bank deposits and on amendm ents to certa in laws, as 
last amended; also paragraph 2.5 of ECB Opinion CON/2007/26 of 27 August 2007 at the request of the Polish Minister 
for Finance on a draft law amending the Law on the Bank Guarantee Fund. 
6  OJ L 135, 31.5.1994, p. 5. 
7  See ECB Opinion CON/2008/70  of 18 November 2008 at the request of the C ouncil of the European Union on a proposal 
for a Directive of the European Parliament and of th e Council amending Directive 94/19/EC on deposit-guarantee 
schemes as regards the covera ge level and the payout delay (OJ L 314, 9.12.2008, p. 1). 
4 the banking system8. Directive 94/19/EC does not currently prescribe a method for financing 
deposit-guarantee schemes, provided that all of the following conditions are satisfied: (a) the costs 
of financing are borne, in principle, by credit institutions themselves; (b) the financing capacity of the scheme is in proportion to credit institutions’ liabilities; (c) the stability of the banking system 
of the Member State concerned is not jeopardised
9. The arrangements adopted in the case of the 
Latvian Deposit Guarantee Fund should therefore be  consistent with these broad principles.  
Finally, the ECB underlines that the Latvian Depos it Guarantee Fund’s funding arrangements must, 
inter alia , comply with the monetary financing prohibition laid down in the Treaty, and in 
particular with the prohibition on national central banks providing overdraft facilities or any other 
type of facility within the mean ing of Article 101 of the Treaty10, as more specifically considered in 
past ECB opinions11 and in the ECB’s Convergence Reports12.  
3.2 Draft amendments to th e Law on credit institutions 
The ECB welcomes the draft amendments to the Law on credit institutions to the extent that they 
will strengthen the FCMC’s powers to intervene when the stability of either individual credit institutions or the financial system as a whole is jeopardised. Moreover, the ECB notes that in 
certain cases the FCMC may adopt decisions provided that the Cabinet of Ministers does not object. The ECB emphasises that operational independence of supervisory authorities vis-à-vis the political authorities is an essential and internatio nally recognised standard for supervision of 
financial markets. In this respect, the ECB notes that the draft amendments to the Law on credit 
institutions could give rise to concerns regard ing the operational independence of the Latvian 
supervisory authorities, which should be addr essed by introducing appropriate legislative 
safeguards. 
The ECB understands that the proposed provisi on giving the FCMC the power to request Latvijas 
Banka to suspend providing credit to a specific cred it institution in view of its worsening financial 
situation should be without prejudice to the prin ciple of central bank independence, as established 
by Article 108 of the Treaty and repeated in Artic le 7 of the Statute of the European System of 
Central Banks and of the European Central Bank
13. These provisions, inter alia , require that 
Latvijas Banka does not seek or take any inst ructions from other bodies of the Latvian 
                                                 
8  Financial Stability Forum, ‘Guidance for Developing Effective Deposit In surance Systems’, Sept ember 2001, point V.4 
(‘Funding’), p. 26. International Associ ation of Deposit Insurers, Core Princi ples for Effective Deposit Insurance 
Systems, 29 February 2008. 
9  See the twenty-third recital to Dir ective 94/19/EC. The proposed amending Dir ective calls for the Commission to submit 
a report on a harmonisation of the funding mechanisms of  deposit-guarantee schemes by 31 December 2009 to the 
European Parliament and the Council (s ee Article 1(6) of the proposed amendi ng Directive, introducing changes to 
Article 12 of Directive 94/19/EC). 
10  Interpreted in line with 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). 
11  See paragraph 1.2 of ECB Opinion CON/2008/70; see also  paragraph 3.1 of ECB Opin ion CON/2008/57; as well as 
paragraph 3.2 of ECB Opinion CON/2008/59 of 24 October 2008 at the request of the Swedish Ministry of Finance on a 
draft proposal on stabilising measures  for the Swedish financial system.  
12  See, for example, the ECB’s Convergence Report December 2006, p. 30. 
13  As also expressed in Article 13(2) of the Law on Latvijas Banka. 
5 administration and that such bodies undertake to resp ect this principle and do not seek to influence 
Latvijas Banka’s decision-making bodies in the pe rformance of their tasks. The ECB therefore 
recommends redrafting the provision in question to make it clear that while the FCMC may provide 
a negative assessment of the creditworthiness of a credit institution to La tvijas Banka, it may not 
request the suspension of credit to that credit in stitution. This would emphasise that the FCMC’s 
power is without prejudice to Latvijas Banka’s independence to decide whether credit should be 
provided to a credit institution. 
 This opinion will be published on the ECB’s website.    Done at Frankfurt am Main, 4 February 2009. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET