EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 15 October 2008 
at the request of the Irish Minister for Finance  
on a draft Credit Institutions (Financial Support) Scheme 2008 
(CON/2008/48) 
 
Introduction and legal basis  
On 10 October 2008 the European Central Bank (ECB) received a request from the Irish Minister for 
Finance (hereinafter the ‘Minister’) for an opini on on a draft Credit Institutions (Financial Support) 
Scheme 2008 (hereinafter the ‘draft scheme’) to be  adopted by the Minister by means of a statutory 
instrument under the provisions of the Credit Institu tions (Financial Support) Act 2008 (hereinafter the 
‘Act’). On 13 October 2008 the ECB was informally provi ded by the Irish Department of Finance with an 
updated version of the draft scheme (her einafter the ‘updated draft scheme’)1. The scheme implements the 
more general rules contained in the recently adopted  Act, on which the ECB has been consulted and 
issued its Opinion CON/2008/44 on 3 October 20082. In accordance with the Act, the Minister may not 
adopt the scheme until a resolution approving it has been passed by each House of the Oireachtas  
(National Parliament)3. The Minister requested the ECB’s opinion on the scheme as a matter of urgency, 
prior to its submission to the Oireachtas .  
The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty, in conjunction with 
the third and sixth indents of Article 2(1) of Council Decision 98/415/EC of 29 June 1998 on the 
consultation of the European Central Bank by natio nal authorities regarding draft legislative provisions4, 
as the scheme relates to a national central bank, th e Central Bank and Financial Services Authority of 
Ireland (hereinafter the ‘Central Bank’), and contains rules applicable to financ ial 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  The draft scheme and the updated draft scheme are only referre d to specifically in this opi nion where a distinction needs 
to be made between them. Otherwise the legislative provisions to be adopted are referred to as the ‘scheme’. 
2  See ECB Opinion of 3 October 2008 at the request of the Iri sh Minister for Finance on a draft Credit Institutions 
(Financial Support) Bill 2008 (CON/2008/44). 
3  See Section 6(5) of the Act. 
4  OJ L 189, 3.7.1998, p. 42. 
2 1.  Purpose of the scheme  
1.1 The primary objective of the scheme is to prov ide a legal basis for the Minister to stand as 
guarantor of the ‘covered liabilities’ of a ‘covere d institution’ for the period of two years from 
30 September 2008 to 29 September 2010, as a fo rm of financial support provided under the Act5. 
In accordance with the Act, the sch eme has been brought forward as the Minister is of the opinion 
that: (i) there is a serious threat to the stability of credit institutions in Ireland generally, or would 
be such a threat if he did not provide the financ ial support; (ii) the provision of the financial support 
is necessary, in the public interest, for maintaining the stability of the financial system in Ireland; 
and (iii) the provision of the financial support is  necessary to remedy a serious disturbance in the 
economy of Ireland6. 
1.2 The scheme further specifies the scope of the St ate’s guarantee by clarifying the means by which 
credit institutions are covered by the scheme and th e types of liabilities of the covered institutions 
for which the State guarantee will be provided, as fu rther discussed in paragraph 3 of this opinion. 
A covered institution will be unde r an obligation to pay a quarterly charge to the State for a 
guarantee, calculated on the basis of, inter alia , its risk profile7. The scheme confers extensive 
powers on the Minister, the Governor of the Ce ntral Bank and the Irish Financial Services 
Regulatory Authority (hereinafter the ‘Regulatory Authority’), as further discussed in paragraph 4 
of this opinion. 
 2. General observations  
2.1 The ECB notes that there is an ongoing discussion at both the international and European levels 
with a view to coordinating the many diverse ac tions of countries aimed at preserving confidence 
and stability in the international financial markets.  In line with the common principles to guide the 
action of Member States agreed at the Ecofin me eting on 7 October 2008: (i) interventions should 
be timely and the support should in principle be temp orary; (ii) the interests of taxpayers should be 
protected; (iii) existing shareholders should bear th e due consequences of the intervention; (iv) the 
government should be in a positio n to bring about a change of  management; (v) management 
should not retain undue benefits; (v i) governments may have, inter a lia, the power to intervene with 
regard to remuneration; (vii) legitimate interests of competitors must be protected, in particular 
through the State aid rules, and nega tive spill-over effects should be avoided
8. Moreover, the ECB 
notes that on 12 October 2008 the Heads of State of the euro area issued a ‘Declaration on a 
                                                 
5  See paragraph 9 of the Schedule to the scheme. The scheme does not concern ot her types of financial support which may 
be provided by the Minister under the Act, such as, for ex ample, the Minister’s authority to purchase shares in a 
supported credit institution under Section 6(9) of the Act. 
6  See paragraph 1 of the Schedule to the scheme. 
7  The charge is to be credited to a designated account to be ma intained at the Central Bank as a reserve for any payments to 
be made under the scheme (see paragra phs 15A-21 of the Schedule to the draft scheme (paragraphs 16-23 of the Schedule 
to the updated draft scheme), together with the A nnex (Guarantee Charging M odel) to the Schedule). 
8  See the press release of the 2894th Council meet ing (13784/08), available on the Council website, 
www.consilium.europa.eu. 
3 concerted European action plan of the euro area countries’9, in which they confirmed their 
commitment to act together in a decisive and co mprehensive way in order to restore confidence and 
proper functioning of the financial system, aiming at restoring appropriate and efficient financing 
conditions for the economy. They agreed on common principles to be followed by the EU and euro 
area governments, central banks and supervisors to  avoid national measures adversely affecting the 
functioning of the single market and the other Me mber States. Against this background, the ECB 
highlights that all the initiatives put in place by national governments to restore the confidence in 
financial markets should be aimed at implementing su ch common principles, in the spirit of close 
cooperation with other Member Stat es and EU institutions.    
2.2 The ECB underlines that the recommendations expr essed in this opinion in  relation to the scheme 
should be taken together with the recommendations  expressed by the ECB in relation to the draft 
Act in its Opinion CON/2008/4410. The ECB wishes to draw the cons ulting authority’s attention to 
the recent ECB opinions issued at the request of other Member States, whereby the ECB has 
commented on legislative proposals shari ng some of the features of the scheme11. It is the ECB’s 
intention to facilitate coordinati on of the various national efforts addressing the current financial 
situation, inter alia through timely adoption and publication of ECB opinions on such draft national 
legislation.  
 3. Scope of the financial support provided 3.1 Selection of covered credit institutions 
Under the scheme on which the ECB was originally  consulted, the institutions covered are those 
credit institutions and subsidiaries which the Minister, following a recommendation from the 
Governor of the Central Bank, specifies by order under the Act as requiring financial support
12. A 
credit institution joins the scheme by executing a guarantee acceptance deed in the form to be 
specified by the Minister and, if required by th e Minister, its parent or any other group company 
also executing such a guarantee acceptance deed13. A subsidiary of any parent credit institution 
which is not regulated by the Regulatory Authorit y may qualify as a ‘covered institution’, but in the 
case of a covered institution which is a subsidiary of any non-Irish parent credit institution, the only 
liabilities covered would be those which re late to the subsidiary’s own business14. 
3.2 In the context of the above provisions, the ECB notes that on 30 September 2008 the Irish 
Government announced that it had decided to put in place a two-year guarantee arrangement to 
                                                 
9  See the declaration of 12 October 2008, available on the website of the French Presidency at www.ue2008.fr. 
10  See in particular paragraphs 2.3 and 3.2 of Opinion CON/2008/44,  as reiterated in paragraphs  3.4 and 3.7 of this opinion. 
11  See, e.g. ECB Opinion CON/2008/46 of 8 October 2008 at the request of the Belgian Ministry of Finance on a 
preliminary draft law on measures  promoting financial stability  and in particular establishing a State guarantee for the 
provision of credit in the context of financial stability . All ECB opinions are available on the ECB website at 
www.ecb.europa.eu/ecb/legal/o pinions/html/index.en.html. 
12  See paragraph 3 of the Schedule to the scheme. 
13  See paragraph 5 of the Schedule to the updated draft scheme. 
14  See paragraph 12 of the Schedule to the updated draft scheme. 
4 safeguard liabilities with six explicitly named Irish credit institutions and such specific subsidiaries 
as may be approved by the Government followi ng consultation with the Central Bank and the 
Regulatory Authority15. The ECB notes that on 9 October 2008 the Minister announced that the 
two-year scheme would also be available to five explicitly named ‘banking subsidiaries’ in Ireland 
‘with a significant and broad-based footprint in the domestic economy’16. Against this background, 
the ECB has the following comments. 
3.3 First , the ECB notes that the original proposal whereb y the Governor of the Central Bank would be 
entrusted with the authority to ‘make recomme ndations’ to the Minister as regards the credit 
institutions to be covered by the scheme has be en modified by the updated draft scheme to the 
effect that the Minister would instead take a d ecision to designate those systemically important 
credit institutions which the Minister specifies re quire financial support. Given that the purpose of 
the scheme is to maintain the stab ility of the Irish financial system, the original proposal to confer 
this particular role on the Gove rnor would have complemented th e Governor’s financial stability 
role under the Act17 and, more generally, the Central Bank’s statutes18. The Governor’s financial 
stability role at domestic level also facilitates th e discharge of his responsibilities as a member of 
the ECB’s Governing Council to contribute to th e stability of the wider European and global 
financial systems under Article 105(5) of the Treaty. The ECB would have a preference to revert to 
the original proposal and in any case ensure a prope r involvement of the Governor when taking any 
decision under the scheme with a bearing on financial stability, including all decisions by the Minister to revoke the guarantee in whole or in part in relation to a credit institution. 
3.4 Second , the ECB reiterates the stance taken in its previous opinion, according to which 
arrangements which may be seen as providing preferen tial treatment to specified credit institutions 
should be avoided
19. In this respect, the ECB appreciates the provision of the scheme stating that it 
is introduced by the Minister having regard to  the objective of ensuring compliance with the 
requirements of EU State aid and competition law20, as well as the statements made in the 
explanatory memorandum to the effect that the scheme is designed to ensure that the covered 
institutions will not be unfairly advantaged by making undue use of their guaranteed status to 
engage in a heightened level of activities which create market distortions and facilitate abnormal 
                                                 
15  See the 30 September 2008 press release,  available on the Department for Fi nance’s website at www.finance.gov.ie. 
Cf. paragraph 19 of ECB Opinion CON/2008/44. 
16  See the 9 October 2008 press release, available on the Department for Finance’s we bsite at www.finance.gov.ie. 
17  See the list of the Governor’s  relevant powers in paragraph 3.1 of ECB Opinion CON/2008/44. 
18  The financial stability powers of the Governor under the Cent ral Bank Acts include: (i) expressing agreement to actions 
by the Regulatory Authority on any matter relating to the fina ncial stability of Ireland’s fina ncial system, including (but 
not limited to) the issue, revocation and su spension of a license or other authority;  (ii) authorising investigations and on-
site inspections of licensed credit institu tions; (iii) the issuance of guidance as to policies and principles that the 
Regulatory Authority is required to implement in perform ing the Central Bank’s functions; and (iv) requesting the 
Regulatory Authority’s advice, informa tion and assistance. See Sections 33C(1 )(c), 33C(8), 33C(9), 33C(9A), 33C(9B) 
and 33D(1)-(2) of the Central Bank Act 1942; Section 17A of the Central Bank Act 1971; Section 41 of the Central Bank 
Act 1989. 
19  See paragraph 2.3 of ECB Opinion CON/2008/44. 
20  See paragraph 2, fourth bullet point, of the Schedule to th e draft scheme (paragraph 2.5 of the Schedule to the updated 
draft scheme). 
5 balance sheet growth21. In this regard, the ECB underlines the importance of establishing 
appropriate safeguards such as for example limits to  marketing of financial products or limits to 
expansion of activities on the basis of the state guarantees22.  
3.5 The ECB understands that the Commission has confirmed the compatibility of the guarantee 
arrangement proposed by the Irish Govern ment with Community State aid rules23. The ECB 
reiterates the importance of ensuring that the further regulatory practice under the proposed 
arrangements will be conducted in  full compliance with the relevant Community law provisions, in 
particular as regards competition and State aid ru les, as well as EU financial services legislation 
and the single market principles24. 
3.6 Types of liabilities covered by the guarantee  
Under the scheme ‘covered liabilities’ are define d as those liabilities of covered institutions 
existing on 30 September 2008 or at any time ther eafter up to and including 29 September 2010 in 
respect of: (i) all retail and corporate deposits (to the extent not covered by existing deposit 
protection schemes in Ireland or any other juri sdiction); (ii) interbank deposits; (iii) senior 
unsecured debt; (iv) covered bonds; and (v) dated subordinated debt (Lower Tier 2)25. In the case of 
a covered institution which is a subsidiary of any non-Irish parent credit institution, the only 
covered liabilities would be those which relate to the subsidiary’s own business and in respect of 
which there is no recourse to any other entity (a nd would not include liabilities which, in the 
absence of the guarantee, would normally be tho se of other members of the covered institution’s 
group)26. 
3.7 As a further comment as regards the scope of c overage of the State guarantee, the ECB notes that, 
in line with the declaration made by the euro ar ea Heads of State mentioned before, Member States 
have to act in coordinated manner to avoid that  significant differences in national implementation 
could have a counter-productive e ffect, creating distortions in global banking markets. The euro 
area Heads of State also acknowledged the need to  work in cooperation with the ECB so as to 
ensure consistency with the management of liquidi ty by the Eurosystem and compatibility with the 
operational framework of the Eurosystem. Against this background, the ECB notes that uncoordinated decisions to guarant ee interbank deposits in some Member States should be avoided 
as they may involve a fragmentation of the euro ar ea money market. The extension of the guarantee 
                                                 
21  See the Explanatory Memorandum Relating to a Scheme Dated X day of October 2008, pp. 2-4. 
22  See in particular the safeguards introduced by paragraph 36 of the updated draft scheme. 
23  See the Commission press release IP/08/1497 of 13 Octobe r 2008. The non-confidential version of the Commission’s 
decision will be made available under Case NN 48/2008. The Commission took account , in particular of the provision of 
the updated draft scheme stating that the Minister may review and vary the scheme  at no later than six-month intervals, 
and the results of such review will be provided to the Commi ssion (see paragraph 8 of the Schedule to the updated draft 
scheme). See also ‘Communication from the Commission – The application of St ate aid rules to measures taken in 
relation to financial institutions in the context of the current global financial cr isis’ of 13 October 2008, available at the 
Commission’s website at www.ec.europa.eu. 
24  Cf. paragraph 2.3 of ECB Opinion CON/2008/44. 
25  See paragraph 10 of the Schedule to the scheme. 
26  See paragraph 12 of the Schedule to the updated draft scheme. 
6 to cover interbank deposits, as is the case under the scheme27, could entail a substantial distortion in 
the various national segments of the euro area money market by potentially increasing short-term debt issuance activity across Member States and therefore impairing the implementation of the 
single monetary policy, which is a competence of the Eurosystem under Article 105(2) of the 
Treaty. The ECB also notes that  the summit declaration states th at the euro area Governments 
would make available a Government guarantee of new medium term (up to 5 years) bank senior 
debt issuance, whereas the scheme proposes to cover senior unsecured debt and asset covered 
securities, without limitation as to maturity, a nd dated subordinated de bt (Lower Tier 2)
 28. 
3.8 The draft scheme on which the ECB was formally c onsulted indicates that it remains to be clarified 
whether the covered liabilities would exclude any inter-group lending and any debt due to the 
ECB29. The exclusion of debts due to the ECB fro m the liabilities covered by the guarantee under 
the scheme would be incongruo us, however. Under the Act the borrowings, liabilities and 
obligations of any credit institution or subsidiary  in respect of which the Minister may provide 
financial support include borrowings, liabiliti es and obligations to the Central Bank30. This would 
imply that the following liabilities to the Cent ral Bank would be covered liabilities under the 
scheme: (i) deposits made by the Central Bank with  covered Irish credit institutions as part of the 
Central Bank’s investment operations; and (ii)  senior unsecured debt securities and covered bonds 
issued by Irish credit institutions covered by th e scheme and held by the Central Bank as collateral 
in the Central Bank’s Eurosystem monetary policy and intra-day credit operations31. By contrast, 
deposits made by the ECB with these same Irish cr edit institutions as part of the ECB’s investment 
operations would not be covered lia bilities under the scheme. As a practical matter, this would, in 
all probability, provide a strong incentive to the ECB to refrain from making deposits with such 
Irish credit institutions in the future, since the ECB could no longer rely on the normal credit 
ratings attributed to exposures with these Irish banks, which would be based on the presence of the 
Minister’s guarantee32.  
3.9 The ECB further understands that because of th e abovementioned inclusion of covered institutions’ 
liabilities towards the Central Bank within the sco pe of the State guarantees provided under the 
scheme33, the Central Bank may find itself in a situation where it is lending to a credit institution 
against collateral which may, at least partially, ta ke the form of a guarantee provided by the State. 
                                                 
27  See paragraph 10, second bullet point of the draft scheme and paragraph 10.2 of the Schedule to the updated draft 
scheme. 
28  See paragraph 10, third, fourth and fift h bullet points of the draft scheme and paragraph 10.3-10.5 of the Schedule to the 
updated draft scheme. 
29  See paragraph 10 of the Schedule to the draft scheme.  
30  See Section 6(2) of the Act. 
31  Any secured lending by the Central Bank to covered institutions , e.g. as part of the Central Bank’s Eurosystem credit or 
emergency lending operations  would not appear to be covered by the scheme. 
32  If the intention behind this proposal was to exclude obligati ons arising out of Eurosystem monetary policy and intraday 
credit operations, care would need to be taken that such an excl usion did not also require a rea ppraisal of the eligibility of 
senior unsecured debt securities and covered bonds issued by  Irish credit institutions covered by the scheme in 
connection with the coll ateralisation of Eurosy stem credit  operations. 
33  See Section 6(2) of the Act. 
7 Such central bank lending to a solvent credit ins titution on the basis of a State guarantee is, in 
principle, possible, provided that the Central Bank’s compliance with the monetary financing 
prohibition under Article 101 of the Treaty is ensured. Specific criteria for such compliance must be respected as noted by the ECB in a recent opinion issued with r espect to another EU jurisdiction 
which has legislated in response to the current market turmoil
34. In this opinion, the ECB 
underlines its earlier recommendation that nothing in the legal framework governing the provision 
of financial support by the Irish authorities s hould prejudice the Central Bank’s compliance with 
the prohibition on monetary financi ng under Article 101 of the Treaty35.  
3.10 Finally, as regards the payment of the claims in respect of covered liabilities, the ECB highlights 
that in general the existing funding mechanism of  the deposit-guarantee scheme should be used to 
the extent possible. In this respect, in fact, the ECB notes that the scheme covers all retail and 
corporate deposits to the extent they are not cove red by existing protection schemes in the State or 
any other jurisdiction36. However, the ECB notes that the relationship between the scheme and the 
existing deposit guarantee scheme as regards the tr eatment of claims and the reimbursement of 
deposits should be further clarified.  
 4. Allocation of supervisory powers re lated to provision of financial support  
4.1 The scheme confers extensive powers on the Minist er, the Governor of the Central Bank and the 
Regulatory Authority, which are divided as follows. 
(i) The Minister has the power to: (i) impose spec ific obligations on cove red institutions which 
are subsidiaries of non-Irish parent credit instituti ons to ensure that the scheme is not used for 
the benefit of any entity other than  the relevant covered institution
37; (ii) in consultation with 
the relevant overseas regulator (subject to the requirements of the Treaty and the ESCB Statute), require certain obligations of the scheme to apply to the parent of a covered 
institution or any member of its group
38; (iii) receive confirmations from covered institutions 
regarding compliance with relevant regulatory standards39 and (through covered institutions’ 
auditors) with the conditions of the scheme40; (iv) direct, following consultation with the 
                                                 
34  See paragraph 4.3 of ECB Opinion CON/2008/46. This opini on specified the following criteria under which a central 
bank may engage in lending to a solvent credit institution on basis of a collateral in the form of a State guarantee: (i) the 
central bank needs to independently exercise full discretion re garding the decision whether to extend emergency liquidity 
assistance; (ii) it should be en sured that the credit provided by the central ba nk is as short term as possible; (iii) there 
must be systemic stability aspects at st ake; (iv) there must be no doubts as to the legal validity and enforceability of the 
State guarantee under applicable national law; and (v) there must be no doubts as to the economic adequacy of the State 
guarantee, which should cover both principa l and interest on the loans, thus full y preserving the financial independence 
of the central bank. 
35  See paragraph 3.2(iii) of ECB Opinion CON/2008/44. 
36  See paragraph 10, first bullet point of the Schedule to the draft scheme (paragraph 10.1 of the Schedule to the updated 
draft scheme). 
37  See paragraph 11 of the Schedule to the draft scheme (par agraph 12 of the Schedule to the updated draft scheme). 
38  See paragraph 50 of the Schedule to the scheme. 
39  For example, the Irish Bankers’ Fe deration Code of Practice on Mortgage Arrears and the Regulatory Authority’s 
Consumer Protection Code (see paragra ph 24 of the Schedule to the draft scheme  (paragraph 26 of the Schedule to the 
updated draft scheme)). 
40  See paragraph 25 of the Schedule to the draft scheme (par agraph 27 of the Schedule to the updated draft scheme). 
8 Governor and the Regulatory Authority, a covere d institution to submit a restructuring plan to 
ensure compliance with the objectives of the scheme41; (v) direct a covered institution to 
appoint non-executive directors to its board fro m a panel approved by the Minister and admit 
observers appointed by the Minister to observe the meetings of the internal committees of the 
covered institution42; (vi) direct a covered institution to take specified steps to restructure its 
executive management responsibilities, strengthe n its management capacity and improve its 
corporate governance43; (vii) impose sanctions on the covered institution, if in the opinion of 
the Minister it is in material breach of its obligations under the scheme44; (viii) following 
consultation with the Governor and the Regulat ory Authority, prevent a covered institution 
from acquiring shares in any other credit or fi nancial institution, establishing any subsidiaries 
or entering into or acquiring any new business where this would increase the State’s liability 
under the guarantee45; (ix) following consultation with the Governor and the Regulatory 
Authority, make rules governing the paymen t of dividends by a particular covered 
institution46; (x) establish an independent oversight committee to impose controls on the 
executive remuneration of covered institutions47; and (xi) in the event of any default of a 
covered institution which creates a liability on the State, direct the covered institution 
concerning its business and corporate structures48.  
(ii) The Governor of the Central Bank has powers to: (i) together with the Regulatory Authority, 
set regulatory requirements for the covered institutions49; (ii) together with the Regulatory 
Authority and following the consultation with the Minister, require a covered institution to 
conduct its affairs in a manner that progressively reduces the risk to the State under its Guarantee
50. Further, the Governor may be consulted by the Minister regarding institutions to 
be covered under the scheme51. The Governor is also consulted by the Minister before the 
Minister exercises any functions under the scheme which relate to the Governor’s statutory 
                                                 
41  See paragraph 26 of the Schedule to the draft scheme (par agraph 28 of the Schedule to the updated draft scheme). 
42  See paragraph 30 of the Schedule to the draft scheme (par agraph 32 of the Schedule to the updated draft scheme). 
43  See paragraph 34 of the Schedule to the scheme. A sim ilar power may be exercised by  the Regulatory Authority. 
44  See paragraph 35 of the Schedule to the scheme. Acting in th is capacity, the Minister may increase the charge payable by 
the institution, impose additional conditions  or revoke the institution’s guarantee. 
45  See paragraph 36 of the Schedule to the draft scheme (par agraph 38 of the Schedule to the updated draft scheme). 
46  See paragraph 41 of the Schedule to the draft scheme (par agraph 42 of the Schedule to the updated draft scheme). The 
rules concerning payment of dividends s hould take into account the objective of achieving or maintain ing required capital 
ratios. 
47  See paragraphs 46-49 of the Schedule to the scheme. 
48  See paragraph 53 of the Schedule to the draft scheme (paragraph 53.4 of the Schedule to the updated draft scheme), 
which also provides that any restructuring plan drawn up for a covered institution in such a case should be notified to the 
European Commission and should comply with EU State aid and competition law. 
49  See paragraph 4 of the Schedule to the scheme. 
50  See paragraph 37 of the Schedule to the scheme. The Gover nor may in particular require  a covered institution to: 
(i) appropriately manage its ba lance sheet in a manner consistent with the purposes of the Act and the need to avoid 
significant distortion of financ ial flows; (i) put in place improved structur es to ensure long-term stability of funding; 
(iii) take steps to restructure its executive management responsibilities and strengthen its  management capacity and 
corporate governance; (iv) improve liquidity, solvency and cap ital ratios in circumstances where this is required; and 
(v) take measures to minimise any risk of recourse to the guarantee. 
51  See paragraph 3 of the Schedule to the updated draft scheme. 
9 responsibilities52, as well as with respect to the exerci se of certain more specific powers of 
the Minister under the scheme53. The Governor monitors, together with the Regulatory 
Authority’s Chief Executive, the operation of the scheme and reports regularly to the Minister 
thereon54.  
(iii) The Regulatory Authority, apart from the a bovementioned functions pe rformed jointly with 
the Governor: (i) receives (on behalf of the Minister) from the covered institutions reports, 
addressing their key su pervisory parameters55 and submits to the Minister reports on the 
compliance by covered institutions with the terms and conditions of the scheme56; (ii) after 
consultation with the Minister, may require a covered institution to  establish appropriate 
funding structures57; (iii) if so directed by the Minister, may require any report or other 
information to be provided by a covered institu tion to be audited by an independent auditor58; 
(iv) is consulted by the covered institutions to wards developing a code of practice for 
effective risk management, in furt herance of the purposes of the Act59; (v) may, following 
consultation with the Minister, require chang es in the composition of a covered institution’s 
board in order to achieve an appropriate balance between executive and non-executive 
directors60; and (vi) may, after consultation with th e Minister, require changes in the specific 
elements of the commercial c onduct of the covered institution61. 
4.2 On the one hand, the ECB welcomes those provision s of the draft scheme that allow the Governor 
to be involved in the exercise of the Minister ’s powers under the Act and the scheme for purposes 
of maintaining the stability of the Irish financia l system. Moreover, the ECB welcomes the express 
safeguards introduced under the draft scheme as rega rds the role of the Governor, in particular the 
clarifications that: (i) nothing in the scheme shall prejudice the independence of the Governor62; 
(ii) the Governor’s authority to disclose info rmation concerning a covered institution or its 
subsidiaries to the Minister and the Regulatory Authority is subject to the confidentiality 
                                                 
52  See paragraph 51 of the Schedule to the scheme. 
53  See consultation powers given to the Governor under paragraphs 13, 26, 36, 39 and 41 of the Schedule to the draft 
scheme (the Schedule to the updated dr aft scheme provides for such  consultation powers in four cases, referred to in 
paragraphs 13, 28, 38 and 42). 
54  See paragraph 52 of the Schedule to the scheme. 
55  See paragraph 22 of the Schedule to the draft scheme (par agraph 24 of the Schedule to the updated draft scheme). The 
parameters in question include, inter alia , liquidity requirements, capital ratios, asset quality, risk exposures and funding 
costs. 
56  See paragraph 23 of the Schedule to the draft scheme (par agraph 25 of the Schedule to the updated draft scheme). 
57  See paragraph 40 of the Schedule to the updated draft scheme. 
58  See paragraphs 25 and 27 of the Schedule to the draft scheme  (paragraphs 27 and 29 of the Schedule to the updated draft 
scheme). 
59  See paragraphs 29 of the Schedule to the draft scheme (p aragraph 31 of the Schedule to the updated draft scheme). 
60  See paragraph 33 of the Schedule to the scheme. 
61  See paragraphs 38, 40, 43 and 44 of the Schedule to the draf t scheme (paragraphs 36, 39, 41 and 44 of the Schedule to the 
updated draft scheme). The elements of  commercial conduct to be regulated by  the Regulatory Authority under these 
provisions include: (i) targets on loan/deposit ratios, whol esale funding/total liabilities, deposit growth and maximum 
loans-to-value on new loans; (ii) limitations on exposures to any sector, customer or connected customers; (iii) liquidity, 
solvency and capital ratios; (iv) restrictions in relation to  market share and balance sheet growth introduced to minimise 
any potential competitive distortion that may otherwise arise; (v) directions for the covered institution to cease passing on 
the costs of the guarantee to its customers in an unwarranted manner. 
62  See paragraph 51 of the Schedule to the scheme. 
10 requirements imposed on the Governor by the Treaty and the ESCB Statute63; and (iii) the 
Governor’s monitoring and regular reporting to the Minister regarding the operation of the scheme 
is without prejudice to the Governor’s responsib ility for the performance of functions conferred on 
the Governor and the Central Bank under the Treaty and the ESCB Statute64. These provisions 
satisfactorily incorporate, as far as the draft sch eme is concerned, the recommendations made in 
this respect in the recent ECB opinion on the Act65.  
4.3 On the other hand, the ECB notes that the divisi on of responsibilities to be performed in the 
implementation of the scheme by the Minister, the Governor and the Regulatory Authority provides the Minister with substantive powers to review, direct or otherwise influence the conduct of the 
credit institutions concerned. The ECB appreciates that the Minister must protect the financial 
interests of the Irish taxpayer
66. However, the ECB would also wi sh to draw attention in this 
context to the principle of operational independe nce of banking supervisors, which are to pursue 
supervisory objectives free from political pressure , which is an internationally recognised 
supervisory standard specified in the Basel Co re Principles for Effective Banking Supervision67. In 
line with its previous opinions68, the ECB recommends that the allocation of powers related to the 
operation of the scheme be reconsidered, with a view to assigning to the Regulatory Authority 
and/or the Governor those powers under the sc heme that are closely connected with the 
performance of supervisory tasks.  
4.4 As a general remark, the ECB notes that the powers conferred under the schem e could be defined in 
a more coherent way. For example, in the update d draft scheme there appears to be an overlap 
between the two separate references to the functions of requiring the covered institution to ‘put in 
place improved structures to ensure long-term stability of funding’69 or to ‘restructure its executive 
management responsibilities, strengthen its mana gement capacity and improve its corporate 
governance’70. Also, a greater consistency in the method of allocating the various powers under the 
                                                 
63  See paragraph 28 of the Schedule to the draft scheme (par agraph 30 of the Schedule to the updated draft scheme). 
64  See paragraph 52 of the Schedule to the scheme. 
65  See paragraph 3.2 (i)-(ii) of ECB Opinion CON/2008/44. 
66  See paragraph 2, first and fourth bullet point of the Schedul e to the draft scheme (paragraph 2.6 of the Schedule to the 
updated draft scheme). 
67  See the Basel Committee on Banking Supervision, ‘Core Prin ciples for Effective Banking Supervision’, September 1997, 
principle I, document av ailable on the Bank for International Settlements  website, www.bis.org. 
68  See, e.g. paragraph 3.2.1 of ECB Op inion CON/2006/15 of 9 March 2006 at the reque st of the Polish Minister of Finance 
on a draft law on the supervision of financial institutions. 
69  Under paragraph 37.2 of the updated dr aft scheme ‘the Governor and the Regula tory Authority, after consultation with 
the Minister’ may direct the covered institution to ‘[p]ut in place improved structures to ensure long-term stability of 
funding’, while under paragraph 40 of the Sche dule to the updated draft scheme states that ‘Unless it ha s already done so, 
a covered institution shall take steps to establish such funding structures as the Regulatory Authority, in consultation with 
the Minister, thinks appropriate having re gard to the purposes of the Act of 2008, within such period as the Minister may 
direct’. 
70  Under paragraph 34 of the Schedule to the updated draft scheme , this power is assigned to ‘the Minister or the Regulatory 
Authority or both’, whereas under paragra ph 37.3 of the Schedule to the updated dr aft scheme the power is attributed to 
‘the Governor and the Regulatory Authority, after the consultation with the Minister’. 
11 draft scheme could be ensured71. The ECB recommends that a more coherent delineation of the 
powers of the respective superv isory authorities is introduced. 
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 15 October 2008. 
 
[signed] 
 
The Vice-President of the ECB 
Lucas D. PAPADEMOS 
  
                                                 
71  For example, paragraph 42 of the updated draft scheme provi des that the power to limit the payment of dividends by the 
covered institution is to be exercised by  the Minister after consulting the Govern or and the Regulatory Authority, while 
the similar power under paragraph 43 of the updated draft sc heme to prohibit the covered institution from engaging in 
buy-backs or redemptions of its ordinary shares is to be  exercised by the Regulatory Authority after consulting the 
Minister.