EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 14 June 2005  
at the request of Latvijas Banka on the dr aft law amending the Law on Latvijas Banka 
(CON/2005/20) 
 
1. On 27 April 2005 the European Central Bank (ECB) received a request from Latvijas Banka for an 
opinion on a draft law amending the Law on Latvijas Banka (hereinafter the ‘draft law’). Latvijas 
Banka has requested the ECB’s opinion before th e submission of the draft law to the Latvian 
Ministry of Finance. 
2. The ECB’s competence to deliver an opinion is b ased 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 concerns a national central bank. 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. 
3. The ECB understands that the primary objective of the draft law is to ensure that the Law on the 
Latvijas Banka is compatible with the Treaty and the Statute of the European System of Central 
Banks and of the European Central Bank. The draf t law contains six articles which mainly address 
issues raised in the ECB’s Convergence Report 2004, namely Latvijas Banka’s primary objective 
of price stability, its right to open accounts for me mbers of the European System of Central Banks 
(ESCB) and the need for Latvijas Banka’s credit oper ations to be backed by adequate collateral. 
The draft law also contains two technical provi sions which will update the Law on Latvijas Banka 
in accordance with other more recent Latvian legal acts.  
4. The ECB notes that th e draft law, which would enter into fo rce without delay after its adoption by 
the Latvian Parliament, addresses issues which are of immediate relevance in view of Latvijas Banka’s membership of the ESCB, as well as some of the issues which will need to be dealt with to 
ensure compatibility with Community law when Latv ia adopts the euro and Latvijas Banka is fully 
integrated into the Eurosystem. In the latter c ontext the ECB understands that further amendments 
to the Law on Latvijas Banka are currently being drafted as a separate exercise to cover the remaining issues not dealt with by the draft law.  
                                                     
 
1  OJ L 189, 3.7.1998, p. 42. 
2 5. Pursuant to Article 3 of the Law on Latvijas Ba nka as currently drafted, Latvijas Banka’s main 
objective is to implement monetary policy by controlling the amount of money in circulation with the aim of maintaining price stability in the La tvian State. As noted in the ECB’s Convergence 
Report 2004, this provision requires adaptation in order to comply fully with the Treaty and the Statute. Under the draft law Latvijas Banka’s main  objective is to maintain price stability. The ECB 
welcomes this adaptation which will allow Latvij as Banka to meet the criteria of functional 
independence as regards the ESCB’s primary objective of maintaining price stability.  
6. The ECB notes that, notwithstanding the draft law’ s objective of ensuring the compatibility of the 
Law on Latvijas Banka with the Treaty and the Statute,  the draft law does not deal with the issue of 
the personal independence of the members of Latv ijas Banka’s Council (herei nafter the ‘Council’). 
The grounds for dismissal of the Governor, De puty Governor and other members of the Council 
currently laid down in Article 22 of the Law on Latvijas Banka are that: (1) they have submitted 
their resignation, or (2) a court decision sentenc ing the Governor of Latvijas Banka, the Deputy 
Governor or a member of the Council for a deliberate crime has taken legal effect, or (3) the Governor of Latvijas Banka, the Deputy Governor or a member of the Council is unable to perform 
their functions for a period exceeding six successive months because of illness. It is recalled that 
the ECB’s Convergence Report 2004 concluded that th e grounds for dismissal of the Governor of 
Latvijas Banka currently laid down in Article 22 of the Law on Latvijas Banka require further 
adaptation in order to comply fully with Article  14.2 of the Statute. The ECB therefore suggests 
that this issue be addressed in the draft law.  
7. Article 12 of the Law on Latvijas Banka currently provides that Latvijas Banka is entitled to open 
accounts only for the Latvian Government, foreign banks, international monetary, financial and 
credit institutions, Latvian banks and other cred it institutions. Thus, as indicated in the ECB’s 
Convergence Report 2004, Latvijas Banka’s right to  open accounts for credit institutions needs to 
be extended to comply with Article 17 of the St atute. The Law on Latvijas Banka may not in any 
case restrict Latvijas Banka’s right to open acc ounts for members of the ESCB/Eurosystem. The 
ECB therefore welcomes the suggested rewording of Article 12 of the Law on Latvijas Banka insofar as it is less restrictive than the current pr ovisions of the Law. The ECB notes, however, that 
the suggested wording is still slightly more restri ctive than what is required by Article 17 of the 
Statute, which provides that in order to conduct their operations, the ECB and the national central 
banks (NCBs) may open accounts for credit ins titutions, public entities and other market 
participants and accept assets, including book entr y securities, as collateral. The current proposed 
wording of Article 12 of the Law only entitles Latv ijas Banka to open accounts for the Government 
of Latvia, credit institutions, international orga nisations and ‘other institutions’. It does not 
explicitly refer to the members of the ESCB. In this  regard it is noted that NCBs that are members 
of the ESCB are established under different legal arra ngements, all of which might or might not be 
covered by the concept of ‘institutions’ (some of the NCBs are not strictly public institutions but 
instead are established as companies). Therefore, in order to avoid any doubts as to whether ESCB 
3 members are covered by Article 12 of the Law on Latvijas Banka, the ECB recommends including 
an explicit reference to them in th e draft law. Furthermore, Article 17 of the Statute refers to other 
market participants, although it is not entirely clear  whether such other market participants would 
also be covered by the current wording of the draf t law. Therefore, for the purposes of clarity, the 
ECB would welcome the inclusion of an explicit refere nce to market participants in the draft law.  
8. Article 36 of the Law on Latvijas Banka provides that  Latvijas Banka is entitled to grant short-term 
loans against collateral to those Latvian banks and other credit institutions, foreign banks, and 
international foreign exchange, fi nancial and credit institutions th at have opened an account with 
Latvijas Banka. In its Convergence Report 2004 th e ECB noted that pursuant to the second indent 
of Article 18.1 of the Statute, Article 36 of th e Law on Latvijas Banka will need to subject credit 
operations with credit institutions and other market  participants to adequate collateral. As a 
consequence, the ECB welcomes the suggested rewording of Article 36, which provides that 
Latvijas Banka shall be entitled to effect, against adequate collateral, credit operations with credit 
institutions and other financial ma rket participants. However, from a strictly drafting perspective it 
is noted that, while the draft law refers only to cr edit operations, Article 18 of the Statute refers to 
all types of open market operations. While it is aw are of Latvijas Banka’s intention to draft further 
amendments in order to ensure full compliance with the Treaty and the Statute when Latvijas 
Banka joins the Eurosystem, the ECB would still welc ome at this stage a more extensive alignment 
of the text of Articles 36 and 37 of the Law on Latvijas Banka with the relevant provisions of 
Article 18 of the Statute in order to reflect Latv ijas Banka’s entitlement to conduct a wide range of 
open market operations both for liquidi ty providing and absorbing purposes.  
9. This opinion will be published on the ECB’s website. 
  Done at Frankfurt am Main, 14 June 2005. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET