EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 1 December 2005 
at the request of Národná banka Slovenska  
on a draft law amending the Act No 118/1996 Coll. on the protection of bank deposits and on 
amendments to certain laws, as last amended  
(CON/2005/50) 
 
1. On 19 September 2005 the European Central Bank (ECB) received a request from Národná banka 
Slovenska (NBS) for an opinion on a draft law (h ereinafter the ‘draft law’) amending the Act 
No 118/1996 Coll. on the protection of bank deposits and on amendments to certain laws, as last 
amended (hereinafter the ‘Act’ or  the ‘Deposit Protection Act’).  
2. The ECB’s competence to deliver an opinion is b ased on the second indent of Article 105(4) of the 
Treaty establishing the European Community, and in particular on the third and sixth indents of Article 2(1) of Council Decision 98/415/EC of 29 J une 1998 on the consultation of the European 
Central Bank by national authorities regarding draft legislative provisions
1, as the draft law 
contains provisions concerning a national central  bank (NCB) and rules applicable to financial 
institutions insofar as they materially influence the stability of financial institutions and markets. In 
addition, the ECB notes that its role under Article 237(d) of the Treaty of ensuring that NCBs fulfil their obligations thereunder
2, which includes ensuring that they comply with the prohibition on 
monetary financing laid down in Article 101 of the Treaty, makes it necessa ry to ascertain whether 
the draft law and operations conducted by NBS there under are compatible with this prohibition. 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. 
 The draft law
 
3. According to the explanatory memorandum to the draft law, the draft law establishes a framework 
for a potential decrease in the level of commerc ial banks’ annual contri butions to the Slovak 
Deposit Protection Fund (hereinafter the ‘Fund’) . Under the current Slovak deposit-guarantee 
                                                      
1  OJ L 189, 3.7.1998, p. 42. 
2  See also Recital 9 to Council Regulation (EC) 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), which provides that 
notwithstanding the role assigned to th e Commission pursuant to Article 169 (now Article 226) of the Treaty, it is for the 
ECB, pursuant to Articles 109f(9) (now Article 117(9)) and 180 (now Article 237) of the Treaty, to ensure that NCBs 
honour the obligations laid down by the Treaty. 
 
2 scheme, the amount of the annual contribution, whic h is the same for all banks, is determined by 
the Fund specifying a level between 0.1% and 0.75% of the amount of protected deposits. The 
annual contribution during a period when the F und is repaying a loan made to finance 
compensation payments for unavailable deposits und er the scheme is set at the upper limit of the 
annual contribution range, i.e., at 0.75%. In addition, currently the Fund must fix the amount of the 
annual contribution in the upper half of the cont ribution range, i.e., between 0.425% and 0.75%, 
during a period when it does not have sufficient funds to meet compensation payments at the 
minimum level of 1.5% of the total value of protected deposits.  
4. By contrast, under the draft law the Fund would he nceforth have to determine the amount of the 
annual contribution during a period when it is re paying a loan made to finance compensation for 
unavailable deposits within a potentially lower ra nge of between 0.35% and 0.75% or, with the 
prior written consent of NBS, within a range of between 0.2% and 0.75% of the amount of 
protected deposits. Further, during a period when it is not repaying such a loan and does not possess sufficient funds to make compensation payments  at the minimum rate of 1.5% of the total 
value of protected deposits, the Fund would hencef orth have to determine the amount of the annual 
contribution at a lower minimum rate of 0.2% of the amount of protected deposits. In this second 
case, the draft law would allow the lower minimum ra te to be set without the prior written consent 
of NBS. 
5. Regarding the draft law’s reference to loans ma de to the Fund to fi nance compensation for 
unavailable deposits, the ECB takes note that pursuant to Article 24(3) of the Act No 566/1992 Coll. on Národná banka Slovenska, as last amended (hereinafter the ‘NBS Act’),
 NBS itself may 
provide a loan to the Fund. The Fund may request  such a loan from NBS pursuant to the Deposit 
Protection Act3. Furthermore, under the Deposit Protection Act the Fund may apply to other banks 
for such a loan, and a State guarantee may be granted for loans extended to the Fund4. In addition 
to any such loan from NBS or other banks, th e ECB notes that the Fund’s resources under the 
Deposit Protection Act potentially include, inter alia , repayable assistance funds and government 
subsidies to support the fulfilment of the Fund’s tasks and the deposit-guarantee scheme, within the 
scope and under conditions set by the State budget for the relevant year5.  
 Recent developments in relation to the Fund
 
6. The explanatory memorandum to the draft law states  that the draft law is based on an initiative of 
the Slovak Banking Association to prepare the lega l framework for a potential decrease in the level 
of banks’ contributions to the Fund. Accordi ng to the explanatory memorandum, the Banking 
                                                      
3  Article 13(2) of the Deposit Protection Act. 
4  The Fund may approach a bank of foreign origin for a loan only with the prior approval of NBS (see Article 13(2) of the 
Act). State guarantees on loans made by  NBS or other banks are granted purs uant to Articles 8 to 13 of the Act 
No 386/2002 Coll., on State debt and State guarantees and amending the Act No 291/2002 Coll. on the State Treasury 
and amending certain laws, as last amended. 
5  See Article 13(1) of the Act. 
 
3 Association argues that a decrease in annual co ntributions (which the explanatory memorandum 
states are some of the highest in the EU) would mean that the banks in Slovakia would not be 
forced to look for ways to avoid paying contributions to the Fund. The explanatory memorandum also states that a decrea se in annual contributions may lead to an increase in interest rates payable 
on bank deposits. 
7. The ECB understands that, in recent years, the F und has had a negative share capital as a result of 
past problems in the Slovak banking sector. The ECB understands that the Fund is currently also indebted to NBS as a result of a loan that  NBS provided to the Fund on 29 October 2001 to 
overcome problems in the Slovak banking system . The ECB understands that this loan was 
originally due to be repaid on 30 December 2005. However, the ECB understands that on 
15 February 2005 it was agreed by way of an adde ndum to the loan agreement of 29 October 2001 
that the original deadline for repayment would be extended to 31 January 2007. The ECB understands that the loan has d eclined from an original principal amount of SKK 15 653 641 000 
(EUR 358 231 480) to SKK 7 358 390 000 (EUR 189 668 780) at year-end 2004
6.  
 Funding of the deposit-guarantee scheme
  
8. Deposit protection is an important element of the financial safety net and therefore contributes to 
safeguarding financial stability. The Financial St ability Forum (FSF) has noted that sound funding 
arrangements are critical to the effectiveness of a deposit-guarantee system and the maintenance of public confidence
7. Funding can be assured in various ways, and in its recently published 
consultation paper on the review of Directive 94/ 19/EC of the European Parliament and of the 
Council of 30 May 1994 on deposit-guarantee schemes8 (hereinafter, the ‘Deposit-Guarantee 
Schemes Directive’ or the ‘Directive’), the Europ ean Commission noted that there exists a wide 
diversity of funding mechanisms between the di fferent national deposit-guarantee schemes within 
the EU9. This diversity is a consequence of the fact  that the Directive recognises that it is not 
indispensable to harmonise the methods of fi nancing schemes guaranteeing deposits, given, on the 
one hand, that the cost of financing such schemes mu st be borne, in principle, by credit institutions 
themselves and, on the other hand, that the financing capacity of such schemes must be in proporition to their liabilities. The Directive emphasi ses that this must not, however, jeopardise the 
stability of the banking system of the Member State concerned
10. 
                                                      
6  This information is base d on the Fund’s Annual Report 2004. 
7  Financial Stability Forum, Guidan ce for Developing Effective Deposit Insu rance Systems (Sept. 2001), p. 26. 
8  Directive 94/19/EC of the European Parliament a nd of the Council of 30 May 1994 on deposit-guarantee schemes 
(OJ L 135, 31.5.1994, p. 5). 
9  European Commission DG Internal Market and Services, C onsultation paper entitled ‘Review of the Deposit Guarantee 
Schemes Directive (94/19/EC)’, 14 July 2005, publishe d on the Commission’s webs ite at www.europa.eu.int/ 
comm/internal_market/bank/docs/gua rantee/consultationpaper_en.pdf. 
10  See Recital 23 to the Deposit-Guarantee Schemes Directive. 
 
4 9. In this context, the prudence of enabling a decr ease in annual contributions (within a range of 
between 0.35% and 0.75%, or between 0.2% a nd 0.75%) during a period when the Fund is still 
repaying loans11 taken out to finance compensation paym ents under the scheme, or where the Fund 
does not possess sufficient funds to make compensati on payments itself, might be questioned. The 
current level of contributions is  understandable in the light of r ecent developments in the Slovak 
banking sector. Indeed, some Member States which have not experienced problems of the kind experienced in Slovakia maintain a much higher leve l of funds in the scheme in relation to the total 
deposits protected by the scheme than that current ly maintained under the Slovak deposit-guarantee 
scheme. There might therefore be a risk that th e changes proposed under the draft law could delay 
the establishment of a financial buffer within th e Slovak deposit-guarantee scheme at a time when 
its financial position ma y still be vulnerable. 
10. Notwithstanding these remarks, the ECB acknowledges that it is difficult to evaluate fully the 
impact of the proposed changes under the draf t law without undertaking a detailed and more 
comprehensive study of all relevant elements a ffecting the Slovak banking system. As noted in 
paragraph 8, the Deposit-Guarantee Schemes Di rective has not harmonised the methods of 
financing deposit-guarantee schemes within the EU, which are left at the discretion of Member 
States to determine. In these circumstances the ECB would only emphasise the general framework 
provided by Community law in accordance with wh ich the financing capacity of such schemes 
must not be allowed to jeopardise the stability of the banking system of the Member State concerned. 
 Prohibition on monetary financing
 
11. Under Article 237(d) of the Treaty the ECB is entr usted with the task of ensuring compliance by 
the NCBs with the prohibition on monetary fina ncing laid down in Article 101 of the Treaty. 
Article 101(1) of the Treaty provides that ‘[o]verdraft facilities or any other type of credit facility with the ECB or with the central banks of the Member States … in favour of Community 
institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States, shall be prohibited’. As 
previously noted by the ECB, ‘[a]lready in 1993 the Committee of Governors of the central banks 
of the Member States of the European Economic  Community noted that this prohibition is of 
‘essential importance’ to ensure that ‘monetary polic y [is not] hindered in the pursuit of its primary 
objective of price stability. Furthermore, central bank financing of the public sector lessens the 
pressure for fiscal discipline’
12. Therefore, this prohibition must be interpreted in a strict manner’13. 
                                                      
11  Currently, the only loan that the Fund is repaying is to NBS. 
12  Letter to Commission President Delors of 20 April 1993.  
13  Paragraph 6 of ECB Opinion CON/2005/1 of 3 February 2005 at the request of th e Italian Ministry of Economic Affairs 
and Finance on a draft law amending Law Decree No 7 of 25 January 1999, as converted by Law No 74 of 
25 March 1999, concerning urgent provisions on Italian participation in the Intern ational Monetary Fund’s interventions 
to confront severe financial crises of its member countries. 
 
5 The Fund is established under the Deposit Protection Act as a legal entity registered in the Slovak 
Companies Registry, and qualifies as a ‘body gove rned by public law’ within the meaning of 
Article 101(1) of the Treaty. The provision of loans by NBS to the Fund as permitted under 
Article 24(3) of the NBS Act constitutes a credit f acility within the meaning of Article 101(1) of 
the Treaty. Therefore, the ECB considers the provision of loans in the present case to be 
incompatible with Article 101(1) of the Treaty. 
12. Regarding the outstanding loan made by NBS to the Fund in October 2001, the ECB notes that this 
loan was made prior to the Slovak Republic’s accessi on to the EU, and that in strict legal terms the 
loan was not subject to the prohibition on moneta ry financing under Article 101 of the Treaty at the 
time it was granted. However, the ECB notes that any extension of the loan following the Slovak 
Republic’s accession to the EU on 1 May 2004 would need to be assessed taking into account the 
monetary financing prohibition. The loan was orig inally scheduled to be repaid on 30 December 
2005. The ECB considers that extending the loan’s maturity would constitute a breach of the monetary financing prohibition under the Treaty. The necessary arrangements should therefore be 
made for the Fund to repay the loan to NBS on 30 December 2005, as originally agreed. 
13. Finally, the ECB would like to emphasise that in its next Convergence Report in 2006 it will 
address the compliance of national legislation with  the prohibition on monetary financing under 
Article 101 of the Treaty. 
14. This opinion will be published on the ECB’s website six months after its adoption. 
  Done at Frankfurt am Main, 1 December 2005. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET