Opinion of the European Central Bank at the request of the Banco de España on a draft Royal Decree on the arrangements for the payment of the Banco de España's profits to the Treasury (CON/99/16)
Date: 1999-10-28
Institutions: European Central Bank
Subjects: Spain, Treasury, central bank, national law, payment, profit

OPINION OF THE EUROPEAN CENTRAL BANK

at the request of the Banco de España on a draft Royal Decree on the arrangements for the

payment of the Banco de España’s profits to the Treasury

(CON/99/16)

1. 

On  28  September  1999  the  European  Central  Bank  (ECB)  received  a  request  from  the  Deputy

Governor of the Banco de España to give its opinion on a draft Royal Decree on the arrangements

for  the  payment  of  the  Banco  de  España’s  profits  to  the  Treasury  (the  “Draft”).  The  Draft  was

forwarded both in Spanish and English.

2. 

The Draft is based on the legal authorisation (Second Final Provision of Law 12/1998 of 28 April

amending  the  Act of  Autonomy  of  the  Banco  de  España) to  determine,  by  way  of  governmental

regulation, the regime for the payment of the Banco de España’s profits to the Treasury. The said

Law of 1998 was subject to consultation with the European Monetary Institute (CON/98/05), and

no  comments  were  given  to  the  aspects  envisaged  by  the  Draft.  The  content  of  the  Draft,  in

summary,  consists  of laying down  the  following  calendar  for  payment  to  the  Treasury  of  profits

generated and accounted for by the Banco de España, which does not substantially differ from the

practice that existed before the legal reform of 1998:

(cid:1) 

(cid:1) 

(cid:1) 

in November each year, 70% of the profits recorded up to the end of September of the same

financial year;

in February each year, 90% of the profits recorded in the preceding financial year, discounting

the instalment paid in November;

the  remainder,  following  the  formal  approval  of  the  accounts  for  the  financial  year  by  the

Central Government.

3. 

The ECB’s competence to deliver an opinion is based on Article 105 (4), second indent of the EC

Treaty and on Article 2 (1), third indent, of Council Decision (EC) No. 98/415 of 29 June 1998, on

the  consultation  of  the  European  Central  Bank  by  national  authorities  regarding  draft  legislative

provisions,  as  the  Draft  deals  with  a  national  central  bank.  In  accordance  with  Article  17.5  first

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sentence of the Rules  of  Procedure  of the  European  Central  Bank,  the  Governing  Council  of  the

ECB has adopted this opinion.

4. 

The  legal possibility  for  Member  States  of the  European  Union  to  legislate  on  areas that  are  not

subject to Community provisions or are only partially subject thereto, is extensively recognized in

the  case  law  of  the  Court  of  Justice,  even  in  areas  of  exclusive  Community  competence  (joined

cases 3,4 & 6/76 Kramer [1976] ECR 1279; joined cases 141 to 143/81 Holdijk & others [1982]

ECR 1299; case C-1/96 The Queen v MAFF, ex p. Compassion in World Farming Ltd. [1998] ECR

I-1252;  etc.).  Consequently,  there  is  nothing  in  theory  to  prevent  the  Spanish  State  from  laying

down  arrangements  for  allocation  of  the  Banco  de  España’s  profits  provided  that  such

arrangements are not incompatible with the relevant provisions in Community law or that they do

not unduly hinder the achievement of Community objectives. It is relevant to point out that other

Member  States  have  similar  provisions  with  regard  thereto  that  have  not  been  deemed  to  be  in

conflict  with  the  Community  order.  It  is  appropriate  here,  furthermore,  to  recall  that,  since  the

reform  of  1962  (Decree-Law  18/1962  of  Nationalization  and  Reorganization  of  the  Banco  de

España), the Banco de España is a public entity of the State, and therefore the State has a primary

competence to determine the regime for the allocation of the Bank’s profits within the perimeters

allowed by Community law.

5. 

The  Draft  is  expressly  stated  to  be  provisional  in  nature,  until  such  time  as  the  ECB  adopts

decisions on the application of monetary income in the European System of Central Banks (ESCB)

under Article 32 of the Statute thereof. Given the primacy of Community law, it would be obvious

to  state  that  the  application  of  Article  32  of  the  Statute  of  the  ECB  and  the  ESCB  cannot  be

conditional  on  what  the  provisions  of  national  Law  might  provide.  However,  on  this  point  it  is

necessary  to  stress  that  the  ECB  has  exercised  Article  32  of  its  Statute  to  lay  down  the

arrangements  applicable  to  the  monetary  income  of  the  ESCB  during  the  transitional  period  of

monetary union, that is to say, for the financial years 1999, 2000 and 2001. These arrangements are

laid down in the Decision of 3 November 1998 (ECB/1998/NP12) notified to the national central

banks  in  their  capacity  as  shareholders  in  the  ECB.  Consequently,  it  is  suggested  that  the  Draft

specifies  that  the  amount  of  distributable  profit  is  conditioned  by  the  monetary  income  amounts

attributable to the Banco de España after due application of the ESCB’s arrangements for monetary

income allocation that may be from time to time in force, so as to cover the current situation, and

that the Governing Board of the Banco de España is to verify before allowing a pay-out of profits

that such payments do not hamper the due application of the ESCB regime adopted under Article

32 of the Statute.

For the sole purpose of information to the Spanish Treasury, in its capacity as sole final recipient of

the  distributable  profits  of  the  Banco  de  España,  the  Decision  of  3  November  1998

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(ECB/1998/NP12) is annexed hereto; such Decision has neither been subject to official publication

nor made public.

6. 

In this area, the limitations laid down by the Treaty are two-pronged: 

(i) 

The financial independence of the central banks (Article 108 of the Treaty), the safeguard of

which  would  require  not  leaving  to  the  sole  discretion  of  the  political  authorities  the

possibility  of  requiring  advance  pay-outs  of  NCB’s  profits,  and  therefore  warrants  the

convenience  of  pre-established  detailed  arrangements  for  such  payments;  this  aspect  is

sufficiently covered by the Draft, since it regulates in detail the calendar and amount of the

advance payments, without affording any ad hoc discretion to the political authorities.

(ii)  The prohibition on monetary financing to the public sector (Article 101 of the Treaty), which

would require that advance payments of profits to the Treasury be only from profits that are

fully realised, accounted for and verified, which in turn would require some kind of formal

approval  of  the  profit  and  loss  account  for  the  considered  period.  Although  by  setting  a

ceiling of 70 % of the current profits a prudent criteria is established in this regard, it could

theoretically not be sufficient if, for instance, heavy losses at year end would exceed 30 % of

the  profits  realised  in  the  first  nine  months  of  the  financial  year.  The  Draft  would  better

satisfy this concern by providing for a formal approval by the Governing Council of Banco

de España of the profits and loss account which serves as a basis for the calculation of the

advance  pay  outs,  and  the  pay  out  be  conditioned  to  an  assessment  by  that  body  that

expected economic developments for the final quarter of the year would not give rise to such

a risk.

Done at Frankfurt am Main on 28th October 1999.

The Vice-President of the ECB

[signed]

C. Noyer

Annex

DECISION OF THE EUROPEAN CENTRAL BANK

of 3 November 1998

ON THE ALLOCATION OF MONETARY INCOME OF

THE NATIONAL CENTRAL BANKS OF PARTICIPATING MEMBER STATES

AND LOSSES OF THE ECB FOR THE FINANCIAL YEARS 1999 TO 2001

(ECB/1998/NP12)

THE GOVERNING COUNCIL OF THE EUROPEAN CENTRAL BANK,

Having regard to the Statute of the European System of Central Banks and of the European Central Bank

(hereinafter referred to as the “Statute”) and in particular to Article 32 thereof;

(1)  Whereas,  according  to  Article  32.2  of  the  Statute,  the  amount  of  monetary  income  of  each

participating national central bank shall be equal to its annual income derived from its assets held

against  notes  in  circulation  and  deposit  liabilities  to  credit  institutions;  whereas,  according  to

Article 32.3 of the Statute, if the balance sheet structures of participating NCBs after the start of the

third stage do not permit the application of the method foreseen in Article 32.2 of the Statute for the

allocation  of  monetary  income  of  participating  NCBs,  the  Governing  Council  may  temporarily

adopt an alternative method;

(2)  Whereas,  according  to  Article  32.4  of  the  Statute,  the  amount  of  each  participating  NCB’s

monetary income shall be reduced by an amount equivalent to any interest paid by that NCB on its

deposit  liabilities  to  credit  institutions  in  accordance  with  Article  19  of  the  Statute;  whereas,

according to Article 32.5 of the Statute, the sum of the participating NCBs monetary income shall

be  allocated  to  the  participating  NCBs  in  proportion  to  their  paid-up  shares  in  the  capital  of  the

ECB;

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(3)  Whereas, according to Article 32.6 and 32.7 of the Statute, it is for the Governing Council of the

ECB  to  arrange  for  the  clearing  and  settlement  at  the  ECB  of  the  balances  arising  from  the

allocation  of  monetary  income  and  to  take  all  other  measures  necessary  for  the  application  of

Article 32 of the Statute;

(4)  Whereas Article 10.3 of the Statute stipulates that for any decision taken under  Article  32  of the

Statute, the votes of the Governing Council of the ECB shall be weighted according to the NCBs’

shares in the subscribed capital of the ECB;

(5)  Whereas Council Regulation (EC) No. 974/98 of 3 May 1998 on the introduction of the euro,  in

particular Articles 1, 9 and 10 thereof, has provided for a continuation, during the transition period

(i.e.  the  period  between  1  January  1999  and  31  December  2001),  of  the  territorial  limits  for  the

legal  tender  status  of  banknotes  denominated  in  a  national  currency  unit;  whereas  such  national

banknotes are issued by the participating NCBs; whereas banknotes denominated in euro will only

be put into circulation  as  from  1  January  2002;  whereas  during  the  transition  period the  ESCB’s

monetary policy function is unlikely to have any material impact on banknotes in circulation;

HAS ADOPTED THIS DECISION:

Article 1

Definitions

For the purposes of this Decision:

- 

“equivalent claims” shall mean the claims of the participating NCBs against the ECB arising from the

transfer of foreign reserve assets from the NCBs to the ECB under Article 30 of the Statute;

- 

“euro  area  financial  sector  counterparties”  shall  mean  (i)  credit  institutions  as  defined  in  the  first

indent of Article 1 of Council Directive 77/780/EEC, other than participating NCBs, the registered

or  head  office  of  which  is  located  in  a  participating  Member  State  and  (ii)  branches  of  credit

institutions,  as  defined  in  the  first  indent  of  Article  1  of  Council Directive 77/780/EEC,  in  a

participating  Member  State,  which  have  neither  their  registered  nor  their  head  office  in  a

participating Member State;

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- 

“HBS”  shall  mean  the  harmonised  balance  sheet  as  structured  in  Annex  4  of  the  Guideline  of  the

European Central Bank of 1 December 1998 on the legal framework of accounting and reporting in

the European System of Central Banks (ECB/1998/NP22);

- 

“liability  base”  shall  be  the  amount  of  qualifying  liabilities,  within  the  balance  sheet  of  each

participating NCB, specified in accordance with the Annex to this Decision;

- 

“participating  NCB”  shall  mean  a  national  central  bank  of  a  Member  State  which  has  adopted  the

single currency in accordance with the Treaty establishing the European Community;

- 

“reference  rate”  shall be the latest  available interest rate  used  by  the  ESCB in its  main  refinancing

operations under paragraph 3.1.2 of Annex 1 of the Guideline of the European Central Bank of 11

September 1998 on monetary policy instruments and procedures of the ESCB - ECB-GL/1998/02

(ECB/1998/NP16);

- 

“transition period” shall mean the period between 1 January 1999 and 31 December 2001.

Article 2

Method for measuring monetary income

1. 

During  the  transition  period  the  amount  of  each  participating  NCB’s  monetary  income  shall  be

determined in accordance with the following formula:

MI = [LB x RR]

Where:

MI is the amount of each participating NCB’s monetary income to be pooled;

LB is the liability base of each participating NCB;

RR is the reference rate.

2. 

The  amount  of  each  participating  NCB’s  monetary  income  shall  be  reduced  by  an  amount

equivalent to any interest paid on liabilities included within the liability base.

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Article 3

Calculation and allocation of monetary income

1. 

The calculation of each participating NCB’s monetary income shall be effected by the ECB on a

daily basis. The calculation shall be based on accounting data reported by participating NCBs to the

ECB  under  the  Guideline  of  the  European  Central  Bank  of  1 December  1999  on  the  legal

framework  for  accounting  and  reporting 

in 

the  European  System  of  Central  Banks

(ECB/1998/NP22).

2. 

The sum of each participating NCB’s monetary income shall be allocated to the participating NCBs

in proportion to their paid-up shares in the capital of the ECB. Such allocation of monetary income

shall  take  place  at  the  end  of  each  financial  year.  The  ECB  shall  inform  the  NCBs  of  the

cumulative amounts on a quarterly basis.

3. 

The  amount  of  monetary  income  to  be  allocated  to  each  participating  NCB  shall  be  adjusted  in

accordance  with  any  decision  by  the  Governing  Council  of  the  ECB  made  in  relation  to

Article 32.4,  second  paragraph,  of  the  Statute  or  to  the  risk-sharing  provisions  contained  in  the

Decision of the European Central Bank of 22 December 1998 on the allocation of risks in relation

to losses arising in ESCB credit operations (ECB/1998/NP29).

4. 

The amount of monetary income to be allocated to each participating NCB shall be offset against

the amounts due by the same participating NCB as calculated in accordance with Article 2 above.

The net balances arising from the allocation of monetary income shall be settled at the ECB.

Article 4

Transitional direct charge on income accruing to participating NCBs

from national banknotes in circulation

1. 

There  shall  be  a  charge  on  income  accruing  to  each  participating  NCB  from  assets  held  against

national banknotes in circulation (hereinafter referred to as the NCB’s “seigniorage”). Such charge

shall give the ECB the right to access an NCB’s seigniorage with the exclusive purpose of covering

those  losses  of  the  ECB  that  cannot  be  funded  during  the  financial  years  1999,  2000  and  2001

either (i) in the manner outlined under Article 33.2 of the Statute, or (ii) against that portion of the

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equivalent  claims  which  can  be  partially  offset  against  foreign  exchange  losses  under  the  ECB

Guideline (ECB/1998/NP8) of 3 November 1998 on the composition, valuation and modalities for

the initial transfer of foreign reserve assets, and the denomination and remuneration of equivalent

claims.

2. The Governing Council of the ECB, in addition to approving the annual accounts of the ECB each

financial  year,  will  decide  the  amount  of  the  charge  and  establish  the  modalities  for  settlement  of

unfunded losses.

3. The amount of the charge shall have a maximum upper limit equivalent to the increase in the total

monetary income of the ESCB that would have arisen if banknotes denominated in national currency

units had been included in the liability  base. The  amount  of the charge  of  each  participating  NCB

shall be in proportion to its key for subscription to the capital of the ECB. This limit shall be reduced

to the extent necessary to ensure that no participating NCB shall be liable for more than the total of

its seigniorage income from national banknotes in circulation for the relevant financial year. For the

purposes of this paragraph, national seigniorage shall be calculated by applying the reference rate to

the amount of national banknotes in circulation.

Article 5

Final provision

This Decision applies to the financial years of 1999, 2000 and 2001. 

Done at Frankfurt am Main on 3 November 1998.

The President of the ECB

[signed]

Willem F. Duisenberg

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COMPOSITION OF THE LIABILITY BASE

A The liability base shall include, with the exclusion of any other item:

1.  Liabilities to euro area financial sector counterparties denominated in euro, including:

(a) 

(b) 

(c) 

(d) 

(e) 

current accounts (item 2.1 of the HBS);

reserve requirements under Article 19.1 of the Statute (item 2.1 of the HBS);

amounts in deposit under the ESCB deposit facility (item 2.2 of the HBS);

fixed-term deposits (item 2.3 of the HBS);

deposits related to margin calls arising from ESCB monetary policy operations (item 2.4

of the HBS);

(f) 

liabilities  arising  from  liquidity-absorbing  repurchase  operations  (reverse  repos)  under

Chapter  3.1  of  Annex  1  of  the  ECB  Guideline  of  11  September  1998  on  monetary  policy

instruments and procedures of the ESCB.

2.  Liabilities  of  participating  NCBs  arising  from  the  issuance  to  the  ECB  of  promissory  notes  in

connection with the issuance by the ECB of debt certificates under Chapter 3.3 of Annex 1 of the

ECB Guideline of 11 September 1998 on monetary policy instruments and procedures of the ESCB

(item 10.2 of the HBS).

B

The  amount  of  each  participating  NCB’s  liability  base  shall  be  calculated  in  accordance

with  the  harmonised  accounting  principles  and  rules  established  in  the  Guideline  of  the

European  Central  Bank  of  1  December  1998  on  the  legal  framework  for  accounting  and

reporting in the European System of Central Banks (ECB/1998/NP22).