Opinion of the European Central Bank of 2 August 2001 at the request of the German Ministry of Finance on a draft Seventh Law amending the Deutsche Bundesbank Act (CON/2001/17)
Date: 2001-08-02
Institutions: European Central Bank
Subjects: Germany, board of directors, budget, central bank, financial supervision, institutional activity, national law

EN

OPINION OF THE EUROPEAN CENTRAL BANK

of 2 August 2001

at the request of the German Ministry of Finance on

a draft Seventh Law amending the Deutsche Bundesbank Act

(CON/2001/17)

1. 

On  20  June  2001,  the  European  Central  Bank  (ECB)  received  a  request  from  the  German

Ministry  of  Finance  for  an  opinion  on  a  draft  Seventh  Law  amending  the  Bundesbank  Act

(hereinafter referred to as the ‘draft Act’).

2.

The  ECB’s  competence  to  deliver  an  opinion  is  based  on  Article 105(4)  of  the  Treaty

establishing  the  European  Community  (hereinafter  referred  to  as  the  ‘Treaty’)  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.  In

accordance  with  the  first  sentence  of  Article 17.5  of  the  Rules  of  Procedure  of  the  European

Central Bank, this opinion has been adopted by the Governing Council of the ECB.

3. 

The  express  intention  of  the  draft  Act  is  mainly  the  design  of  the  structure  of  the  Deutsche

Bundesbank in such a way that it is better suited to the current and future requirements of the

European System of Central Banks (ESCB). Therefore, the draft Act is intended to strengthen

and centralise the decision-making structure and management of the Deutsche Bundesbank and

to strengthen the position of its President. This is justified as a consequence of the start of Stage

III of economic and monetary union on 1 January 1999 and the transfer of monetary policy and

exchange rate policy decision-making powers to the Eurosystem. In this respect, the draft Act

provides  for  the  following  amendments:  (i)  the  abolition  of  the  Central  Bank  Council

(Zentralbankrat), the Directorate (Direktorium) and the Executive Boards of the main offices of

the  Deutsche  Bundesbank  (Vorstände  der  Landeszentralbanken)  including  their  independent

decision-making powers (known as reserved spheres of responsibility) and the appointment of a

Bundesbank  Executive  Board (Vorstand) (hereinafter  referred to  as the  ‘Board’)  consisting  of

the  President,  the  Vice-President  and  four  other  members;  and  (ii)    the  repeal  of  the  right  of

members  of  the  Federal  Government  to  attend  the  meetings  of  the  Central  Bank  Council  and

their right to propose motions. 

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OJ L 189, 3.7.1998, p. 42.

                                                     
4. 

The ECB very much welcomes these amendments as they enhance the ability of the Deutsche

Bundesbank  to  act  efficiently  as  an  integral  part  of  the  Eurosystem  and  of  its  President,  in

particular, as a member of the Governing Council and the General Council.

5. 

The draft Act furthermore clarifies for the first time that the tasks of holding and managing the

foreign reserves of the Federal Republic of Germany, as well as contributing to the stability of

payment and clearing systems, fall to  the  Deutsche  Bundesbank. The  draft  Act  also stipulates

that the Deutsche Bundesbank's transactions with credit institutions will no longer be limited to

counterparties that are established in the Federal Republic of Germany. The ECB takes note of

these amendments and welcomes them in so far as the powers of the Deutsche Bundesbank are

clarified  and  the  wording  of  the  Bundesbank  Act  has  been  brought  further  in  line  with  the

Statute of the European System of Central Banks and of the European Central Bank (hereinafter

referred to as the ‘Statute’). In addition, regarding the Deutsche Bundesbank's transactions with

public authorities, the provision referring to the involvement of the Deutsche Bundesbank in the

issuance of federal debt securities (paragraph 2 of Section 20 of the Bundesbank Act) has been

repealed. The ECB understands that this repeal does not impair the competence of the Deutsche

Bundesbank to act as a fiscal agent of the Government.

6. 

The ECB notes that the expanded definition of the functions of the Deutsche Bundesbank under

the  second  sentence  of  Section  3  of  the  draft  Act  does  not  include  the  responsibilities  of  the

Deutsche  Bundesbank  with  regard  to  the  pursuance  of  financial  stability.  The  ECB  considers

that, in view of the express intention of the draft Act of optimising the central banking functions

of  the  Deutsche  Bundesbank  in the  Eurosystem  context, the  draft  Act  is  the  appropriate  legal

instrument  in  which  to  clarify  that  the  Deutsche  Bundesbank  has  the  responsibility  for

contributing  to  the  overall  stability  of  the  financial  system  as  a  whole,  as  a  separate  function

from hands-on supervision and financial regulation. This clarification would, first, confirm the

concrete  role  played  by  the  Deutsche  Bundesbank  in the institutional  framework  for  financial

stability  in  the  Federal  Republic  of  Germany.  Secondly,  the  formal  attribution  of  such

responsibility  to  the  Deutsche  Bundesbank  would  support  the  role  of  the  Eurosystem  in

monitoring the risks to financial stability in the euro area. In this context, it is recalled that, in

accordance  with  Article  105(5)  of  the  Treaty,  the  Eurosystem  is  entrusted  with  the  task  of

contributing to the smooth conduct of policies pursued by the competent authorities relating to

the prudential supervision of credit institutions and the stability of the financial system. Thirdly,

considering  the envisaged integration  of  supervision  of  financial intermediaries  in  the  Federal

Republic of Germany, it would contribute to a smooth interaction between central banking and

supervisory functions.

7. 

The  ECB  understands  that  the  definition  of  the  responsibilities  of  the  Deutsche  Bundesbank

with  regard  to  prudential  supervision  will  be  specifically  dealt  with  in  the  German

Government’s forthcoming proposal for legislation to set up integrated supervision of financial

intermediaries. Without prejudice to the opinion which will be given in that context, the ECB

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suggests  that  assignation  to  the  Deutsche  Bundesbank  in  the  draft  Act  of  the  statutory

responsibility  of  contributing  to  the  prudential  regulation  and  supervision  of  financial

intermediaries might be considered. This would follow from the clarification that the Deutsche

Bundesbank  has  a  clear  mandate  regarding  achievement  of  financial  stability  as  mentioned

above. With regard to the more specific operational involvement of the Deutsche Bundesbank in

prudential supervision, the ECB will present its views once it has been consulted on the German

Government’s proposal.

8. 

The  draft  Act  strengthens  the  position  of  the  President  of  the  Deutsche  Bundesbank  by

empowering him to nominate, with the exception of the Vice-President, the four other members

of the Board, in addition to his right to appoint civil servants within the Deutsche Bundesbank.

In  addition,  he  is  granted  a  right  of  veto  with  regard  to  the  annual  accounts  and,  particularly

importantly, the standard costs account and the investment plan. 

9.  While realising that the Treaty and the Statute are silent on the organisational structure of the

decision-making bodies of the national central banks, the ECB wishes to point out that, in the

case that a decision is made in favour of a collegiate body, a right of veto given to the President,

who  is  also  a  Member  of the  Board,  with regard to the standard  cost  account,  the  investment

plan  and  the  annual  accounts  could,  in  particular,  be  regarded  as  being  in  conflict  with  the

collegiate  nature  of  the  Board.  By  providing  that  the  Board  is  to  take  its  decisions  by  simple

majority voting, the draft Act establishes the principle of collegiate responsibility. This principle

is based on equal participation by the Board members in the adoption of decisions, from which

it follows in particular that decisions are adopted on the basis of collective deliberations and that

all members of the Board bear collective responsibility at a political level for adopted decisions.

10.  Finally, it is particularly significant that the draft Act introduces for the first time compulsory

preparation  of  a  budget  including  a  cost  estimate  (standard  cost  account)  and  an  investment

estimate  (investment  plan)  for  the  Deutsche  Bundesbank  (following  the  practice  in  the  past),

specific veto rights of its President (see Section 7 of the draft Act) and the right of the German

Federal  Parliament  to  propose  recommendations  to  improve  the  efficiency  of  the  Deutsche

Bundesbank.  The  details  of  the  new  regime  are  as  follows:  (i)  the  Board  of  the  Deutsche

Bundesbank  prepares  the  annual  accounts;  (ii)  in  order  to  support  its  management  and

administration,  the  Deutsche  Bundesbank  prepares  a  standard  cost  account;  (iii)  for  each

financial year, the Deutsche Bundesbank draws up a  standard cost  account  and an  investment

plan  before  the  beginning  of  each  financial  year  and  a  comparative  analysis  of  the  budgeted

figures  and  the  actual  costs  and  investment  (hereinafter  referred  to  as  the  “comparative

analysis”)  at  the  end  of  each  financial  year.  The  comparative  analysis  is  to  be  reviewed

separately by the auditors; (iv) the  annual  accounts, the  standard  cost account, the investment

plan, the comparative analysis and the reports of the auditors are to be forwarded to the Federal

Ministry of Finance and the Federal Court of Auditors; (v) the German Federal Parliament will

be provided with the annual accounts, the comparative analysis and the reports of the auditors;

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(vi) the Federal Court of Auditors is to report its findings to the German Federal Parliament; and

finally (vii) the German Federal Parliament may use the report of the auditors and the report of

the Federal Court of Auditors as a basis for recommendations to improve the efficiency of the

Deutsche Bundesbank. 

11.  The ECB is concerned that the new Bundesbank Act will carry risks for the current high level of

independence of the Deutsche Bundesbank. The ECB notes, however, that the draft Act, which

has been submitted to the ECB for consultation, differs from the draft published on the website

of  the  Federal  Ministry  of  Finance  in  April  2001.  This  previous  version  provided  that  the

German Federal Parliament could not only adopt recommendations concerning  expenditure of

the Deutsche Bundesbank but could also decide on the discharge of the Board of the Deutsche

Bundesbank  on  the  basis  of  the  report  by  the  auditors  and  the  report  of  the  Federal  Court  of

Auditors. The ECB is pleased to note that the draft Act submitted to the ECB no longer foresees

such a discharge procedure. Article 108 of the Treaty requires that the Member States and, in

particular, the Governments of the Member States, undertake to respect the independence of the

national central banks and not seek to influence the members of their decision-making bodies in

the  performance  of  their  ESCB-related  tasks.  The  ECB  considers  that  such  a  discharge

procedure  or  similar  procedures  would  lead  to  an  increase  in  external  political  influence,

enabling  pressure  to  be  exercised  over  the  members  of  the  Board  and,  in  particular,  the

President.  This  would  be  incompatible  with  the  independence  of  decision-making  bodies

required by Article 108 of the Treaty. The draft Act submitted at this stage assigns a right to the

German  Federal  Parliament  to  adopt  recommendations.  This  formulation  is  justified  in  the

Explanatory  Memorandum  on  the  grounds  that  it  is  modelled  on  relevant  provisions  under

Community  Law.  According  to  Article  248  of  the  Treaty,  the  European  Court  of  Auditors

reports  to  the  European  Parliament.  However,  an  explicit  statutory  right  of  the  European

Parliament to issue recommendations concerning possible improvements in the efficiency of the

ECB  is  clearly  not  foreseen.  Furthermore,  the  scope  of  the  recommendations  that  could  be

adopted  by  the  German  Federal  Parliament  is  particularly  wide,  since  their  objective  is  ‘an

improvement  in  the  efficiency  of  the  Deutsche  Bundesbank’  in  general  and,  therefore,  could

also  cover  Eurosystem-related  activities,  for  instance  the  implementation  of  monetary  policy

decisions.  Although  recommendations  adopted  by  the  German  Federal  Parliament  are  by

definition  not  legally  binding  on  the  Deutsche  Bundesbank,  it  will  be  virtually  impossible  in

practice for the Deutsche Bundesbank to ignore them, given the political pressure which would

be exercised over the Board. Such external political pressure would also affect the  President's

position  as  a  member  of  the  Governing  Council  of  the  ECB  and,  as  a  consequence,  the

independence  of  a  decision-making  body  of  the  ECB.  Therefore,  the  right  of  the  German

Federal  Parliament  as  foreseen in the  present  draft  Act to adopt  recommendations to  improve

the  efficiency  of  the  Deutsche  Bundesbank  is  incompatible  with  the  independence  of  the

Deutsche  Bundesbank  and  the  ECB.  Moreover,  such  a  provision  will  send  negative  and

incorrect signals. Traditionally, the Deutsche Bundesbank has always  been  a  model  of  central

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bank  independence.  In  preparation  for  the  Maastricht  Treaty,  Germany  always  took  a

particularly strong position as regards extensive central bank independence and insisted that the

new ESCB and the ECB enjoy the same degree of independence as the Deutsche Bundesbank. If

the amendments are now adopted as proposed, this might be interpreted by the financial markets

and the general public as a fundamental change in approach. The simple reference to Article 108

of  the Treaty  in the  relevant provision  of  the  draft  Act,  without  further clarification,  does  not

allow for any other conclusion. 

Done at Frankfurt am Main on 2 August 2001.

The President of the ECB

[signed]

Willem F. DUISENBERG

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