Opinion of the European Central Bank of 15 October 2003 at the request of the Finnish Ministry of Finance on a draft government proposal to amend the Suomen Pankki Act and other related acts (CON/2003/22)
Date: 2003-10-15
Institutions: European Central Bank
Subjects: Finland, capital increase, central bank, foreign-exchange reserves, national law, payment system, profit

EN

OPINION OF THE EUROPEAN CENTRAL BANK

of 15 October 2003

at the request of the Finnish Ministry of Finance

on a draft government proposal to amend the Suomen Pankki Act and other related acts

(CON/2003/22)

Introduction

1.  On 15 September 2003 the European Central Bank (ECB) received a request from the Finnish Ministry

of  Finance  for  an  opinion  on  a  draft  government  proposal  to  amend  the  Suomen  Pankki  Act  (Laki

Suomen  Pankista  (214/1998))  of  27  March  1998,  the  Suomen  Pankki  Officials  Act  (Laki  Suomen

Pankin  virkamiehistä  (1166/1998))  of  30  December  1998,  and  the  Financial  Supervision  Act  (Laki

Rahoitustarkastuksesta (587/2003)) of 27 June 2003 (hereinafter the ‘legislative proposal’).

2. 

The  ECB’s  competence  to  deliver  an  opinion  is  based  on  the  second  indent  of  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  ECB  by  national  authorities  regarding  draft
legislative provisions1, as the legislative proposal relates to the national central bank (NCB) of Finland

(Suomen Pankki). In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the

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

3. 

The  legislative  proposal  addresses  a  number  of  matters  directly  related  to  policy  issues  of  great

importance to the Eurosystem. This opinion focuses on proposed measures affecting Suomen Pankki’s

financial position and provisions relating to its power to issue norms. 

General assessment of the proposed measures affecting Suomen Pankki’s independence

4. 

Article 109 of  the Treaty provides that  the  Member States  must ensure that  their national  legislation,

including the NCBs’ Statutes, is compatible with the Treaty and the Statute of the European System of

Central Banks and of the European Central Bank. Article 108 of the Treaty, reinforced by Article 7 of

the Statute, requires an NCB that forms part of the European System  of Central Banks  (ESCB) to be

independent. The legislative proposal contains, inter alia, three measures, (i) a substantial reduction of

primary  capital  forcing  Suomen  Pankki  de  facto  to  sell  part  of  its  foreign  reserve  assets,  (ii)  an

1

OJ L 189, 3.7.1998, p. 42.

                                                     
obligation  to  transfer  100%  of  profits  to  the  State,  as  a  rule,  and  (iii)  a  strict  limitation  on  Suomen

Pankki’s  right  to  create  financial  provisions.  The  combined  effect  of  these  measures  will  weaken

Suomen  Pankki’s  financial  position  over  time,  increasing  the  risk  that  it  may  not  have  sufficient

resources  in the  future to  carry  out  its  ESCB-related  and  other  tasks  and  making  it  dependent  on  the

decisions of third parties in such situations. In view of the uncertainty about future financial demands

on Suomen Pankki, it is vital  to have adequate  margins and to  safeguard  the  real  value  of  the bank’s

resources in relation to its tasks. In its present form, the legislative proposal infringes the principle of

financial independence with regard to Suomen Pankki and, especially as it entails the indirect enforced

sale  of  foreign  reserves,  also  undermines  the  principle  of  institutional  independence  with  regard  to

Suomen  Pankki.  Therefore,  the  ECB  concludes  that  the  legislative  proposal  is  incompatible  with  the

Treaty and its intentions. Moreover, as the weakening of the financial position of an NCB forming part

of  the  ESCB/Eurosystem  cannot  be  seen  in  isolation  from  the  system  as  a  whole,  the  legislative

proposal  will  have  an  adverse  effect  on  the  credibility  and  financial  standing  of  the  Eurosystem  as  a

whole. 

Reduction of Suomen Pankki’s primary capital 

5. 

At the end of 2002 the amount of Suomen Pankki’s primary capital was EUR 841 million, this figure

not  having  changed  since  1984.  The  legislative  proposal  suggests  reducing  the  amount  of  primary

capital by nearly 90 % to EUR 100 million, resulting in a transfer of EUR 741 million as income to the

State of Finland at the end of the year in which the proposed amendment would enter into force. 

6. 

The  principle  of  financial  independence  of  central  banks  embedded  in  Article  108  of  the  Treaty

requires  that  ‘the  NCBs  be  in  a  position  to  avail  themselves  of  the  appropriate  means  to  ensure  that
their  ESCB-related  tasks  can  be  properly  fulfilled’2.  The  concept  of  financial  independence  also

requires that an NCB must, at all times, have sufficient financial means to carry out its other functions,

i.e.  to  perform  its  national  tasks,  to  meet  its  international  obligations,  and  to  cover  properly  its

administrative and operational expenses. The proposed reduction of Suomen Pankki’s capital including

the de facto enforced sale of foreign reserve assets and also the reduction of a regular source of income

increases  the  risk  that  Suomen  Pankki  may  in  the  future  have  insufficient  resources  to  carry  out  its

ESCB-related tasks or its other tasks. For example, Articles 29 and 30.4 of the Statute oblige NCBs to

be prepared to make further capital disbursements and transfers of foreign reserve  assets to the ECB,

and Article 33 of the Statute obliges NCBs to contribute to potential losses of the ECB. The NCBs also

have  other  commitments  regarding  their  foreign  reserve  assets  and  own  funds,  such  as  IMF-related

commitments.  Suomen  Pankki’s  national  tasks  include  those  related  to  financial  stability  and  crisis

prevention  and  management.  Although  systemic  crises  tend  to  be  rare  events,  they  can  have  great

impact on the economy and should therefore receive appropriate attention from central banks. In such

2

European Monetary Institute, Convergence Report, March 1998.

2

                                                     
cases,  an  NCB’s  ability  to  act  swiftly  may  prove  to  be  particularly  valuable.  In  particular  sufficient

financial resources will assure public confidence as to the NCB’s ability to intervene independently to

tackle the crisis. This would also strengthen the credibility of its public statements aimed at restoring

confidence in the viability of the financial system as a whole. 

7. 

Reducing  the  equity  of  any  one  NCB  and  imposing  restrictions  on  the  management  of  its  financial

resources cannot be considered in isolation, as demonstrated by Articles 30.4, 32 and 33 of the Statute,

from the potential effect of such a reduction on the financial position, and therefore on the credibility,

of  the  Eurosystem  as  a  whole.  As  a  result,  the  ECB,  not  least  as  a  matter  of  principle,  expresses  its

serious concern at the proposal  to  reduce  Suomen  Pankki’s  capital,  which  is  based  on  an  assessment

made  at  a  given  point  in  time  and  in  isolation  from  the  position  of  the  Eurosystem  as  a  whole.  The
capital  and  reserves  of  an  NCB  within  the  Eurosystem3  form  the  basis  of  its  financial  independence,

and by extension the financial independence of the constituent members of the Eurosystem as a whole.

There  are  no  objective  reasons  to  justify  proposals  from  Member  States  that  have  adopted  the  euro

which weaken the Eurosystem’s financial standing and credibility.

8. 

The obligation of Member States to ensure the independence of their NCBs puts them in an exceptional

position,  since  it  obliges  the  Member  States  to  keep  at  arm’s  length  the  assessment  of  the  level  of

financial resources and the management of the capital of the NCBs. Such assessment should be based

on  the  professional  judgement  of  the  relevant  independent  decision-making  body  –  in  Finland  the

Board  of Suomen Pankki – rather than on the financial needs  of  the  State,  so  that  the  NCB  does  not

become  dependent  for  its  finances  on  either  Government,  Parliament  or  any  other  third  party.  The

legislative proposal does not contain safeguards to ensure that Suomen Pankki will at all times be able

to  avail  itself  of  the  appropriate  means  to  fulfil  its  ESCB-related  tasks.  Therefore  the  legislative

proposal does not take into account this requirement of financial independence.

9. 

According  to  the  principle  of  institutional  independence  embedded  in  Article 108  of  the  Treaty  and

Article  7  of  the  Statute,  the  Member  States  and  their  Governments  are  prohibited  from  seeking  to

influence the members of the NCBs’ decision-making bodies, whose decisions may have an impact on

the  fulfilment  by  the  NCBs  of  their  ESCB-related  tasks.  This  institutional  framework  implies  that

taking  into  account  the  restrictions  set  by  the  Eurosystem  as  a  whole,  it  is  the  NCB  itself  that

determines the structure and composition of its balance sheet. The legislative proposal does not specify

how Suomen Pankki should generate the liquidity to pay out to the State the capital being reduced, but

considering the structure of Suomen Pankki’s balance sheet, and the need to avoid interference with the

single  monetary  policy,  the  legislative  proposal  will  de  facto  force  Suomen  Pankki  to  sell  part  of  its

foreign reserve assets. Under Article 105(2) of the Treaty one of the NCBs’ ESCB-related tasks is to

hold and manage the Member States’ official foreign reserves. The indirectly enforced sale of official

3

Those NCBs within the ESCB whose Member States have adopted the euro.

3

                                                     
foreign  reserves  that  the  legislative  proposal  entails  would  circumvent  Suomen  Pankki’s  right  and

obligation,  as  part  of  the  ESCB,  to  hold  and  manage  official  Member  State  foreign  reserves

independently.

10.  Moreover,  the  explanatory  memorandum  gives  reasons  for  the  proposed  reduction  by  referring  to

Suomen  Pankki’s  lack  of  an  independent  monetary  policy  competence  since  January  1999.  In  this

context the ECB would emphasise that shifting the monetary policy competence from the NCBs to the

ECB did not abolish the NCBs’ responsibilities as an integral part of the Eurosystem. The nature of the

NCBs’  responsibilities  has  changed  from  individual  to  collective  Eurosystem  responsibilities,  with

each NCB bearing a share thereof. Furthermore, the Eurosystem has followed a decentralised model of

operation  that  vests  in  each  NCB  the  responsibility  for  the  implementation  of  Eurosystem  tasks  at

national level.

Distribution of Suomen Pankki’s profit 

11.  According to  the legislative proposal  the  rules  on the  allocation  of Suomen Pankki’s  profit  would  be

amended.  The  current  Suomen  Pankki  Act  states  that  half  of  the  profit  is  credited  as  income  to  the

State and the other half is transferred to the reserve fund, unless the Parliamentary Supervisory Council

decides to  allocate the  profits  differently.  The  legislative  proposal  will  change  this  rule  and  establish

the  compulsory transfer of the entire  annual profit  of  Suomen  Pankki  to  the  State.  A  decision  by  the

Parliamentary Supervisory Council to use the profit differently would require special justification. 

12.  The  ECB  is  seriously  concerned  with  regard  to  the  consequences  of  a  legislative  arrangement  under

which not even a share of Suomen Pankki’s profits is allocated to the reserve fund either automatically

or based on the independent and professional judgement of the Board  of Suomen Pankki  after taking

into  account  any  possible  future  risks.  The  legislative  proposal  places  the  use  of  possible  profits  for

such purpose at the sole discretion of the Parliamentary Supervisory Council. Financial independence

in Member States where Government or Parliament can directly or indirectly exercise influence on the

distribution  of  an  NCB’s  profit  requires  that,  statutory  provisions  guarantee  that  the  proper
performance of the NCBs’ ESCB-related tasks is not hindered4. The legislative proposal is deficient in

this respect and incompatible with the requirement of financial independence embedded in Article 108

of the Treaty. Therefore, an explicit safeguard clause should be added to the Suomen Pankki Act in this

respect.  Additionally,  and  for  the  sake  of  clarity,  the  explanatory  memorandum  should  state  that  the

need  to  provide  sufficient  financial  resources  for  Suomen  Pankki’s  future  performance  of  ESCB-

related tasks is a valid justification for not distributing the entire profit to the State.

4 

European Monetary Institute, Convergence Report, March 1998.

4

                                                     
Suomen Pankki’s right to make financial provisions

13.  The  legislative  proposal  would  abolish  Suomen  Pankki’s  right  independently  to  create  financial

provisions to safeguard the maintenance of the real value of its capital and reserves. The ECB stresses

that future financial and economic developments cannot be foreseen with any degree of certainty, and

therefore does not consider it justified for an NCB to be deprived of the opportunity to protect the real

value of its capital. 

14.  The  legislative  proposal  allows  exchange  rate  risk  and  the  risk  of  variation  in  the  market  value  of

securities to be covered by making financial provisions. However, such provisions may only equal the

amounts of annual realised net profits resulting from these sources.  Where  such net  realised  gains do

not  exist  or  are  insufficient  to  cover  future  exposures,  the  legislative  proposal  leaves  the  decision  of

allocating regular profits to the general reserve fund to the discretion of the Parliamentary Supervisory

Council.  This  arrangement  is  not  compatible  with  the  requirement  for  an  NCB  to  be  financially

independent,  as  the  professional  assessment  of  the  Board  of  Suomen  Pankki  regarding  coverage  of

future exposures would, under the legislative proposal, not be decisive  and there  is no  guarantee  that

Suomen Pankki has and will in future have sufficient resources to take care of its tasks. 

Summary conclusion on the proposed measures affecting Suomen Pankki’s finances

15.  The  combined  effect  of  the  proposed  legislative  measures  weakens  Suomen  Pankki’s  financial

position, allocates the assessment of whether Suomen Pankki has sufficient financial resources to carry

out  its  ESCB-related  as  well  as  its  other  tasks  to  the  judgement  of  the  Parliamentary  Supervisory

Council  without  containing  any  statutory  safeguards,  and  circumvents  Suomen  Pankki’s  right  and

obligation  to  hold  and  manage  the  Member  States’  official  foreign  reserves.  This,  in  the  view  of  the

ECB, is not consistent with the principles of financial and institutional independence of central banks

embedded  in  the  Treaty.  The  ECB  urges  the  Government  of  Finland  to  reconsider  the  legislative

proposal so that said principles are not infringed and to ensure that Suomen Pankki’s financial regime

will be compatible with the Treaty.

Suomen Pankki’s power to issue norms regarding oversight

16.  The legislative proposal grants Suomen Pankki certain limited powers to issue norms in order to carry

out its duties as part of the Eurosystem. According to the legislative proposal, the norms would only be

addressed to those institutions that maintain or participate in such payment and clearing systems as the
Finnish Ministry of Finance has designated under the Settlement Finality Directive5. 

17.  Article 105(2) of the Treaty and Article 3.1 of the Statute include as a basic Eurosystem central bank

task  the  promotion  of  the  smooth  operation  of  payment  systems.  For  the  NCBs  of  the  participating

5 

Directive  98/26/EC  of  the  European  Parliament  and  the  Council  of  19  May  1998  on  settlement  finality  in  payment  and
securities settlement systems, OJ L 166, 11.6.1998, p. 45.

5

                                                     
Member States, these Articles provide a legal basis for the oversight of payment systems functionally

directly  linked  with  settlement  systems.  Within  the  Eurosystem,  oversight  activities  are  generally

performed at NCB level, in line with the common oversight policy defined for the Eurosystem by the
ECB’s  Governing  Council.  The  ECB  understands  that  in  line  with  the  NCBs’  oversight  function6,

Section 3 of the Suomen Pankki Act provides the legal basis for Suomen Pankki’s oversight function

by stipulating that it  will both participate in  maintaining  the  reliability  and efficiency  of  the payment

system and the overall financial system and assist in their development.

18.  The  ECB  supports  the  proposed  measure,  which  makes  it  easier  for  Suomen  Pankki  to  fulfil  its

oversight function in a sufficiently transparent way. The ECB notes, however, that the wording of the

legislative proposal appears relatively restrictive and could prove to be impracticable. Firstly, Suomen

Pankki  is  responsible  for  overseeing  the  reliability  and  efficiency  of  the  overall  infrastructure  of  the

financial system, which includes securities settlement  systems. Therefore, an  explicit reference in the

Suomen  Pankki  Act  to  Suomen  Pankki’s  oversight  function  regarding  securities  clearing  and

settlement systems might be helpful for the sake of clarification. Secondly, given the broad oversight

function of Suomen Pankki, as described in the explanatory memorandum, it would be reasonable for

all payment and securities clearing and settlement systems to be brought under the regulatory powers

of  Suomen  Pankki,  regardless  of  whether  they  are  protected  by  the  Settlement  Finality  Directive.

Thirdly, ECB legal acts other than guidelines and instructions, such as decisions or regulations, as well

as  ESCB-wide  agreements,  are  excluded  from  the  explicit  wording  of  the  legislative  proposal.  The

ECB would regret  such limits being  imposed  on the  regulatory powers  of  Suomen  Pankki.  The  ECB

notes that when adopting the Treaty Finland undertook to act in a manner enabling its central bank to

abide  by  the  legal  instruments  of  the  ECB  with  binding  effect  on  it.  The  ECB  invites  the  Finnish

Government  and  Parliament  to  extend  the  explicit  wording  of  the  legislative  proposal  to  cover  ECB

legal  instruments  binding  on  NCBs.  This  could  be  done  for  example  by  linking  Suomen  Pankki’s

power  to  issue  norms  to  its  obligation  to  carry  out  its  tasks  as  part  of  the  ESCB.  In  this  context,  the

ECB would point out that the NCBs are always bound by the content and parameters laid down in ECB

legal acts, which do not allow discretionary powers to be used when implementing them.

6 

The  oversight  function  of  NCBs  has  been  described  in  detail  in  previous  ECB  opinions  published  on  its  website
http://www.ecb.int. For example see ECB Opinion CON/2003/14 of 7 August 2003 at the request of the Banca d’Italia on a
draft regulation on payment systems,  payment  infrastructures  and  payment  instruments  and  ECB  Opinion  CON/2003/15 of
8 August 2003 at the request of Sveriges Riksbank on a draft law amending the Sveriges Riksbank Act (not yet published).

6

                                                     
The ECB confirms that it has no objection to the competent national authorities making this opinion publicly

available at their discretion. This opinion will be published on the ECB’s website.

Done at Frankfurt am Main on 15 October 2003. 

The President of the ECB

[signed]

Willem F. DUISENBERG 

7