Opinion of the European Central Bank of 14 June 2005 at the request of Latvijas Banka on the draft law amending the Law on Latvijas Banka (CON/2005/20)
Date: 2005-06-14
Institutions: European Central Bank
Subjects: Latvia, central bank, monetary integration, national law, price stability

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 14 June 2005  

at the request of Latvijas Banka on the draft 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  the  submission  of  the  draft  law  to  the  Latvian 

Ministry of Finance. 

2. 

The ECB’s competence to deliver an opinion is based 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 draft 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 members of the European System of Central Banks 

(ESCB)  and  the  need  for  Latvijas  Banka’s  credit  operations  to  be  backed  by  adequate  collateral. 

The draft law also contains two technical provisions which will update the Law on Latvijas Banka 

in accordance with other more recent Latvian legal acts.  

4. 

The ECB notes that the draft law, which would enter into force 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 Latvia adopts the euro and Latvijas Banka is fully 

integrated into the Eurosystem. In the latter context 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.  

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OJ L 189, 3.7.1998, p. 42. 

 
 
 
                                                      
5. 

Pursuant  to  Article  3  of  the  Law  on  Latvijas  Banka  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  Latvian  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  Latvijas  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 Latvijas Banka’s Council (hereinafter the ‘Council’). 

The  grounds for  dismissal  of  the  Governor,  Deputy 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  sentencing  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 the 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  credit  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 Statute. The Law on Latvijas Banka may not in any 

case  restrict  Latvijas  Banka’s  right  to open  accounts  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 provisions of the Law. The ECB notes, however, that 

the  suggested  wording  is  still  slightly  more  restrictive  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  institutions,  public  entities  and  other  market 

participants and accept assets, including book entry securities, as collateral. The current proposed 

wording of Article 12 of the Law only entitles Latvijas Banka to open accounts for the Government 

of  Latvia,  credit  institutions,  international  organisations  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 arrangements, 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 

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members are covered by Article 12 of the Law on Latvijas Banka, the ECB recommends including 

an explicit reference to them in the 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 draft law. Therefore, for the purposes of clarity, the 

ECB would welcome the inclusion of an explicit reference 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, financial and credit institutions that have opened an account with 

Latvijas Banka. In its Convergence Report 2004 the ECB noted that pursuant to the second indent 

of Article 18.1 of the Statute, Article 36 of the 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 market participants. However, from a strictly drafting perspective it 

is noted that, while the draft law refers only to credit operations, Article 18 of the Statute refers to 

all types of open market operations. While it is aware 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 welcome 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 Latvijas Banka’s entitlement to conduct a wide range of 

open market operations both for liquidity 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 

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