Opinion of the European Central Bank of 3 October 2008 at the request of the Irish Minister for Finance on a draft Credit Institutions (Financial Support) Bill 2008 (CON/2008/44)
Date: 2008-10-03
Institutions: European Central Bank
Subjects: Ireland, State aid, credit institution, financial stability, monetary policy, national law, payment system

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 3 October 2008 

at the request of the Irish Minister for Finance  

on a draft Credit Institutions (Financial Support) Bill 2008 

(CON/2008/44) 

Introduction and legal basis 

On  1  October  2008  the  European  Central  Bank  (ECB)  received  a  request  from  the  Irish  Minister  for 

Finance for an opinion on a draft Credit Institutions (Financial Support) Bill 2008 (hereinafter the ‘draft 

law’).  

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

European Community and the third and sixth indents 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 relates to a national central bank (the Central Bank and Financial 

Services Authority of Ireland (hereinafter the ‘Central Bank’)) and contains rules applicable to financial 

institutions  insofar  as  they  materially  influence  the  stability  of  financial  institutions  and  markets.  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.  

1.  

Purpose of the draft law 

1.1  The draft law provides that, as from 30 September 2008, the Minister for Finance (hereinafter the 

‘Minister’) may provide financial support in respect of the borrowings, liabilities and obligations of 

any  credit  institution  or  subsidiary  (including  to  the  Central  Bank  or  any  person)  which  the 

Minister may specify by order where the Minister is of the opinion, after consulting the Governor 

of  the  Central  Bank  and  the  Irish  Financial  Services  Regulatory  Authority  (the  ‘Financial 
Regulator’), that there is a serious threat to the stability of credit institutions in Ireland generally2. 

Such financial support may be provided in any form and manner and determined by the Minister 

and  on  such  commercial  or  other  terms  and  conditions  as  the  Minister  thinks  fit.  The  draft  law 

contains  provisions  to  the  effect  that  all  financial  support  provided  should  be,  as  far  as  possible, 
ultimately recouped3. The  draft law also contains provisions authorising the Minister to purchase 
shares in a credit institution or subsidiary to which financial support is provided4. All money to be 

1  
2  
3  
4  

OJ L 189, 3.7.1998, p. 42. 
See Sections 1 (definition of ‘financial support’), 2(1), 3 and 6(1) of the draft law. 
See Section 6(4) of the draft law. 
See Section 6(9) of the draft law. 

 
 
 
 
                                                 
paid out may be paid out of Government funds5. Financial support would not be provided beyond 
29 September 20106. 

1.2  The  draft  law  also  provides  that  a  notification  of  a  merger  or  acquisition  that  involves  a  credit 

institution  or  subsidiary  is  required  to  be  given  to  the  Minister,  and  not  to  the  Irish  Competition 

Authority, in the case where the Minister is of the opinion that the proposed merger or acquisition 
is  necessary  to  maintain  the  stability  of  the  financial  system  in  Ireland7.  The  Governor  of  the 

Central Bank and the Competition Authority will provide advice, information and assistance to the 
Minister regarding this matter8. The Minister may approve a merger or acquisition even if he is of 

the  opinion  that  the  result  of  the  merger  or  acquisition  will  substantially  lessen  competition  in 

markets for goods or services in Ireland but that the merger or acquisition is necessary for financial 
stability reasons9. 

2. 

General observations 

2.1  On  30  September  2008  the  Irish  Government  announced  that  it  has  decided  to  put  in  place  with 

immediate effect a guarantee arrangement to safeguard all deposits (retail, commercial, institutional 

and  interbank),  covered  bonds,  senior  debt  and  dated  subordinated  debt  (lower  tier  II),  with  six 

explicitly named Irish credit institutions and such specific subsidiaries as may be approved by the 

Government following consultation with the Central Bank and the Financial Regulator. According 

to  the  announcement,  this  guarantee  arrangement  will  cover  all  existing  aforementioned  facilities 

with  these  institutions  on  29  September  2008  and  any  new  facilities  issued  thereafter,  and  will 

expire on 28 September 2010. 

2.2  The  draft  law  is  scheduled  to  be  adopted  under  an  accelerated  parliamentary  procedure,  with  the 

ECB consultation requested on an urgent basis. Many of the provisions of the draft law are general 

in  nature  and  will  be  implemented  by  means  of  secondary  legislation  to  be  adopted  by  the 
Minister10.  This  implementing  legislation  would,  in  the  ECB’s  understanding,  contain  draft 
legislative  provisions  that  would  flesh  out  the  details  of  the  draft  law11.  Consequently,  the  ECB 

expects to be consulted on any proposed implementing legislation to be adopted under the draft law 

that materially influences the stability of financial institutions and markets.  

2.3  As  a  general  matter,  the  ECB  wishes  to  underline  the  importance  it  attaches  to  ensuring  that  the 

draft  law  and  subsequent  implementing  legislation  fully  comply  with  the  relevant  provisions  of 

Community  law,  in  particular  as  regards  competition  (including  in  the  area  of  cross-border  bank 

mergers and acquisitions) and State aid rules, as well as EU financial services legislation and the 

5  
6  
7  
8  
9  
10  
11  

See Section 4 of the draft law. 
See Section 6(3) of the draft law. 
See Section 7(1) of the draft law. 
See Section 7(7) of the draft law. 
See Section 7(11) of the draft law. 
See Section 5 of the draft law. 
See  definition  of  the  ‘draft  legislative  provisions’  under  Article  1(1)  of  Council  Decision  98/415/EC  together  with  the 
sixth indent of Article 2(1) of this Council Decision. 

2 

 
                                                 
single market principles. In this regard the ECB wants to point out that the measures announced by 

the  Irish  Government  raise  concerns  as  their  restriction  to  specifically  named  banks  under  the 

concept of safeguarding the Irish financial system appears to provide preferential treatment to these 

banks.  The  ECB  understands  that  the  Commission  will  assess  and  express  its  opinion  on  the 

compatibility  of  specific  measures  included  in  the  draft  law  with  Community  law.  The  ECB 

expects that the Commission’s opinion will be appropriately taken into account and reflected in the 

Irish legislative and regulatory framework adopted under the draft law.  

2.4  As a further general comment, the ECB notes that the Irish authorities have opted for an individual 

response to the current financial situation and not sought to consult their EU partners. In view of 

the similarities of the causes and consequences of the current financial distress across EU Member 

States  and  the  potential  interdependencies  of  policy  responses,  it  would  have  been  advisable  to 

properly consult other EU authorities on the envisaged legislative plans.  

2.5   A  further  point  relates  to  the  risks  to  the  Government’s  budgetary  position  arising  from  any 

financial  support  to  Irish  credit  institutions.  While  the  ECB  appreciates  that  any  guarantees 

provided by the Minister under the draft law would be contingent in nature, given that the financial 

exposure  of  the  Irish  State  under  such  guarantees  is  potentially  very  large,  the  Irish  Government 

could be obliged to make significant payments in case these guarantees are called over the next two 

years. At a point in time when the Irish budgetary position is deteriorating and may risk exceeding 
the 3 % of GDP reference value for public deficits, as specified under Community law12, this is a 

cause for concern, even when the provision of financial support would, under the draft law, as far 

as possible ultimately have to be recouped from the credit institution or subsidiary in question. 

3.   Central bank independence and the monetary financing prohibition 

3.1  The draft law provides that the Minister may use the financial support powers in the public interest, 

provided that, in the Minister’s assessment, made after consulting the Governor of the Central Bank 

and the Regulatory Authority, the statutory conditions for the exercise of such powers are met. In 

the exercise of the financial support powers, the Minister may further consult with the Governor of 
the Central Bank and the Regulatory Authority13. Other provisions directly affecting the Governor 

and  the  Central  Bank  include,  inter  alia:  (i)  the  possibility  for  the  supported  credit  institution  or 

subsidiary to receive financial support as regards its borrowings, liabilities and obligations vis-à-vis 
the Central Bank14; (ii) the possibility for the Minister to require the supported credit institution to 
comply with the requirements ‘imposed by the Central Bank or equivalent authority’15; and (iii) the 

consultative  role  which  the  Governor  and  the  Central  Bank  are  to  have  in  the  exercise  of  the 
Minister’s powers in relation to mergers and acquisitions in the banking sector16.  

12  
13  
14  
15  
16  

See Article 1 of the Protocol on the excessive deficit procedure, annexed to the Treaty. 
See Section 2(2) of the draft law.  
See Section 6(2) of the draft law. 
See Section 6(7) of the draft law. 
See Section 6(a) and Section 7(1)(a) of the draft law. 

3 

 
                                                 
3.2  The ECB notes that the draft law specifies that nothing in its provisions prevents the performance 

by  the  Central  Bank  or  the  Regulatory  Authority  of  its  functions  in  relation  to  any  credit 
institution17.  The  ECB  recommends  that  this  provision  is  made  more  precise  by  including  three 

additional stipulations, specifying that nothing in the draft law shall prejudice the: (i) performance 

by  the  Governor  of  his  powers  and  functions  with  respect  to  the  stability  of  the  State’s  financial 

system  under  the  Central  Bank  Act  1942;  (ii)  performance  of  any  other  functions  and  powers 

conferred on the Governor by the Treaty and the ESCB Statute; and (iii) compliance by the Central 
Bank with the prohibition of monetary financing under Article 101 of the Treaty18. In addition to 

reinforcing the Governor’s financial stability role at a national level, these clarifications would help 

to specify that the advice of the Governor is sought with due respect paid to the responsibilities and 

tasks assigned to the Governor and the Central Bank within the ECB and the Eurosystem, including 

the independence required of the Governor and the Central Bank under the Treaty and the ESCB 
Statute19. 

3.3  The draft law contains a provision exempting charges created by a credit institution in favour of the 

Minister, any agent of the Minister or the Central Bank from company law requirements relating to 
the  registration  of  charges  with  the  Irish  Companies  Registration  Office20.  In  the  Central  Bank’s 

Eurosystem credit operations, the Central Bank mobilises much collateral, including mortgage and 

other  loan  portfolios  of  bank  counterparties,  by  means  of  a  floating  charge  technique.  Careful 

consideration would therefore need to be given to the implications of this provision in connection 

with the collateralisation of the Central Bank’s Eurosystem credit operations. The Central Bank’s 

current  practice  of  disclosing  its  floating  charges,  together  with  any  negative  pledges  contained 

therein,  through  public  registration  with  the  Companies  Registration  Office  ensures  that  parties 

dealing with the Central Bank’s bank counterparties have notice of any floating charge or negative 

pledge.  This  in  turn  ensures  that  in  any  winding-up  or  a  receivership  of  such  a  company  or 

counterparty the Central Bank would, subject to the claims of certain preferential creditors (if any), 

take  priority  over  all  other  claims,  including  claims  based  on  charges  created  subsequent  to  the 

creation  of  the  floating  charge.  The  ECB  would  like  to  stress  that  the  financial  interests  of  the 

Central Bank and the Eurosystem have to be preserved, and would therefore recommend that this 

provision be amended accordingly. 

17  
18  

19  
20  

See Section 2(3) of the draft law. 
For example, ‘State guarantees … used as collateral in connection with emergency liquidity assistance’ are subject to ‘the 
requirement that the supported credit institution remains solvent.’ See paragraph 4.11 of ECB Opinion CON/2008/42 of 
10 September 2008 at the request of the Banque centrale du Luxembourg on amendments to the draft law improving the 
legislative framework for Luxembourg as a financial centre and amending the Law of 23 December 1998 on monetary 
status and on the Banque centrale du Luxembourg.  
See Article 108 of the Treaty and Article 7 of the ESCB Statute. 
See Section 6(17) of the draft law. 

4 

                                                 
4.  

Banking mergers and acquisitions and financial stability 

4.1  The  ECB  has  already  taken  the  view  in  previous  opinions  on  draft  national  legislation  that  ‘it  is 

appropriate  to  maintain  a  clear  distinction  between  procedures  leading  to  antitrust  and  banking 
supervision  decisions’21  and  that  draft  national  laws  should  reflect  in  these  circumstances  ‘the 
principle of allocating powers to authorities in accordance with their respective objectives’22. In the 

present case,  the above dual competence of the Minister for these banking mergers and the mere 
consultative or advisory role conferred on the Governor and the Financial Regulator23 as well as on 
the Competition Authority24, would conflict with these principles. 

4.2  Moreover, the ECB has pointed out in previous opinions the need to find a balance between ‘the 

potentially  conflicting  objectives  of  market  competition  and  financial  stability  by  introducing 
safeguards similar to those which apply under Community law’25. While acknowledging that ‘cases 

might occur in which a banking merger would be necessary on stability grounds, although it raises 
concerns  for  its  effects  on  competition’26,  the  ECB  stressed  that  these  cases  should  remain 
‘exceptional’  and  should  ‘not  unduly  restrain  competition’27.  In  such  circumstances,  the  ECB 

suggested  for  instance  that  the  national  competition  authority  may  be  entitled  to  authorise 
concentrations  on  request  of  the  [central  bank]  based  on  stability  grounds28.  The  ECB  would 

recommend that the prerogatives of the Minister under the draft law be applied in accordance with 

the principle of proportionality and with appropriate safeguards. 

21  

22  

23  
24  
25  

26  

27  

28  

See paragraph 8 of ECB Opinion CON/2005/58 of 23 December 2005 at the request of the Italian Ministry of Economy 
and Finance on an amendment to the draft law on the protection of savings concerning the Banca d’Italia. 
See  paragraph  4  of  ECB  Opinion  CON/2007/17  of  18  June  2007  at  the  request  of  the  Italian  Ministry  of  Economic 
Affairs  and  Finance  on  a  draft  law  on  the  regulation  and  supervision  of  markets  and  the  functioning  of  the  competent 
independent authorities. 
Section 7(1)(a) of the draft law. 
Section 7(7) of the draft law. 
See  paragraph  3(3),  last  sentence  of  ECB  Opinion  CON/2006/51  of  3  November  2006  at  the  request  of  the  Italian 
Ministry of Economic Affairs and Finance on a draft legislative decree exercising powers delegated under the Law on the 
protection of savings. 
See  paragraph  8,  second  sentence  of  ECB  Opinion  CON/2005/58  of  23  December  2005  at  the  request  of  the  Italian 
Ministry of Economy and Finance on an amendment to the draft law on the protection of savings concerning the Banca 
d’Italia. 
See  paragraph  3(3),  second  sentence  of  ECB  Opinion  CON/2006/51  of  3  November  2006  at  the  request  of  the  Italian 
Ministry of Economic Affairs and Finance on a draft legislative decree exercising powers delegated under the Law on the 
protection of savings. 
See paragraph 8, last sentence of ECB Opinion CON/2005/58 of 23 December 2005 at the request of the Italian Ministry 
of Economy and Finance on an amendment to the draft law on the protection of savings concerning the Banca d’Italia. 

5 

 
                                                 
4.3  Finally,  the  ECB  notes  that  measures  which  are  adopted  with  the  aim  of  safeguarding  financial 

stability should involve cooperation with the relevant authorities of the Member States involved, in 

line  with  the  applicable  Community  legislation  and  the  arrangements  in  place,  such  as  the 

Memorandum  of  Understanding  on  cooperation  between  the  financial  supervisory  authorities, 
central banks and finance ministries of the European Union on cross-border financial stability29. 

This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 3 October 2008. 

[signed]  

The President of the ECB 

Jean-Claude TRICHET 

29 

As published on the ECB website, www.ecb.europa.eu. 

6