Opinion of the European Central Bank of 15 October 2008 at the request of the Irish Minister for Finance on a draft Credit Institutions (Financial Support) Scheme 2008 (CON/2008/48)
Date: 2008-10-15
Institutions: European Central Bank
Subjects: Ireland, State aid, credit institution, financial stability, guarantee, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 15 October 2008 

at the request of the Irish Minister for Finance  

on a draft Credit Institutions (Financial Support) Scheme 2008 

(CON/2008/48) 

Introduction and legal basis 

On  10  October  2008  the  European  Central  Bank  (ECB)  received  a  request  from  the  Irish  Minister  for 

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

Scheme  2008  (hereinafter  the  ‘draft  scheme’)  to  be  adopted  by  the  Minister  by  means  of  a  statutory 

instrument  under  the  provisions  of  the  Credit  Institutions  (Financial  Support)  Act  2008  (hereinafter  the 

‘Act’). On 13 October 2008 the ECB was informally provided by the Irish Department of Finance with an 
updated version of the draft scheme (hereinafter the ‘updated draft scheme’)1. The scheme implements the 

more  general  rules  contained  in  the  recently  adopted  Act,  on  which  the  ECB  has  been  consulted  and 
issued its Opinion CON/2008/44 on 3 October 20082. In accordance with the Act, the Minister may not 

adopt  the  scheme  until  a  resolution  approving  it  has  been  passed  by  each  House  of  the  Oireachtas 
(National Parliament)3. The Minister requested the ECB’s opinion on the scheme as a matter of urgency, 

prior to its submission to the Oireachtas.  

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

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 provisions4, 

as  the  scheme  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  

2  

3  
4  

The draft scheme and the updated draft scheme are only referred to specifically in this opinion where a distinction needs 
to be made between them. Otherwise the legislative provisions to be adopted are referred to as the ‘scheme’. 
See  ECB  Opinion  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). 
See Section 6(5) of the Act. 
OJ L 189, 3.7.1998, p. 42. 

 
 
 
 
                                                 
1.   Purpose of the scheme 

1.1  The  primary  objective  of  the  scheme  is  to  provide  a  legal  basis  for  the  Minister  to  stand  as 

guarantor  of  the  ‘covered  liabilities’  of  a  ‘covered  institution’  for  the  period  of  two  years  from 
30 September 2008 to 29 September 2010, as a form of financial support provided under the Act5. 

In accordance with the Act, the scheme has been brought forward as the Minister is of the opinion 

that: (i) there is a serious threat to the stability of credit institutions in Ireland generally, or would 

be such a threat if he did not provide the financial support; (ii) the provision of the financial support 

is necessary, in the public interest, for maintaining the stability of the financial system in Ireland; 

and (iii) the provision of the financial support is necessary to remedy a serious disturbance in the 
economy of Ireland6. 

1.2  The scheme further specifies the scope of the State’s guarantee by clarifying the means by which 

credit institutions are covered by the scheme and the types of liabilities of the covered institutions 

for which the State guarantee will be provided, as further discussed in paragraph 3 of this opinion. 

A  covered  institution  will  be  under  an  obligation  to  pay  a  quarterly  charge  to  the  State  for  a 
guarantee,  calculated  on  the  basis  of,  inter  alia,  its  risk  profile7.  The  scheme  confers  extensive 

powers  on  the  Minister,  the  Governor  of  the  Central  Bank  and  the  Irish  Financial  Services 

Regulatory Authority (hereinafter the ‘Regulatory Authority’), as further discussed in paragraph 4 

of this opinion. 

2. 

General observations 

2.1  The  ECB  notes  that  there  is  an  ongoing  discussion  at  both  the  international  and  European  levels 

with a view to coordinating the many diverse actions of countries aimed at preserving confidence 

and stability in the international financial markets. In line with the common principles to guide the 

action of Member States agreed at the Ecofin meeting on 7 October 2008: (i) interventions should 

be timely and the support should in principle be temporary; (ii) the interests of taxpayers should be 

protected; (iii) existing shareholders should bear the due consequences of the intervention; (iv) the 

government  should  be  in  a  position  to  bring  about  a  change  of  management;  (v)  management 

should not retain undue benefits; (vi) governments may have, inter alia, the power to intervene with 

regard  to  remuneration;  (vii)  legitimate  interests  of  competitors  must  be  protected,  in  particular 
through the State aid rules, and negative spill-over effects should be avoided8. Moreover, the ECB 

notes  that  on  12  October  2008  the  Heads  of  State  of  the  euro  area  issued  a  ‘Declaration  on  a 

5  

6  
7  

8  

See paragraph 9 of the Schedule to the scheme. The scheme does not concern other types of financial support which may 
be  provided  by  the  Minister  under  the  Act,  such  as,  for  example,  the  Minister’s  authority  to  purchase  shares  in  a 
supported credit institution under Section 6(9) of the Act. 
See paragraph 1 of the Schedule to the scheme. 
The charge is to be credited to a designated account to be maintained at the Central Bank as a reserve for any payments to 
be made under the scheme (see paragraphs 15A-21 of the Schedule to the draft scheme (paragraphs 16-23 of the Schedule 
to the updated draft scheme), together with the Annex (Guarantee Charging Model) to the Schedule). 
See 
www.consilium.europa.eu. 

the  2894th  Council  meeting 

(13784/08),  available  on 

the  Council  website, 

release  of 

the  press 

2 

 
                                                 
concerted  European  action  plan  of  the  euro  area  countries’9,  in  which  they  confirmed  their 

commitment to act together in a decisive and comprehensive way in order to restore confidence and 

proper functioning of the financial system, aiming at restoring appropriate and efficient financing 

conditions for the economy. They agreed on common principles to be followed by the EU and euro 

area governments, central banks and supervisors to avoid national measures adversely affecting the 

functioning of the single market and the other Member States. Against this background, the ECB 

highlights that all the initiatives put in place by national governments to restore the confidence in 

financial markets should be aimed at implementing such common principles, in the spirit of close 

cooperation with other Member States and EU institutions.    

2.2  The ECB underlines that the recommendations expressed in this opinion in relation to the scheme 

should be taken together with the recommendations expressed by the ECB in relation to the draft 
Act in its Opinion CON/2008/4410. The ECB wishes to draw the consulting authority’s attention to 

the  recent  ECB  opinions  issued  at  the  request  of  other  Member  States,  whereby  the  ECB  has 
commented on legislative proposals sharing some of the features of the scheme11. It is the ECB’s 

intention  to  facilitate  coordination  of  the  various  national  efforts  addressing  the  current  financial 

situation, inter alia through timely adoption and publication of ECB opinions on such draft national 

legislation. 

3. 

Scope of the financial support provided 

3.1 

Selection of covered credit institutions 

Under the scheme on  which the ECB  was originally consulted, the institutions covered  are those 

credit  institutions  and  subsidiaries  which  the  Minister,  following  a  recommendation  from  the 
Governor of the Central Bank, specifies by order under the Act as requiring financial support12. A 

credit  institution  joins  the  scheme  by  executing  a  guarantee  acceptance  deed  in  the  form  to  be 

specified by the Minister and, if required by the Minister, its parent or any other group company 
also  executing  such  a  guarantee  acceptance  deed13.  A  subsidiary  of  any  parent  credit  institution 

which is not regulated by the Regulatory Authority may qualify as a ‘covered institution’, but in the 

case of a covered institution which is a subsidiary of any non-Irish parent credit institution, the only 
liabilities covered would be those which relate to the subsidiary’s own business14. 

3.2 

In  the  context  of  the  above  provisions,  the  ECB  notes  that  on  30  September  2008  the  Irish 

Government  announced  that  it  had  decided  to  put  in  place  a  two-year  guarantee  arrangement  to 

9  
10  
11  

12  
13  
14  

See the declaration of 12 October 2008, available on the website of the French Presidency at www.ue2008.fr. 
See in particular paragraphs 2.3 and 3.2 of Opinion CON/2008/44, as reiterated in paragraphs 3.4 and 3.7 of this opinion. 
See,  e.g.  ECB  Opinion  CON/2008/46  of  8  October  2008  at  the  request  of  the  Belgian  Ministry  of  Finance  on  a 
preliminary  draft  law  on  measures  promoting  financial  stability and  in  particular establishing a  State  guarantee  for  the 
provision  of  credit  in  the  context  of  financial  stability.  All  ECB  opinions  are  available  on  the  ECB  website  at 
www.ecb.europa.eu/ecb/legal/opinions/html/index.en.html. 
See paragraph 3 of the Schedule to the scheme. 
See paragraph 5 of the Schedule to the updated draft scheme. 
See paragraph 12 of the Schedule to the updated draft scheme. 

3 

 
                                                 
safeguard liabilities 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 
Regulatory  Authority15.  The  ECB  notes  that  on  9  October  2008  the  Minister  announced  that  the 

two-year scheme would also be available to five explicitly named ‘banking subsidiaries’ in Ireland 
‘with a significant and broad-based footprint in the domestic economy’16. Against this background, 

the ECB has the following comments. 

3.3  First, the ECB notes that the original proposal whereby the Governor of the Central Bank would be 

entrusted  with  the  authority  to  ‘make  recommendations’  to  the  Minister  as  regards  the  credit 

institutions  to  be  covered  by  the  scheme  has  been  modified  by  the  updated  draft  scheme  to  the 

effect  that  the  Minister  would  instead  take  a  decision  to  designate  those  systemically  important 

credit institutions which the Minister specifies require financial support. Given that the purpose of 

the scheme is to maintain the stability of the Irish financial system, the original proposal to confer 

this  particular  role  on  the  Governor  would  have  complemented  the  Governor’s  financial  stability 
role  under  the  Act17  and,  more  generally,  the  Central  Bank’s  statutes18.  The  Governor’s  financial 

stability role at domestic level also facilitates the discharge of his responsibilities as a member of 

the  ECB’s  Governing  Council  to  contribute  to  the  stability  of  the  wider  European  and  global 

financial systems under Article 105(5) of the Treaty. The ECB would have a preference to revert to 

the original proposal and in any case ensure a proper involvement of the Governor when taking any 

decision  under  the  scheme  with  a  bearing  on  financial  stability,  including  all  decisions  by  the 

Minister to revoke the guarantee in whole or in part in relation to a credit institution. 

3.4 

Second,  the  ECB  reiterates  the  stance  taken  in  its  previous  opinion,  according  to  which 

arrangements which may be seen as providing preferential treatment to specified credit institutions 
should be avoided19. In this respect, the ECB appreciates the provision of the scheme stating that it 

is  introduced  by  the  Minister  having  regard  to  the  objective  of  ensuring  compliance  with  the 
requirements  of  EU  State  aid  and  competition  law20,  as  well  as  the  statements  made  in  the 

explanatory  memorandum  to  the  effect  that  the  scheme  is  designed  to  ensure  that  the  covered 

institutions  will  not  be  unfairly  advantaged  by  making  undue  use  of  their  guaranteed  status  to 

engage in a  heightened level of activities  which create  market distortions and facilitate abnormal 

15  

16  
17  
18  

19  
20  

See  the  30  September  2008  press  release,  available  on  the  Department  for  Finance’s  website  at  www.finance.gov.ie. 
Cf. paragraph 19 of ECB Opinion CON/2008/44. 
See the 9 October 2008 press release, available on the Department for Finance’s website at www.finance.gov.ie. 
See the list of the Governor’s relevant powers in paragraph 3.1 of ECB Opinion CON/2008/44. 
The financial stability powers of the Governor under the Central Bank Acts include: (i) expressing agreement to actions 
by the Regulatory Authority on any matter relating to the financial stability of Ireland’s financial system, including (but 
not limited to) the issue, revocation and suspension of a license or other authority; (ii) authorising investigations and on-
site  inspections  of  licensed  credit  institutions;  (iii)  the  issuance  of  guidance  as  to  policies  and  principles  that  the 
Regulatory  Authority  is  required  to  implement  in  performing  the  Central  Bank’s  functions;  and  (iv)  requesting  the 
Regulatory Authority’s advice, information and assistance. See Sections 33C(1)(c), 33C(8), 33C(9), 33C(9A), 33C(9B) 
and 33D(1)-(2) of the Central Bank Act 1942; Section 17A of the Central Bank Act 1971; Section 41 of the Central Bank 
Act 1989. 
See paragraph 2.3 of ECB Opinion CON/2008/44. 
See paragraph 2, fourth bullet point, of the Schedule to the draft scheme (paragraph 2.5 of the Schedule to the updated 
draft scheme). 

4 

                                                 
balance  sheet  growth21.  In  this  regard,  the  ECB  underlines  the  importance  of  establishing 

appropriate  safeguards  such  as  for  example  limits  to  marketing  of  financial  products  or  limits  to 
expansion of activities on the basis of the state guarantees22.  

3.5  The  ECB  understands  that  the  Commission  has  confirmed  the  compatibility  of  the  guarantee 
arrangement  proposed  by  the  Irish  Government  with  Community  State  aid  rules23.  The  ECB 

reiterates  the  importance  of  ensuring  that  the  further  regulatory  practice  under  the  proposed 

arrangements will be conducted in full compliance with the relevant Community law provisions, in 

particular  as  regards  competition  and  State  aid  rules,  as  well  as  EU  financial  services  legislation 
and the single market principles24. 

3.6  Types of liabilities covered by the guarantee 

Under  the  scheme  ‘covered  liabilities’  are  defined  as  those  liabilities  of  covered  institutions 

existing on 30 September 2008 or at any time thereafter up to and including 29 September 2010 in 

respect  of:  (i)  all  retail  and  corporate  deposits  (to  the  extent  not  covered  by  existing  deposit 

protection  schemes  in  Ireland  or  any  other  jurisdiction);  (ii)  interbank  deposits;  (iii)  senior 
unsecured debt; (iv) covered bonds; and (v) dated subordinated debt (Lower Tier 2)25. In the case of 

a  covered  institution  which  is  a  subsidiary  of  any  non-Irish  parent  credit  institution,  the  only 

covered liabilities would be those which relate to the subsidiary’s own business and in respect of 

which  there  is  no  recourse  to  any  other  entity  (and  would  not  include  liabilities  which,  in  the 

absence of the guarantee, would normally be those of other members of the covered institution’s 
group)26. 

3.7  As a further comment as regards the scope of coverage of the State guarantee, the ECB notes that, 

in line with the declaration made by the euro area Heads of State mentioned before, Member States 

have to act in coordinated manner to avoid that significant differences in national implementation 

could  have  a  counter-productive  effect,  creating  distortions  in  global  banking  markets.  The  euro 

area  Heads  of  State  also  acknowledged  the  need  to  work  in  cooperation  with  the  ECB  so  as  to 

ensure consistency with the management of liquidity by the Eurosystem and compatibility with the 

operational  framework  of  the  Eurosystem.  Against  this  background,  the  ECB  notes  that 

uncoordinated decisions to guarantee interbank deposits in some Member States should be avoided 

as they may involve a fragmentation of the euro area money market. The extension of the guarantee 

21  
22  
23  

24  
25  
26  

See the Explanatory Memorandum Relating to a Scheme Dated X day of October 2008, pp. 2-4. 
See in particular the safeguards introduced by paragraph 36 of the updated draft scheme. 
See  the  Commission  press  release  IP/08/1497  of  13  October  2008.  The  non-confidential  version  of  the  Commission’s 
decision will be made available under Case NN 48/2008. The Commission took account, in particular of the provision of 
the updated draft scheme stating that the Minister may review and vary the scheme at no later than six-month intervals, 
and the results of such review will be provided to the Commission (see paragraph 8 of the Schedule to the updated draft 
scheme).  See  also  ‘Communication  from  the  Commission  –  The  application  of  State  aid  rules  to  measures  taken  in 
relation to financial institutions in the context of the current global financial crisis’ of 13 October 2008, available at the 
Commission’s website at www.ec.europa.eu. 
Cf. paragraph 2.3 of ECB Opinion CON/2008/44. 
See paragraph 10 of the Schedule to the scheme. 
See paragraph 12 of the Schedule to the updated draft scheme. 

5 

                                                 
to cover interbank deposits, as is the case under the scheme27, could entail a substantial distortion in 

the various national segments of the euro area money market by potentially increasing short-term 

debt  issuance  activity  across  Member  States  and  therefore  impairing  the  implementation  of  the 

single  monetary  policy,  which  is  a  competence  of  the  Eurosystem  under  Article  105(2)  of  the 

Treaty.  The  ECB  also  notes  that  the  summit  declaration  states  that  the  euro  area  Governments 

would  make  available  a  Government  guarantee  of  new  medium  term  (up  to  5 years)  bank  senior 

debt  issuance,  whereas  the  scheme  proposes  to  cover  senior  unsecured  debt  and  asset  covered 
securities, without limitation as to maturity, and dated subordinated debt (Lower Tier 2) 28. 

3.8  The draft scheme on which the ECB was formally consulted indicates that it remains to be clarified 

whether  the  covered  liabilities  would  exclude  any  inter-group  lending  and  any  debt  due  to  the 
ECB29. The exclusion of debts due to the ECB from the liabilities covered by the guarantee under 

the  scheme  would  be  incongruous,  however.  Under  the  Act  the  borrowings,  liabilities  and 

obligations  of  any  credit  institution  or  subsidiary  in  respect  of  which  the  Minister  may  provide 
financial support include borrowings, liabilities and obligations to the Central Bank30. This would 

imply  that  the  following  liabilities  to  the  Central  Bank  would  be  covered  liabilities  under  the 

scheme: (i) deposits made by the Central Bank with covered Irish credit institutions as part of the 

Central Bank’s investment operations; and (ii) senior unsecured debt securities and covered bonds 

issued by Irish credit institutions covered by the scheme and held by the Central Bank as collateral 
in the Central Bank’s Eurosystem  monetary policy and intra-day credit operations31. By contrast, 

deposits made by the ECB with these same Irish credit institutions as part of the ECB’s investment 

operations would not be covered liabilities under the scheme. As a practical matter, this would, in 

all  probability,  provide  a  strong  incentive  to  the  ECB  to  refrain  from  making  deposits  with  such 

Irish  credit  institutions  in  the  future,  since  the  ECB  could  no  longer  rely  on  the  normal  credit 

ratings attributed to exposures with these Irish banks, which would be based on the presence of the 
Minister’s guarantee32.  

3.9  The ECB further understands that because of the abovementioned inclusion of covered institutions’ 

liabilities  towards  the  Central  Bank  within  the  scope  of  the  State  guarantees  provided  under  the 
scheme33, the Central Bank may find itself in a situation where it is lending to a credit institution 

against collateral which may, at least partially, take the form of a guarantee provided by the State. 

27  

28  

29  
30  
31  

32  

33  

See  paragraph  10,  second  bullet  point  of  the  draft  scheme  and  paragraph  10.2  of  the  Schedule  to  the  updated  draft 
scheme. 
See paragraph 10, third, fourth and fifth bullet points of the draft scheme and paragraph 10.3-10.5 of the Schedule to the 
updated draft scheme. 
See paragraph 10 of the Schedule to the draft scheme.  
See Section 6(2) of the Act. 
Any secured lending by the Central Bank to covered institutions, e.g. as part of the Central Bank’s Eurosystem credit or 
emergency lending operations would not appear to be covered by the scheme. 
If the intention behind this proposal was to exclude obligations arising out of Eurosystem monetary policy and intraday 
credit operations, care would need to be taken that such an exclusion did not also require a reappraisal of the eligibility of 
senior  unsecured  debt  securities  and  covered  bonds  issued  by  Irish  credit  institutions  covered  by  the  scheme  in 
connection with the collateralisation of Eurosystem credit operations. 
See Section 6(2) of the Act. 

6 

                                                 
Such  central  bank  lending  to  a  solvent  credit  institution  on  the  basis  of  a  State  guarantee  is,  in 

principle,  possible,  provided  that  the  Central  Bank’s  compliance  with  the  monetary  financing 

prohibition under Article 101 of the Treaty is ensured. Specific criteria for such compliance must 

be respected as noted by the ECB in a recent opinion issued with respect to another EU jurisdiction 
which  has  legislated  in  response  to  the  current  market  turmoil34.  In  this  opinion,  the  ECB 

underlines its earlier recommendation that nothing in the legal framework governing the provision 

of financial support by the Irish authorities should prejudice the  Central Bank’s compliance with 
the prohibition on monetary financing under Article 101 of the Treaty35.  

3.10  Finally, as regards the payment of the claims in respect of covered liabilities, the ECB highlights 

that in general the existing funding mechanism of the deposit-guarantee scheme should be used to 

the  extent  possible.  In  this  respect,  in  fact,  the  ECB  notes  that  the  scheme  covers  all  retail  and 

corporate deposits to the extent they are not covered by existing protection schemes in the State or 
any other jurisdiction36. However, the ECB notes that the relationship between the scheme and the 

existing  deposit  guarantee  scheme  as  regards  the  treatment  of  claims  and  the  reimbursement  of 

deposits should be further clarified.  

4. 

Allocation of supervisory powers related to provision of financial support 

4.1  The scheme  confers extensive powers on the Minister, the Governor of the Central Bank and the 

Regulatory Authority, which are divided as follows. 

(i) 

The Minister has the power to: (i) impose specific obligations on covered institutions which 

are subsidiaries of non-Irish parent credit institutions to ensure that the scheme is not used for 
the benefit of any entity other than the relevant covered institution37; (ii) in consultation with 

the  relevant  overseas  regulator  (subject  to  the  requirements  of  the  Treaty  and  the  ESCB 

Statute),  require  certain  obligations  of  the  scheme  to  apply  to  the  parent  of  a  covered 
institution or any member of its group38; (iii) receive confirmations from covered institutions 
regarding compliance with relevant regulatory standards39 and (through covered institutions’ 
auditors)  with  the  conditions  of  the  scheme40;  (iv)  direct,  following  consultation  with  the 

34  

35  
36  

37  
38  
39  

40  

See  paragraph  4.3  of  ECB  Opinion  CON/2008/46.  This  opinion  specified  the  following  criteria  under  which  a  central 
bank may engage in lending to a solvent credit institution on basis of a collateral in the form of a State guarantee: (i) the 
central bank needs to independently exercise full discretion regarding the decision whether to extend emergency liquidity 
assistance;  (ii)  it  should  be  ensured  that  the  credit  provided  by  the  central  bank  is  as  short  term  as  possible;  (iii) there 
must be systemic stability aspects at stake; (iv) there must be no doubts as to the legal validity and enforceability of the 
State guarantee under applicable national law; and (v) there must be no doubts as to the economic adequacy of the State 
guarantee, which should cover both principal and interest on the loans, thus fully preserving the financial independence 
of the central bank. 
See paragraph 3.2(iii) of ECB Opinion CON/2008/44. 
See paragraph 10, first bullet point of the Schedule to the draft scheme (paragraph 10.1 of the Schedule to the updated 
draft scheme). 
See paragraph 11 of the Schedule to the draft scheme (paragraph 12 of the Schedule to the updated draft scheme). 
See paragraph 50 of the Schedule to the scheme. 
For  example,  the  Irish  Bankers’  Federation  Code  of  Practice  on  Mortgage  Arrears  and  the  Regulatory  Authority’s 
Consumer Protection Code (see paragraph 24 of the Schedule to the draft scheme (paragraph 26 of the Schedule to the 
updated draft scheme)). 
See paragraph 25 of the Schedule to the draft scheme (paragraph 27 of the Schedule to the updated draft scheme). 

7 

 
                                                 
Governor and the Regulatory Authority, a covered institution to submit a restructuring plan to 
ensure  compliance  with  the  objectives  of  the  scheme41;  (v)  direct  a  covered  institution  to 

appoint non-executive directors to its board from a panel approved by the Minister and admit 

observers appointed by the Minister to observe the meetings of the internal committees of the 
covered institution42; (vi) direct a covered institution to take specified steps to restructure its 

executive management responsibilities, strengthen its management capacity and improve its 
corporate governance43; (vii) impose sanctions on the covered institution, if in the opinion of 
the  Minister  it  is  in  material  breach  of  its  obligations  under  the  scheme44;  (viii)  following 

consultation  with  the  Governor  and  the  Regulatory  Authority,  prevent  a  covered  institution 

from acquiring shares in any other credit or financial institution, establishing any subsidiaries 

or entering into or acquiring any new business where this would increase the State’s liability 
under  the  guarantee45;  (ix)  following  consultation  with  the  Governor  and  the  Regulatory 

Authority,  make  rules  governing  the  payment  of  dividends  by  a  particular  covered 
institution46;  (x)  establish  an  independent  oversight  committee  to  impose  controls  on  the 
executive  remuneration  of  covered  institutions47;  and  (xi)  in  the  event  of  any  default  of  a 

covered  institution  which  creates  a  liability  on  the  State,  direct  the  covered  institution 
concerning its business and corporate structures48.  

(ii)  The Governor of the Central Bank has powers to: (i) together with the Regulatory Authority, 
set  regulatory  requirements  for  the  covered  institutions49;  (ii)  together  with  the  Regulatory 

Authority  and  following  the  consultation  with  the  Minister,  require  a  covered  institution  to 

conduct  its  affairs  in  a  manner  that  progressively  reduces  the  risk  to  the  State  under  its 
Guarantee50. Further, the Governor may be consulted by the Minister regarding institutions to 
be  covered  under  the  scheme51.  The  Governor  is  also  consulted  by  the  Minister  before  the 

Minister exercises  any functions under the scheme  which relate  to the Governor’s statutory 

41  
42  
43  
44  

45  
46  

47  
48  

49  
50  

51  

See paragraph 26 of the Schedule to the draft scheme (paragraph 28 of the Schedule to the updated draft scheme). 
See paragraph 30 of the Schedule to the draft scheme (paragraph 32 of the Schedule to the updated draft scheme). 
See paragraph 34 of the Schedule to the scheme. A similar power may be exercised by the Regulatory Authority. 
See paragraph 35 of the Schedule to the scheme. Acting in this capacity, the Minister may increase the charge payable by 
the institution, impose additional conditions or revoke the institution’s guarantee. 
See paragraph 36 of the Schedule to the draft scheme (paragraph 38 of the Schedule to the updated draft scheme). 
See paragraph 41 of the Schedule to the draft scheme (paragraph 42 of the Schedule to the updated draft scheme). The 
rules concerning payment of dividends should take into account the objective of achieving or maintaining required capital 
ratios. 
See paragraphs 46-49 of the Schedule to the scheme. 
See  paragraph  53  of  the  Schedule  to  the  draft  scheme  (paragraph  53.4  of  the  Schedule  to  the  updated  draft  scheme), 
which also provides that any restructuring plan drawn up for a covered institution in such a case should be notified to the 
European Commission and should comply with EU State aid and competition law. 
See paragraph 4 of the Schedule to the scheme. 
See  paragraph  37  of  the  Schedule  to  the  scheme.  The  Governor  may  in  particular  require  a  covered  institution  to: 
(i) appropriately  manage  its  balance  sheet  in  a  manner  consistent  with  the  purposes  of  the  Act  and  the  need  to  avoid 
significant  distortion  of  financial  flows;  (i)  put  in  place  improved  structures  to  ensure  long-term  stability  of  funding; 
(iii) take  steps  to  restructure  its  executive  management  responsibilities  and  strengthen  its  management  capacity  and 
corporate  governance;  (iv)  improve  liquidity,  solvency  and  capital  ratios  in  circumstances  where  this  is  required;  and 
(v) take measures to minimise any risk of recourse to the guarantee. 
See paragraph 3 of the Schedule to the updated draft scheme. 

8 

                                                 
responsibilities52,  as  well  as  with  respect  to  the  exercise  of  certain  more  specific  powers  of 
the  Minister  under  the  scheme53.  The  Governor  monitors,  together  with  the  Regulatory 

Authority’s Chief Executive, the operation of the scheme and reports regularly to the Minister 
thereon54.  

(iii)  The Regulatory Authority, apart from the abovementioned functions performed jointly with 

the  Governor:  (i)  receives  (on  behalf  of  the  Minister)  from  the  covered  institutions  reports, 
addressing  their  key  supervisory  parameters55  and  submits  to  the  Minister  reports  on  the 
compliance by covered institutions with the terms  and conditions of the scheme56; (ii) after 

consultation  with  the  Minister,  may  require  a  covered  institution  to  establish  appropriate 
funding  structures57;  (iii)  if  so  directed  by  the  Minister,  may  require  any  report  or  other 
information to be provided by a covered institution to be audited by an independent auditor58; 
(iv)  is  consulted  by  the  covered  institutions  towards  developing  a  code  of  practice  for 
effective  risk  management,  in  furtherance  of  the  purposes  of  the  Act59;  (v)  may,  following 

consultation with the Minister, require changes in the composition of a covered institution’s 

board  in  order  to  achieve  an  appropriate  balance  between  executive  and  non-executive 
directors60; and (vi) may, after consultation with the Minister, require changes in the specific 
elements of the commercial conduct of the covered institution61. 

4.2  On the one hand, the ECB welcomes those provisions of the draft scheme that allow the Governor 

to be involved in the exercise of the Minister’s powers under the Act and the scheme for purposes 

of maintaining the stability of the Irish financial system. Moreover, the ECB welcomes the express 

safeguards introduced under the draft scheme as regards the role of the Governor, in particular the 
clarifications  that:  (i)  nothing  in  the  scheme  shall  prejudice  the  independence  of  the  Governor62; 

(ii) the  Governor’s  authority  to  disclose  information  concerning  a  covered  institution  or  its 

subsidiaries  to  the  Minister  and  the  Regulatory  Authority  is  subject  to  the  confidentiality 

52  
53  

54  
55  

56  
57  
58  

59  
60  
61  

62  

See paragraph 51 of the Schedule to the scheme. 
See  consultation  powers  given  to  the  Governor  under  paragraphs  13,  26,  36,  39  and  41  of  the  Schedule  to  the  draft 
scheme  (the  Schedule  to  the  updated  draft  scheme  provides  for  such  consultation  powers  in  four  cases,  referred  to  in 
paragraphs 13, 28, 38 and 42). 
See paragraph 52 of the Schedule to the scheme. 
See paragraph 22 of the Schedule to the draft scheme (paragraph 24 of the Schedule to the updated draft scheme). The 
parameters in question include, inter alia, liquidity requirements, capital ratios, asset quality, risk exposures and funding 
costs. 
See paragraph 23 of the Schedule to the draft scheme (paragraph 25 of the Schedule to the updated draft scheme). 
See paragraph 40 of the Schedule to the updated draft scheme. 
See paragraphs 25 and 27 of the Schedule to the draft scheme (paragraphs 27 and 29 of the Schedule to the updated draft 
scheme). 
See paragraphs 29 of the Schedule to the draft scheme (paragraph 31 of the Schedule to the updated draft scheme). 
See paragraph 33 of the Schedule to the scheme. 
See paragraphs 38, 40, 43 and 44 of the Schedule to the draft scheme (paragraphs 36, 39, 41 and 44 of the Schedule to the 
updated  draft  scheme).  The  elements  of  commercial  conduct  to  be  regulated  by  the  Regulatory  Authority  under  these 
provisions  include:  (i)  targets  on  loan/deposit  ratios,  wholesale  funding/total  liabilities,  deposit  growth  and  maximum 
loans-to-value on new loans; (ii) limitations on exposures to any sector, customer or connected customers; (iii) liquidity, 
solvency and capital ratios; (iv) restrictions in relation to market share and balance sheet growth introduced to minimise 
any potential competitive distortion that may otherwise arise; (v) directions for the covered institution to cease passing on 
the costs of the guarantee to its customers in an unwarranted manner. 
See paragraph 51 of the Schedule to the scheme. 

9 

                                                 
requirements  imposed  on  the  Governor  by  the  Treaty  and  the  ESCB  Statute63;  and  (iii)  the 

Governor’s monitoring and regular reporting to the Minister regarding the operation of the scheme 

is without prejudice to the Governor’s responsibility for the performance of functions conferred on 
the  Governor  and  the  Central  Bank  under  the  Treaty  and  the  ESCB  Statute64.  These  provisions 

satisfactorily  incorporate,  as  far  as  the  draft  scheme  is  concerned,  the  recommendations  made  in 
this respect in the recent ECB opinion on the Act65.  

4.3  On  the  other  hand,  the  ECB  notes  that  the  division  of  responsibilities  to  be  performed  in  the 

implementation of the scheme by the Minister, the Governor and the Regulatory Authority provides 

the  Minister  with  substantive  powers  to  review,  direct  or  otherwise  influence  the  conduct  of  the 

credit  institutions  concerned.  The  ECB  appreciates  that  the  Minister  must  protect  the  financial 
interests  of  the  Irish  taxpayer66.  However,  the  ECB  would  also  wish  to  draw  attention  in  this 

context  to  the  principle  of  operational  independence  of  banking  supervisors,  which  are  to  pursue 

supervisory  objectives  free  from  political  pressure,  which  is  an  internationally  recognised 
supervisory standard specified in the Basel Core Principles for Effective Banking Supervision67. In 
line with its previous opinions68, the ECB recommends that the allocation of powers related to the 

operation  of  the  scheme  be  reconsidered,  with  a  view  to  assigning  to  the  Regulatory  Authority 

and/or  the  Governor  those  powers  under  the  scheme  that  are  closely  connected  with  the 

performance of supervisory tasks.  

4.4  As a general remark, the ECB notes that the powers conferred under the scheme could be defined in 

a  more  coherent  way.  For  example,  in  the  updated  draft  scheme  there  appears  to  be  an  overlap 

between the two separate references to the functions of requiring the covered institution to ‘put in 
place improved structures to ensure long-term stability of funding’69 or to ‘restructure its executive 

management  responsibilities,  strengthen  its  management  capacity  and  improve  its  corporate 
governance’70. Also, a greater consistency in the method of allocating the various powers under the 

63  
64  
65  
66  

67  

68  

69  

70  

See paragraph 28 of the Schedule to the draft scheme (paragraph 30 of the Schedule to the updated draft scheme). 
See paragraph 52 of the Schedule to the scheme. 
See paragraph 3.2 (i)-(ii) of ECB Opinion CON/2008/44. 
See paragraph 2, first and fourth bullet point of the Schedule to the draft scheme (paragraph 2.6 of the Schedule to the 
updated draft scheme). 
See the Basel Committee on Banking Supervision, ‘Core Principles for Effective Banking Supervision’, September 1997, 
principle I, document available on the Bank for International Settlements website, www.bis.org. 
See, e.g. paragraph 3.2.1 of ECB Opinion CON/2006/15 of 9 March 2006 at the request of the Polish Minister of Finance 
on a draft law on the supervision of financial institutions. 
Under paragraph 37.2 of the updated draft scheme ‘the Governor and the Regulatory Authority, after consultation with 
the  Minister’  may  direct  the  covered  institution  to  ‘[p]ut  in  place  improved  structures  to  ensure  long-term  stability  of 
funding’, while under paragraph 40 of the Schedule to the updated draft scheme states that ‘Unless it has already done so, 
a covered institution shall take steps to establish such funding structures as the Regulatory Authority, in consultation with 
the Minister, thinks appropriate having regard to the purposes of the Act of 2008, within such period as the Minister may 
direct’. 
Under paragraph 34 of the Schedule to the updated draft scheme, this power is assigned to ‘the Minister or the Regulatory 
Authority or both’, whereas under paragraph 37.3 of the Schedule to the updated draft scheme the power is attributed to 
‘the Governor and the Regulatory Authority, after the consultation with the Minister’. 

10 

                                                 
draft  scheme  could  be  ensured71.  The  ECB  recommends  that  a  more  coherent  delineation  of  the 

powers of the respective supervisory authorities is introduced. 

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

Done at Frankfurt am Main, 15 October 2008. 

[signed] 

The Vice-President of the ECB 

Lucas D. PAPADEMOS 

71  

For example, paragraph 42 of the updated draft scheme provides that the power to limit the payment of dividends by the 
covered institution is to be exercised by the Minister after consulting the Governor and the Regulatory Authority, while 
the similar power under paragraph 43 of the updated draft scheme to prohibit the covered institution from engaging in 
buy-backs  or  redemptions  of  its  ordinary  shares  is  to  be  exercised  by  the  Regulatory  Authority  after  consulting  the 
Minister. 

11