Opinion of the European Central Bank of 17 November 2008 at the request of the Irish Minister for Finance on a draft Financial Services (Deposit Guarantee Scheme) Bill 2008 (CON/2008/69)
Date: 2008-11-17
Institutions: European Central Bank
Subjects: Ireland, bank deposit, credit guarantee, financial services, financial stability

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 17 November 2008 

at the request of the Irish Minister for Finance  

on a draft Financial Services (Deposit Guarantee Scheme) Bill 2008 

(CON/2008/69) 

Introduction and legal basis 

On  30  October  2008  the  European  Central  Bank  (ECB)  received  a  request  from  the  Irish  Minister  for 

Finance for an opinion on a draft Financial Services (Deposit Guarantee Scheme) Bill 2008 (hereinafter 

the  ‘draft  law’),  accompanied  by  the  draft  European  Communities  (Deposit  Guarantee  Schemes) 

(Amendment)  Regulations  2008,  an  implementing  instrument  to  be  adopted  under  the  draft  law 

(hereinafter the ‘draft amending Regulations’).  

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  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 

The  draft  law  will  amend  the  European  Communities  (Deposit  Guarantee  Schemes)  Regulations  19952 

(hereinafter  the  ‘1995  Regulations’),  which  established  the  Irish  deposit-guarantee  scheme.  The 

amendments  will  be  introduced  in  two  forms:  (i)  by  way  of  transferring  some  of  the  provisions  of  the 

1995 Regulations into the draft law, which, when adopted, will have a higher legislative status than the 

1995  Regulations;  and  (ii)  by  way  of  amendments  to  the  1995  Regulations  by  the  draft  amending 

Regulations that are to be adopted by the Minister for Finance under the delegation contained in the draft 
law3. As a result, the following main changes will be introduced: (i) the statutory deposit protection level 

will  be  raised  from  current  EUR  20 000  to  EUR  100  000  and  the  present  co-insurance  requirement 
resulting  in  depositors  bearing  10%  of  the  loss  up  to  the  statutory  deposit  protection  level4  will  be 

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OJ L 189, 3.7.1998, p. 42. 
Statutory Instrument No 168 of 1995. 
See Section 2 of the draft law. 
See Section 11(3)(a) of the 1995 Regulations, as amended by Section 8 of the draft amending Regulations. 

 
 
 
 
                                                 
eliminated;  (ii)  credit  unions  will  be  included  within  the  scope  of  institutions  covered  by  the  deposit-
guarantee scheme5; and (iii) within the Central Bank’s institutional framework, the responsibility for the 

functions related to the deposit-guarantee scheme will be taken away from the scope of responsibilities of 

the Irish Financial Services Regulatory Authority, an autonomous statutory body forming part of the legal 
personality of the Central Bank and reallocated to the Central Bank’s general responsibilities6. 

2. 

General observations 

2.1 

In line with its previous opinions7, the ECB welcomes the proposed increase in the total amount of 

protected  deposits  in  accordance  with  the  conclusions  of  the  Ecofin  Council  held  on 
7 October 20088.  In  this  respect,  the  ECB  repeats  that  Member  States  must  act  in  a  coordinated 

manner  to  avoid  significant  differences  in  national  implementation  from  having  a  counter-

productive effect and creating distortions in global banking markets. In particular, harmonisation as 

regards the guaranteed amount and the duration of the guarantee are necessary within the European 

Union.  Moreover,  the  ECB  also  emphasises  the  importance  of  ensuring  that  any  legislative 

proposals responding to the current financial situation comply with Community law, including EC 

competition  law,  and  understands  that  nothing  in  the  draft  law  and  the  draft  implementing 

Regulations will preclude the Irish authorities appropriately transposing the proposed amendments 

to Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-
guarantee schemes9, once they are adopted.  

2.2  The ECB commented in a recent opinion addressed to the Irish authorities on the set of Government 

guarantees  covering  all  retail  and  corporate  deposits  to  the  extent  they  are  not  covered  by  the 
existing  Irish  deposit-guarantee  scheme10.  The  ECB  highlighted  that  in  general  the  existing 

mechanism of the deposit-guarantee scheme should be used to the extent possible when providing 

the guarantees. In the context of the present consultation, the ECB reiterates its earlier position that 

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10  

See  definition  of  ‘credit  institution’  in  Section  3(1)  of  the  1995  Regulations,  as  amended  by  Section  4(d)  of  the  draft 
amending Regulations. 
See  Part  1  of  Schedule  2  to  the  Central  Bank  and  Financial  Services  Authority  of  Ireland  Act  2003,  as  amended  by 
Section 10 of the draft law together with the Schedule to the draft law, Item 2. 
See,  e.g.,  paragraph  2.2  of  ECB  Opinion  CON/2008/51  of  17  October  2008  at  the  request  of  the  Greek  Ministry  of 
Economy  and  Finance  on  a  draft  law  on,  inter  alia,  the  establishment  of  the  ‘Depositors  and  Investors  of  Credit 
Institutions Compensation Fund’ and paragraph 2.1 of ECB Opinion CON/2008/61 of 28 October 2008 at the request of 
the  Belgian  Minister  for  Finance  on  a  draft  royal  decree  implementing  the  Law  of  15  October  2008  on  measures 
promoting financial stability [title shortened]. 
The Council (Ecofin) agreed in its 7 October meeting that ‘all Member States would, for an initial period of at least one 
year,  provide  deposit-guarantee  protection  for  individuals  for  an  amount  of  at  least  EUR  50  000,  acknowledging  that 
many Member States determine to raise their minimum protected amount to EUR 100 000’. See the press release of the 
2894th Council meeting (13784/08), available on the Council’s website at www.consilium.europa.eu. 
OJ L 135, 31.5. 1994, p. 5. See also European Commission’s proposal for a Directive of the European Parliament and of 
the Council amending Directive 94/19/EC on Deposit Guarantee Schemes as regards the coverage level and the payout 
delay, 15 October 2008, COM(2008) 661 final. 
See  ECB  Opinion  CON/2008/48  of  15  October  2008  at  the  request  of  the  Irish  Minister  for  Finance  on  a  draft  Credit 
Institutions (Financial Support) Scheme 2008. 

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the relationship between the existing Irish deposit-guarantee scheme and the newly provided special 
Government guarantees should be further clarified11. 

3.   Central bank independence and the monetary financing prohibition 

3.1  The ECB notes that the proposed reallocation of responsibility for the performance of the functions 

related to the deposit-guarantee scheme will result in the direct performance by the Central Bank of 

inter alia the following functions foreseen by the 1995 Regulations: (i) hosting the deposit accounts 

on  which  the  deposits  contributing  to  the  funding  of  the  Irish  deposit-guarantee  scheme  are 
maintained12; (ii) annually recalculating the amounts to be maintained on the deposit accounts by 
the covered credit institutions13; and (iii) determining that the covered credit institution is unable to 

pay out deposits and ensuring in such cases that payouts of guaranteed deposits are made from the 
deposit accounts under the deposit-guarantee scheme14. Additionally, certain new functions related 

to the operation of the deposit-guarantee scheme are assigned by the draft law to the Central Bank, 

in  particular the  provision  of  advice  to  the  Minister  for  Finance  as  regards  variations  in  amounts 

required to be held by the respective credit institutions or classes of credit institutions, taking into 
account  their  capital  and  liquidity  levels  and  other  prudential  parameters15.  The  ECB  appreciates 

that  the  principle  of  risk-based  contributions  has  the  effect  of  aligning  the  calculation  of  a  credit 
institution’s contributions to the deposit guarantee scheme with its risk profile16. At the same time, 

the ECB notes that the activities performed by the Central Bank need to comply with the monetary 

financing  prohibition  contained  in  Article  101  of  the  Treaty  and  Council  Regulation  (EC) 

No 3603/93  of  13  December  1993  specifying  definitions  for  the  application  of  the  prohibitions 
referred  to  in  Articles  104  and  104b(1)  of  the  Treaty17.  In  the  same  vein,  the  ECB  expects  that 

functions to be performed by the Central Bank for the benefit of the deposit-guarantee scheme will 

be  conducted  in  a  manner  fully  compatible  with  the  Central  Bank’s  institutional  and  financial 

independence,  as  a  safeguard  for  the  proper  performance  of  the  Central  Bank’s  tasks  under  the 

Treaty  and  the  Statute  of  the  European  System  of  Central  Banks  and  of  the  European  Central 
Bank18. 

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See paragraph 3.10 of ECB Opinion CON/2008/48. 
Section 5(1) of the 1995 Regulations. 
Section 5(3) of the 1995 Regulations, to be superseded by Section 5(1) of the draft law. 
Sections 9(1)(a), 12(2) and 13(9) of the 1995 Regulations. 
Sections 4(3)-(4) of the draft law. 
See paragraph 3.2 of ECB Opinion CON/2008/51 of 17 October 2008 at the request of the Greek Ministry of Economy 
and  Finance  on  a  draft  law  on,  inter  alia,  the  establishment  of  the  ‘Depositors  and  Investors  of  Credit  Institutions 
Compensation Fund’. 
OJ L 332, 31.12.1993, p. 1. 
See paragraph 3.4 of ECB Opinion CON/2008/52 of 17 October 2008 at the request of the Spanish State Secretary for 
Economic  Affairs  on  a  Royal  Decree-Law  creating  a  Fund  for  the  acquisition  of  financial  assets  [title  shortened]  and 
paragraph 3.4 of ECB Opinion CON/2008/65 of 12 November 2008 at the request of the Banca d’Italia on behalf of the 
Italian  Ministry  for  Economic  Affairs  and  Finance  on  a  draft  ministerial  decree  containing  provisions  to  implement 
Decree-Law No 157/2008 on further urgent measures to guarantee the stability of the credit system. 

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3.2  Moreover, the ECB notes that under the current Section 19(1) of the 1995 Regulations, the Central 

Bank  may,  at  its  discretion  and  to  such  extent  as  it  may  deem  proper  from  time  to  time,  make 

payments  constituting  refundable  support  to  the  Irish  deposit-guarantee  scheme,  to  protect  the 
interests of depositors or to promote the orderly and proper regulation of banking19. In this context, 

the ECB underlines that national deposit-guarantee schemes’ funding arrangements must, inter alia, 

comply with the monetary financing prohibition laid down in the Treaty, and in particular with the 

prohibition  on  national  central  banks  providing  overdraft  facilities  or  any  other  type  of  facility 
within  the  meaning  of  Article  101  of  the  Treaty20,  as  more  specifically  stated  in  past  ECB 
opinions21 and in the ECB’s Convergence Reports22. Section 19(1) of the 1995 Regulations needs to 

comply with the above criteria by specifying that the payments foreseen in this Section may only be 

made on a short-term basis to cover urgent needs related to maintaining the stability of the financial 

system.  

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

Done at Frankfurt am Main, 17 November 2008. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

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Section 19(1) of the 1995 Regulations. 
Interpreted in line with Regulation (EC) No 3603/93. 
See paragraphs 11-14 of ECB Opinion CON/2001/32 of 11 October 2001 at the request of the Portuguese Ministry of 
Finance on a draft decree law amending the legal framework of credit institutions and financial companies; paragraphs 
11-13  of  ECB  Opinion  CON/2005/50  of  1 December  2005  at  the  request  of  Národná  banka  Slovenska  on  a  draft  law 
amending  the  Act  No  118/1996  Coll.  on  the  protection  of  bank  deposits  and  on  amendments  to  certain  laws,  as  last 
amended; paragraphs 2.1-2.3 of ECB Opinion CON/2007/26 of 27 August 2007 at the request of the Polish Minister for 
Finance  on  a  draft  law  amending  the  Law  on  the  Bank  Guarantee  Fund;  and  paragraphs  2.2-2.8  of  ECB  Opinion 
CON/2008/5 of 17 January 2008 at the request of the Polish Minister for Finance on a draft law amending the Law on the 
Bank Guarantee Fund. 
See, e.g. the ECB’s Convergence Report December 2006, p. 30. 

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