Opinion of the European Central Bank of 25 June 2009 on changes to financial support measures for credit institutions (CON/2009/56)
Date: 2009-06-25
Institutions: European Central Bank
Subjects: Ireland, State aid, credit institution, financial stability, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 25 June 2009 

on changes to financial support measures for credit institutions 

(CON/2009/56) 

Introduction and legal basis 

On 18 June 2009 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  (Guarantee  of  Eligible  Debt 

Securities)  Scheme  2009  (hereinafter  the  ‘draft  scheme’),  and  Section  17  of  the  Financial  Measures 

(Miscellaneous Provisions) Bill 2009 (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 scheme and the draft law relate to the stability of Ireland’s financial 

system and the Central Bank and Financial Services Authority of Ireland (hereinafter the ‘CBFSAI’). 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 scheme 

1.1  The  draft  scheme  is  made  pursuant  to  the  Credit  Institutions  (Financial  Support)  Act  2008 

(hereinafter  the  ‘2008  Act’).  Financial  support  may  only  be  granted  under  the  2008  Act  until 
29 September 20102. Section 17 of the draft law extends that provision to allow for a later date as 

specified  by  the  Minister,  after  consulting  the  Governor  of  the  CBFSAI  (hereinafter  the 

‘Governor’)  and  the  Irish  Financial  Services  Regulatory  Authority  (hereinafter  the  ‘Regulatory 

Authority’).  This  extension  will  allow  financial  support  to  be  granted  under  the  draft  scheme, 

which  will,  inter  alia,  provide  credit  institutions  with  access  to  a  stable  funding  stream  and  to 

longer term funding from the capital markets in order to maintain the stability of the Irish financial 
system3.  

1  
2  
3  

OJ L 189, 3.7.1998, p. 42.  
Section 6(3) of the 2008 Act 
Paragraphs 1 and 2 of the draft scheme. 

 
 
 
 
                                                 
1.2  Under the draft scheme, credit institutions may apply to the Minister for certain debt securities to 
be  guaranteed  by  the  Minister4.  The  Minister  has  discretion  whether  or  not  to  guarantee 

unconditionally  and  irrevocably  senior  unsecured  certificates  of  deposit  and  commercial  paper, 
other senior unsecured bonds and notes, and other debt securities specified by the Minister5. These 

debt  securities  must  be  issued  during  a  six-month  issuance  period  from  the  commencement  date 

specified by the Minister (hereinafter the ‘commencement date’), subject to any extension of this 
period  specified  by  the  Minister,  consistent  with  European  Union  State  aid  rules6.  Further,  an 
eligible security must not have a maturity in excess of five years7. The guarantee will terminate five 

years after the end of the issuance period, unless extended at the Minister’s discretion, also subject 
to EU State aid requirements8. 

1.3  The draft scheme alters the Credit Institutions (Financial Support) Scheme 2008 (hereinafter ‘the 

existing Scheme’) under which the Minister guarantees an extensive range of liabilities of covered 

credit  institutions,  including  retail,  corporate  and  interbank  deposits,  as  well  as  unsecured  debt, 

asset  covered  securities  and  dated  subordinated  debt  (Lower  Tier  2)  for  the  period  from 
30 September  2008  to  29  September  20109.  Under  the  draft  scheme,  all  retail,  corporate  and 

interbank deposits remain unconditionally and irrevocably guaranteed in accordance with the terms 
of  the  existing  Scheme10.  However,  asset  covered  securities  and  dated  subordinated  debt  (Lower 
Tier  2)  will  no  longer  be  guaranteed  after  the  commencement  date11.  Any  other  debt  securities 

issued  by  credit  institutions  from  the  commencement  date  onwards  may  only  be  guaranteed  in 
accordance with the draft scheme, as described in paragraph 1.2 of this opinion12. 

1.4  The draft scheme provides that participating credit institutions will have to abide by the Minister’s 

directions  to  comply  with  restrictions  on  the  wide  range  of  commercial  conduct,  governance, 
transparency  and  reporting  requirements  applicable  under  the  existing  Scheme13.  In  addition,  the 

Minister,  after  consultation  with  the  Governor  and  the  Regulatory  Authority,  may  direct  a 

participating  credit  institution  to  draw  up  a  restructuring  plan  to  ensure  compliance  with  the 

objectives  of  the  draft  scheme,  and  will  do  so  if  a  participating  institution’s  applicable  solvency 

ratio falls below the minimum regulatory standards on a material basis. Any such plan must comply 
with EU State aid and competition law14. 

4  
5  
6  
7  
8  
9  
10  
11  
12  
13  
14  

Paragraph 8 of the draft scheme. 
Paragraphs 10 and 12 of the draft scheme.  
Paragraph 10 of the draft scheme.  
Paragraph 13 of the draft scheme.  
Paragraph 16 of the draft scheme.  
Credit Institutions (Financial Support) Scheme 2008 (hereinafter ‘the existing Scheme’). 
Paragraph 28 of the draft scheme. 
Paragraph 27 of the draft scheme. 
Paragraph 26 of the draft scheme. 
Paragraph 24 of the draft scheme. 
Paragraph 25 of the draft scheme. 

2 

                                                 
1.5  The  draft  scheme  is  subject  to  review  by  the  Minister  at  no  later  than  six-month  intervals,  the 
results  of  which  are  to  be  provided  to  the  Commission  of  the  European  Communities15.  The 

Minister will also monitor the amount of eligible securities guaranteed under the draft scheme, and 

will  also  be  able  to  vary  its  terms;  however,  any  such  variation  will  not  affect  any  guarantee  in 
issue  at  the  date  of  that  variation16.  The  draft  scheme  describes  the  fee  arrangement  between 

relevant  institutions  and  the  Minister  in  respect  of  each  guaranteed  security,  which  is  broadly  in 

line with the Recommendations of the Governing Council of the ECB on government guarantees 

for bank debt issued on 20 October 2008 (hereinafter the ECB’s recommendations on government 

guarantees’), as further discussed in paragraph 3.2 of this opinion.  

1.6  Credit  institutions  will  have  to  take  certain  actions  to  participate  in  the  draft  scheme,  including 

filing an application and executing certain documentation, following which the Minister may issue 
a security guarantee certificate in respect of the guaranteed securities17. The Minister may delegate 
the operation of the draft scheme to the National Treasury Management Agency18. 

2. 

General observations 

2.1  The ECB has issued opinions on both the 2008 Act and the existing Scheme19. In its opinion on the 

existing  Scheme,  the  ECB  stressed  that  it  is  of  utmost  importance  to  ensure  harmonised  and 

coordinated  decisions  throughout  the  EU.  In  this  context,  the  ECB  wishes  to  again  draw  the 

consulting authority’s attention to the ‘Declaration on a concerted European action plan of the euro 
area  countries’  of  12  October  200820  (hereinafter  the  ‘Declaration’)  which  states  that  Member 

States’ actions ‘will be designed in order to avoid any distortion in the level playing-field’, which is 

a crucial element for the integration of European financial markets.  

2.2  The ECB welcomes the fact that the draft scheme appears to have been expressly constructed with 

due regard to ensuring consistency with the requirements of EU State aid and competition law21. 

2.3  The ECB notes that, subject to a number of grandfathering arrangements, the draft scheme reduces 

the scope of liabilities guaranteed by the Minister, as compared with the existing Scheme. Instead 

of  offering  blanket  coverage  to  the  debt  securities  eligible  under  the  existing  Scheme,  debt 

securities will only be guaranteed under the draft scheme at the Minister’s discretion. Newly issued 

asset covered securities and dated subordinated debt (Lower Tier 2) will no longer be guaranteed 

under the draft scheme.  

15  
16  
17  
18  
19  
20  
21  

Paragraph 5 of the draft scheme.  
Paragraphs 6 and 11 of the draft scheme.  
Paragraphs 3 and 10 of the draft scheme.  
Paragraph 7 of the draft scheme.  
ECB Opinions CON/2008/44 and CON/2008/48 respectively. 
Available on the website of the former French Presidency at www.ue2008.fr. 
See paragraphs 2.3, 10, 12.4, 16, 22 and 25 of the draft scheme.  

3 

 
 
                                                 
3. 

Specific observations 

3.1  Fee arrangements 

The ECB welcomes the fee arrangements detailed by the draft scheme, which largely replicate the 

ECB recommendations on government guarantees. The ECB notes that the fee arrangements also 

contain provisions authorising the Minister, at their discretion, to apply an alternative credit default 

swap  spread  if  the  relevant  data  referred  to  in  the  ECB’s  recommendations  on  government 
guarantees  are  not  publicly  available,  or  vary  the  fee  (subject  to  EU  State  aid  requirements)22. 

Furthermore, an additional fee may be charged in relation to any non-euro denominated guaranteed 
security23. 

3.2 

Scope of the guarantees and implementation of Eurosystem monetary policy 

The ECB takes the opportunity of this opinion to reiterate the points made in its previous opinions 

and  to  reemphasise  the  key  elements  of  the  Declaration.  In  addition,  the  ECB  reminds  the 

consulting authority of the ECB’s recommendations on government guarantees. First, the euro area 

Heads  of  State  also  acknowledged  the  need  to  cooperate  with  the  ECB  to  ensure  consistency  in 

liquidity  management  by  the  Eurosystem  and  compatibility  with  the  Eurosystem’s  operational 

framework.  Second,  with  a  view  to  ensuring  a  sufficient  level  playing-field,  uncoordinated 

decisions among Member States should be avoided as they may involve a fragmentation of the euro 

area money market. Against this background, the ECB has the following observations. 

First,  the  extension  of  a  guarantee  to  cover  interbank  deposits,  as  is  the  case  under  the  existing 

Scheme,  should  be  avoided  as  it  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 unique competence of the Eurosystem under Article 105(2) of the Treaty. The ECB has 

expressed this particular concern in a number of opinions delivered to the authorities of Member 
States, including Ireland24.  

Second, in line with the Declaration, the ECB reminds the consulting authority that the euro area 

‘Governments would make available for an interim period … a Government guarantee … of new 

medium  term  (up  to  5  years)  bank  senior  debt  issuance’.  In  the  same  vein,  the  ECB’s 

22  
23  
24  

Paragraphs 20 and 22 of the draft scheme.  
Paragraph 21 of the draft scheme.  
See paragraph 3.7 of ECB Opinion CON/2008/48; paragraph 3.2 of ECB Opinion CON/2008/50; paragraph 3.3 of ECB 
Opinion  CON/2008/50;  paragraph  3.4  of  ECB  Opinion  CON/2008/52;  paragraphs  2.3  and  2.4  of  ECB  Opinion 
CON/2008/54; paragraph 3.5 of ECB Opinion CON/2008/55; paragraph 3.2 of ECB Opinion CON/2008/56; paragraph 
3.4  of  ECB  Opinion  CON/2008/57;  paragraph  3.2  of  ECB  Opinion  CON/2008/58;  paragraph  3.3  of  ECB  Opinion 
CON/2008/59; paragraph 2.1.2 of ECB Opinion CON/2008/62; paragraph 2.1 of ECB Opinion CON/2008/65; paragraph 
3.3  of  ECB  Opinion  CON/2008/67;  paragraph  3.4  of  ECB  Opinion  CON/2008/68;  paragraph  3.3  of  ECB  Opinion 
CON/2008/76, paragraph 3.2 of ECB Opinion CON/2008/79; paragraph 3.2 of ECB Opinion CON/2008/80; paragraph 
3.5  of  ECB  Opinion  CON/2008/81;  paragraph  3.1  of  ECB  Opinion  CON/2008/88;  paragraph  3.3  of  ECB  Opinion 
CON/2009/2;  paragraph  2.3  of  ECB  Opinion  CON/2009/6;  paragraph  3.2.2  of  ECB  Opinion  CON/2009/12;  paragraph 
3.3.2  of  ECB  Opinion  CON/2009/18;  paragraph  2.4  of  ECB  Opinion  CON/2009/28;  paragraph  3.4.3  of  ECB  Opinion 
CON/2009/32; paragraph 3.9 of ECB Opinion CON/2009/49. 

4 

 
 
 
 
                                                 
recommendations  on  government  guarantees  further  state  that  ‘Government  guarantees  on  short-

term bank debt with maturity of three to 12 months could be provided to help revitalise the short-

term bank debt market.’ However, it is noticeable that under the draft scheme there is no limit on 

the maturity of the short-term certificates of deposit and commercial paper that may be guaranteed 

by the Minister, implying that short-term bank debt with a maturity of less than three months may 

be guaranteed in practice. While acknowledging the significant challenges currently faced by the 

banking  sector  in  Ireland,  granting  government  guarantees  for  bank  debt  with  a  maturity  of  less 

than three months should be also avoided to the extent possible. In particular, it is essential that the 

scheme will not impair the implementation of the single monetary policy throughout the euro area.  

Finally, the ECB notes that the draft scheme does not specify an end-date, instead suggesting it will 

terminate at the discretion of the Minister. As stated before, the ECB emphasises that in accordance 

with the Declaration, harmonisation regarding the expiry of the various financial support measures 

within a particular country and the national financial support schemes across the EU is of crucial 
importance in order to ensure a level playing field25. 

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

Done at Frankfurt am Main, 25 June 2009. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

25  

See ECB Opinion CON/2009/6. 

5