Opinion of the European Central Bank of 31 August 2009 on the establishment of the National Asset Management Agency (CON/2009/68)
Date: 2009-08-31
Institutions: European Central Bank
Subjects: Ireland, State aid, credit institution, financial intervention, financial stability, national law, public institution

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 31 August 2009  

on the establishment of the National Asset Management Agency 

(CON/2009/68) 

Introduction and legal basis 

On 30 July 2009 the European Central Bank (ECB) received a request from the Irish Minister for Finance 

(hereinafter  the  ‘Minister’)  for  an  opinion  on  the  National  Asset  Management  Agency  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 law  relates to the Central Bank and Financial Services  Authority of 

Ireland  (CBFSAI)  and  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 purposes of the draft law are, inter alia, to remove uncertainty about the valuation and location 

of certain assets of credit institutions of systemic importance to the Irish economy, to facilitate their 

restructuring,  to  restore  confidence  in  the  banking  sector,  to  facilitate  the  availability  of  credit  in 

the Irish financial markets, and to address the serious threat to the Irish economy and the stability 
of credit institutions in Ireland generally2. To this end, the draft law provides for the establishment 

of  a  corporate  body,  the  National  Asset  Management  Agency  (NAMA),  to  acquire  eligible  bank 

assets from participating institutions, expeditiously deal with the assets acquired by it and protect 

or  otherwise  enhance  the  long-term  economic  value  of  those  assets,  in  the  interests  of  the  Irish 
State3.  According  to  the  Minister,  the  potential  maximum  book  value  of  loans  that  will  be 

transferred to the NAMA is estimated to be in the region of EUR 80 to EUR 90 billion, although 

the  amount  paid  by  NAMA  will  be  significantly  less  than  this  to  reflect  the  loss  in  value  of  the 

1 
2  
3  

OJ L 189, 3.7.1998, p. 42.  
Section 2 of the draft law. 
Sections 9 and 10 of the draft law. 

 
 
 
 
                                                 
assets4. Regarding the payment for bank assets, NAMA or the NAMA group entity which acquires 

the bank asset concerned will transfer or issue to the participating institution debt securities issued 

by the Minister, NAMA or the relevant NAMA group entity equal to the acquisition value of the 
bank  asset5.  As  noted  by  the  Minister,  replacing  property  related  loans  with  Irish  Government 

bonds will strengthen the balance sheets of the banks and this will increase their capacity to access 

liquidity  in  the  financial  markets  and,  if  necessary,  through  Eurosystem  liquidity  operations, 
making them better able to lend and support the Irish economy6. 

1.2  Under the draft law, a credit institution may apply to the Minister, within 28 days (or such longer 

period  that  the  Minister  prescribes)  after  the  establishment  date  for  the  scheme,  for  it  and  its 
subsidiaries to be designated as participating institutions7. The Minister, after consultation with the 

Governor  of  the  CBFSAI  and  the  Irish  Financial  Services  Regulatory  Authority  (hereinafter  the 

‘Regulatory Authority’), may designate a credit institution as a participating institution if satisfied 

that: (a) the credit institution is systemically important to the financial system in Ireland; and (b) the 

acquisition of eligible bank assets from the credit institution is necessary to achieve the purposes of 

the draft law, having regard to (i) support available to, or received by, the credit institution from the 

State, any other Member State or a member of the group of the credit institution, (ii) the financial 
situation of the credit institution, and (iii) the resources available to the Minister8.  

1.3  Under the draft law, the Minister may, after consultation with NAMA, the Governor of the CBFSAI 

and  the  Regulatory  Authority,  prescribe  classes  of  bank  asset  as  eligible  bank  assets,  including: 

(a) credit facilities provided by a participating institution for the purpose of purchasing, exploiting 

or  developing  development  land,  or  where  the  security  connected  with  the  credit  facility  is 

development  land  or  an  interest  in  a  company  engaged  in  purchasing,  exploiting  or  developing 

development land; (b) other credit facilities whose total indebtedness is such that, in the Minister’s 

opinion,  acquisition  by  NAMA  is  necessary  for  the  purposes  of  the  draft  law;  and  (c)  any  other 

class of bank asset the acquisition of which, in the Minister’s opinion, is necessary for the purposes 
of the draft law9. A class of bank asset so prescribed by the Minister will not include any bank asset  

entered on a participating institution’s balance sheet after 31 December 2008 (although bank assets 

that are renegotiated, restructured or refinanced after that date may be included provided they were 
entered on the balance sheet on or before 31 December 2008)10. Eligible assets may include foreign 

assets, meaning bank assets governed in whole or in part by the law of a State or territory other than 
Ireland11. 

4  

5  
6  

7  
8  
9  
10 
11  

Financial  Statement  of  the  Minister  for  Finance,  7  April  2009,  available  on  the  Department  of  Finance’s  website  at: 
www.budget.gov.ie. 
Section 68(2) and (3) of the draft law. 
Statement  by  Minister  for  Finance  on  NAMA  legislation  draft  paper,  30  July  2009,  available  on  the  Department  of 
Finance’s website at www.finance.gov.ie. 
Section 53(1) of the draft law. 
Section 55(1) of the draft law. 
Section 56(1) of the draft law. 
Section 56(4) and (5) of the draft law. 
Section 67 of the draft law. 

2 

                                                 
1.4  Under  the  draft  law,  the  acquisition  value  of  a  bank  asset  is  its  long-term  economic  value  as 

determined by NAMA,  meaning the value that it can reasonably be expected to attain in a  stable 
financial system when current crisis conditions are ameliorated12. NAMA will determine the long-

term economic value of a bank asset by reference to: (a) the current market value of the property 

comprised in the security for the credit facility; (b) the current market value of the bank asset by 

reference to market rates and accepted market methodology; and (c) the long-term economic value 

of the property, meaning the value that the property can reasonably be expected to attain in a stable 

financial system when current crisis conditions are ameliorated and in which a future price or yield 

of  the  asset  is  consistent  with  reasonable  expectations  having  regard  to  the  long-term  historical 
average13.  

1.5 

In determining the acquisition value of a bank asset, NAMA will have regard to: (a) any value that 

the participating institution concerned submits as being, in its opinion, the current market value of 

the  property  comprised  in  the  security  for  the  credit  facility;  (b)  the  acquisition  value  already 

determined  in  accordance  with  the  valuation  methodology  of  another  similar  bank  asset;  (c)  the 

credit worthiness of the debtor or obligor concerned; (d) the performance history of the debtor or 

obligor  in  respect  of  that  asset;  and  (e)  any  reports  of  an  expert  furnished  to  NAMA  concerning 

factors relevant to the determination of the value of property or property of a particular type or in 
specific locations or with specific features14.  

1.6  The  Minister  may  make  regulations  providing  for  adjustment  factors  to  be  taken  into  account  in 

determining  the  long-term  economic  value  of  a  bank  asset  and  the  property  comprised  in  the 

security  for  a  credit  facility,  having  regard  to:  (a)  Community  State  aid  rules  and  any  relevant 

Commission guidance; (b) in relation to determining the long-term economic value of the property, 

the  extent  to  which  the  price  or  yield  of  the  asset  has  deviated  from  the  long-term  historical 

average,  supply  and  demand  projections  by  reference  to  the  type  of  asset  and  its  location, 

macroeconomic  projections  for  growth  in  GDP  and  inflation,  demographic  projections,  land  and 

zoning  considerations,  and  future  transport  planning;  (c)  in  relation  to  the  long-term  economic 

value of bank assets, the net present value of the anticipated income stream associated with the loan 

asset, current and projected vacancy rates for rental property, loan margins, an appropriate discount 

to  reflect  NAMA’s  cost  of  funds  plus  a  margin  that  represents  an  adequate  remuneration  to  the 

State that takes account of the risk in relation to the bank assets acquired by NAMA, the mark-to-

market value of any derivative contracts associated with the bank asset, any ancillary security (e.g., 

personal guarantees, corporate assets), fees reflecting the costs of loan operation, maintenance and 
enforcement; and (d) any other matter that the Minister considers relevant15.  

12  
13  
14  
15  

Sections 58(1)(d) and 58(2) of the draft law.  
Sections 58(1)(c) and 58(3) of the draft law.  
Section 58(6) of the draft law. 
Section 59 of the draft law. 

3 

                                                 
1.7  Under the draft law, NAMA will be required to determine the long-term economic value of a bank 
asset in accordance with, inter alia, Community State aid rules16. In this respect, NAMA may, if it 

considers it appropriate after consultation with the Minister, and subject to any regulations made by 

the  Minister  for  this  purpose,  having  regard  to,  inter  alia,  Community  State  aid  rules,  determine 

that the acquisition value to be assigned to particular bank assets or class of bank assets will be their 

current market value or a greater value (not exceeding their long-term economic value) that NAMA 
considers appropriate in the circumstances17. 

1.8  The  draft  law  contains  detailed  provisions  on  adjudication  by  a  valuation  panel  having  relevant 

expertise on disputes referred to it by NAMA relating to the eligibility of assets for acquisition by 
NAMA and the total portfolio acquisition value determined by NAMA18. Regarding disputes over 

total portfolio acquisition values, the valuation panel advises the Minister as to the correctness of 

NAMA’s  valuation  having  regard  to  current  market  values;  on  this  basis  the  Minister  may  either 

confirm  the  advice  of  the  valuation  panel  or  remit  the  matter  to  the  valuation  panel  for 
reconsideration19. Where the current market value of the portfolio concerned is not greater than the 

acquisition value of the portfolio, no adjustment will be made to the total portfolio acquisition value 
regardless of the basis on which that value was determined20. Subject to this, where the Minister’s 

determination is that the total portfolio acquisition value of the acquired portfolio as determined by 

NAMA  should  be  increased,  the  Minister  may  direct  NAMA  to  compensate  the  participating 
institution21. 

1.9  The  draft  law  provides  that  the  Regulatory  Authority  may,  with  the  Minister’s  approval,  give 

directions to participating institutions in order to achieve the purposes of the draft law, to restrict 

balance sheet growth, restrict the institution’s ability to take over other credit institutions, require 

balance  sheet  reduction  or  restrict  or  require  consolidation  and  merger  of  participating 
institutions22.  The  Minister,  after  consultation  with  the  Governor  of  the  CBFSAI  and  the 

Regulatory Authority, may direct a participating institution to draw up, submit or amend, within a 
specified period, a restructuring plan or a business plan23.  

1.10  Regarding  NAMA’s  administrative  functioning,  under  the  draft  law  there  will  be  a  Board  of 
NAMA24. The Minister may advance to NAMA (or a NAMA group entity) such sums of money as 

are necessary for performance of its functions, and NAMA (or a NAMA group entity) may, with 

16  
17  
18  
19  
20  
21 
22  
23  
24  

Section 58(3) of the draft law. 
Section 58(4), (5) and (6) of the draft law. 
Sections 72, 76 and 96 to 104 of the draft law. 
Sections 101 and 102 of the draft law. 
Section 102(3) of the draft law. 
Section 102(4) of the draft law. 
Section 174 of the draft law. 
Section 176 of the draft law. 
The NAMA Board will comprise seven members appointed by the Minister, the Chief Executive Officer (CEO) of the 
Irish Government’s debt management agency, the National Treasury Management Agency (NTMA), which will provide 
resources and staff to NAMA, and the CEO of NAMA, who will be appointed by the Minister after consultation with the 
NAMA Chairperson and the NTMA CEO. Sections 17 to 41 of the draft law. 

4 

                                                
 
the  Minister’s  approval,  borrow,  with  or  without  the  Minister’s  guarantee,  such  sums  as  it 

determines to be necessary for the performance of its functions (including debt securities borrowed 

from  the  Minister  or  NTMA  and  debt  securities  issued  by  NAMA  or  a  NAMA  group  entity  to 
provide consideration for the acquisition of bank assets)25. The Minister, after consultation with the 

Governor  of  the  CBFSAI,  may  issue  written  guidelines  to  NAMA  in  connection  with  any  of  its 

functions  under  the  draft  law,  and  may  give  binding  written  directions  to  NAMA  concerning  the 
achievement  of  the  draft  law’s  purposes26.  NAMA  is  otherwise  stated  to  be  independent  in  the 
performance  of  its  functions27.  In  general,  neither  NAMA  nor  any  NAMA  group  entity  will  be 

taken to be providing a service or carrying out an activity which would require it to be authorised or 
regulated by the CBFSAI28. 

2. 

General observations  

2.1 

In line with its previous opinions, the ECB emphasises that, when adopting measures to deal with 

the financial crisis, Member States should act in a coordinated manner in order to avoid significant 

differences  in  national  implementation  having  a  counter-productive  effect,  which  may  involve 

distortions  in  global  banking  markets.  Moreover,  it  is  crucial  to  ensure  consistency  with  the 
management  of  liquidity  and  with  the  operational  framework  of  the  Eurosystem29.  Against  this 

background, any measure implemented in an individual Member State should ensure a sufficiently 

level playing field within the euro area, which is of key importance to maintain the integrity of the 

euro area banking system.   

2.2 

It  is  understood  that  NAMA  will  not  purchase  any  assets  eligible  as  collateral  in  Eurosystem 

operations.  NAMA  may  of  course  purchase  assets  that  could  alternatively  be  used  as  underlying 

assets  for  Eurosystem  eligible  asset-backed  securities.  However,  as  NAMA  will  finance  asset 

acquisitions  by  transferring  newly-issued  bonds  issued  or  guaranteed  by  the  Irish  State  to 

participating  institutions,  it  may  be  expected  that  NAMA’s  activities  will  increase  the  amount  of 

Eurosystem  eligible  collateral  available 

to  Eurosystem  counterparties.  Irish  Eurosystem 

counterparties may therefore find it easier to raise liquidity in central bank operations. Moreover, as 

government bonds are generally accepted as collateral in interbank repo markets, Irish banks may 

be in a better position to borrow in the market. Accordingly, the NAMA scheme may contribute to 

improve the funding situation of Irish banks. 

2.3  Regarding  the  features  and  implementation  modalities  of  asset  support  schemes,  the  Eurosystem 

has  developed  a  number  of  guiding  principles  aimed  at  attaining  the  following  objectives: 

(i) safeguarding financial stability and restoring the provision of credit to the private sector while 

25  
26  
27  
28  
29  

Section 44 of the draft law. 
Sections 13 and 14 of the draft law. 
Section 9(3) of the draft law. 
Section 183 of the draft law. 
See, for example, Opinion CON/2009/54. All ECB Opinions are published on the ECB’s website at www.ecb.europa.eu. 

5 

 
                                                 
limiting moral hazard; (ii) ensuring that a level playing field within the single market is maintained 

to the maximum extent possible; and (iii) containing the impact of possible asset support measures 

on public finances. 

2.4  The Eurosystem has identified seven guiding principles which can be seen as sufficiently broad to 
apply to all schemes falling under the wide category of asset support measures30. The NAMA asset 

removal scheme is broadly consistent with these principles.  

2.4.1  First,  participation  in  the  NAMA  scheme  is  voluntary,  and  the  eligibility  criteria  have  been 

carefully crafted so as to ensure that institutions with the largest concentration of impaired assets 

will be given priority, having due regard to the systemic relevance of the institutions concerned, as 

well as the support available to these institutions from other sources and the financial situation of 

individual institutions.  

2.4.2  Second, while eligible assets are largely focused on development loans arising out of projects both 

within  and  outside  Ireland,  the  draft  law  contains  the  necessary  degree  of  flexibility  to  allow  the 

classes  of  assets  eligible  for  acquisition  by  NAMA  to  be  expanded,  thereby  ensuring  that  the 

definition  of  eligible  assets  is,  in  legal  terms,  kept  relatively  broad.  Also,  by  excluding  assets 

entering  institutions’  balance  sheets  after  31  December  2008,  the  NAMA  asset  removal  scheme 

does not provide banks with wrong incentives, encouraging them to originate assets following the 

announcement of the scheme. 

2.4.3  Third, regarding the valuation of eligible assets, asset-specific haircuts on the eligible assets’ book 

values  appear  to  be  contemplated,  and  independent  third-party  expert  opinions  play  a  role  in  the 

valuation  process  for  the  NAMA  scheme.  The  detailed  provisions  of  the  draft  law  regarding 

valuation issues reflect the fact that the pricing of eligible assets is a crucial and complex issue that 

is  likely  to  determine  the  overall  success  of  the  NAMA  scheme.  Although  the  measures 

contemplated  by  the  draft  law  should  restore  confidence  in  the  Irish  banking  system,  the  ECB 

considers it important, in line with previous opinions that the pricing of acquired assets is mostly 
risk-based and determined by market conditions31. The preference expressed in the draft law for the 

long-term  economic  value  of  assets,  rather  than  current  market  values,  requires  careful 

consideration in this context. In particular, it should be ensured that the assumptions to determine 

the  long-term  economic  value  of  bank  assets  will  not  involve  undue  premium  payments  to  the 

participating  financial  institutions  to  avoid  creating  inappropriate  incentives  from  their  side  as 

regards the use of the scheme. 

2.4.4  Fourth,  regarding  risk-sharing  between  NAMA  and  the  participating  institutions,  the  ECB 

understands that in the longer-term, if NAMA were to fall short of recouping all of the costs of the 

30  

31  

Guiding  Principles  for  Bank  Asset  Support  Schemes,  25  February  2009,  available  on  the  ECB’s  website  at 
www.ecb.europa.eu. 
See, for example, Opinion CON/2008/52 and Opinion CON2008/60. 

6 

                                                 
scheme, the Irish government intends that a levy should be applied to recoup any shortfall32. The 

ECB considers that a guiding principle for the scheme should be that there is an adequate degree of 

risk  sharing  in  order  to  limit  the  cost  to  the  government,  to  provide  the  right  incentives  and  to 

maintain a level playing field across the participating institutions.  

2.4.5  Fifth, the NAMA asset removal scheme appears to be constructed so as to have a sufficiently long 

duration to address the significant challenges presented by such a scheme. This is counter-balanced 

by  the  imposition  of  a  28-day  extendible  deadline  within  which  credit  institutions  must  apply  to 

participate in the scheme, which should support the need for the scheme to be temporary in nature, 

and the need for harmonisation across the EU, and in particular within the euro area, which is of 

crucial importance. 

2.4.6  Sixth, the ECB notes that the Irish Government shares the guiding principle that the preservation of 
private ownership is preferable to nationalisation33. If the NAMA scheme will be successful in this 

respect,  this  strategy  should  help  to  avoid,  in  the  short-term,  the  high  costs  involved  in 

nationalisations and, in the medium-term, the risk of banks’ objectives being diverted from profit 

maximisation  to  alternative  goals  that  might  distort  the  market  structure  and  jeopardise  the  level 

playing field.  

2.4.7  Seventh,  given  that  an  ultimate  aim  of  any  asset  removal  scheme  is  to  help  banks  restore  an 

adequate  flow  of  lending  into  the  economy  and,  to  the  extent  possible,  avoid  large  scale  and 

expensive  direct  government  ownership,  it  will  be  necessary  to  carefully  monitor  the  institutions 

participating in the NAMA scheme to ensure that their self-interest does not cause them to focus on 

preserving and rebuilding their own equity, instead of lending into the economy. 

2.5  The ECB welcomes that the NAMA scheme has been designed to comply with Community State 

aid rules. 

3. 

Specific comments 

3.1  Role of the CBFSAI 

The ECB understands that the role of the Governor of the CBFSAI will be exclusively limited to 

providing advice and opinions through consultations on the activation and operation of the scheme 

and the restructuring and business plans of participating institutions. The provisions of the draft law 

requiring  the  Governor  of  the  CBFSAI  to  be  consulted  with  respect  to  various  matters  should 

reinforce  the  Governor’s  financial  stability  responsibilities  under  Irish  law.  While  the  ECB 

appreciates that the provisions of the draft law recognise the CBFSAI’s expertise in this field, the 

ECB emphasises that functions to be performed by the CBFSAI for the benefit of the scheme must 

32 

33  

Opening  Statement  to  Joint  Committee  on  Finance  and  the  Public  Sector  by  the  Minister  for  Finance,  26  May  2009, 
available on the Department of Finance’s website at www.finance.gov.ie. 
Opening  Statement  to  Joint  Committee  on  Finance  and  the  Public  Sector  by  the  Minister  for  Finance,  26  May  2009, 
available on the Department of Finance’s website at www.finance.gov.ie. 

7 

 
 
                                                 
be  conducted  in  a  manner  that  is  fully  compatible  with  the  CBFSAI’s  institutional  and  financial 

independence, in order to safeguard the proper performance of its existing tasks under the Treaty 

and  the  Statute  of  the  European  System  of  Central  Banks  and  of  the  European  Central  Bank 

(hereinafter the ‘Statute of the ESCB’). In this regard, the ECB welcomes that the provision of the 

draft  law  authorising  the  Governor  to  disclose  to  the  Minister  and  the  Regulatory  Authority  any 

information  that  the  Governor  receives  concerning  a  participating  institution  or  any  of  its 

subsidiaries is subject to the requirements of the Treaties governing the European Communities and 
the Statute of the ESCB34. The ECB also welcomes the clarification that nothing in the draft law 

prevents  the  Governor  or  the  Regulatory  Authority  from  performing  their  functions  in  relation  to 

any credit institution or other person authorised or regulated in the State, or affects any obligation 
arising  under  the  Treaties  governing  the  European  Communities35.  The  specific  manner  in  which 

this  latter  provision  is  formulated  could  be  helpfully  aligned  with  similar  provisions  of  Irish 

legislation adopted during the current financial crisis which are designed to protect the independent 

performance by the CBFSAI of the tasks and duties conferred upon the CBFSAI by the Treaty, and 

which  also  make  explicit  reference  to  the  obligations  arising  under  the  provisions  of  the  ESCB 
Statute annexed to the Treaty36. 

3.2  Prohibition of monetary financing 

It is understood that the draft law will comply fully with the prohibition of monetary financing laid 

down  in  Article  101(1)  of  the  Treaty,  read  in  conjunction  with  Council  Regulation  (EC) 

No 3603/93  of  13  December  1993  specifying  definitions  for  the  application  of  the  prohibitions 

referred to in Articles 104 [now 101] and 104b(1) [now 103(1)] of the Treaty (‘Council Regulation 
(EC)  No  3603/93’)37.  In  this  respect,  NAMA  will  qualify  as  a  ‘public  undertaking’  within  the 

meaning of Article 101(1) of the Treaty and Article 8 of Council Regulation (EC) No 3603/93 as 

NAMA is to be established under the draft law as a ‘public undertaking’ over which the Irish State 

may exercise a dominant influence by virtue of its ownership of it, its financial participation therein 

and  the  rules  which  govern  it.  In  particular,  the  Minister  advances  to  NAMA  the  funds  that  are 

necessary  for  performance  of  its  functions,  and  appoints  all  the  members  of  the  NAMA  Board. 

Moreover, the Minister (after consultation with the CBFSAI Governor, acting independently) will 

have the power to issue written guidelines to NAMA in connection with its functions, and may give 

binding written directions to NAMA concerning the achievement of NAMA’s purposes. NAMA’s 

assets will thus be under the effective control of the Irish State. Therefore, overdraft facilities or any 

other type of credit facility with the CBFSAI in favour of NAMA, as well as the direct purchase 

from  NAMA  by  ESCB  central  banks  of  debt  instruments,  will  not  be  possible,  in  view  of  the 

prohibition of monetary financing under Article 101 of the Treaty. 

34  
35  
36  
37  

Section 173 of the draft law. 
Section 3 of the draft law. 
See, for example, section 2(3) of the Anglo Irish Bank Corporation Act 2009. 
OJ L 332, 31.12.1993, p. 1.  

8 

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

Done at Frankfurt am Main, 31 August 2009. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

9