Opinion of the European Central Bank of 9 November 2009 on the extension of the Irish State guarantee of certain liabilities of credit institutions (CON/2009/92)
Date: 2009-11-09
Institutions: European Central Bank
Subjects: Ireland, State aid, credit institution, financial stability, guarantee, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 9 November 2009 

on the extension of the Irish State guarantee of certain liabilities of credit institutions 

(CON/2009/92) 

Introduction and legal basis 

On  22  October  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  (Eligible  Liabilities 

Guarantee) Scheme 2009 (hereinafter the ‘draft scheme’).  

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  relates  to  the  stability  of  Ireland’s  financial  system  and  the 

Central Bank and Financial Services Authority of Ireland (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. 

The  ECB  was  consulted  by  the  Minister  on  18  June  2009  on  a  previous  version  of  the  draft  scheme 

(hereinafter the ‘original draft scheme’). The ECB provided an opinion on the original draft scheme on 

25 June  2009  (Opinion  CON/2009/56).  The  original  draft  scheme  was  not  implemented  and  the  draft 

scheme proposes to amend the original draft scheme in a number of respects as outlined below.  

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 2010 or a later date as specified by the Minister, after consulting the Governor of the 

CBFSAI and the Irish Financial Services Regulatory Authority. The draft scheme 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 system2.  

1  
2  

OJ L 189, 3.7.1998, p. 42.  
Paragraphs 1 and 2 of the schedule to the draft scheme. 

 
 
 
 
                                                 
1.2  Under the draft scheme, credit institutions and their subsidiaries which are systemically important 
and solvent may apply to the Minister to become participating institutions.3 The eligible liabilities 
of the participating institutions will be guaranteed by the Minister under the draft scheme4. Eligible 

liabilities  are  deposits  (to  the  extent  not  covered  by  deposit  protection  schemes  in  Ireland  (other 

than the Credit Institutions (Financial Support) Scheme 2008 (hereinafter ‘the existing scheme’) or 

any other jurisdiction), senior unsecured certificates of deposit, senior unsecured commercial paper, 

other  senior  unsecured  bonds  and  notes  and  other  forms  of  senior  unsecured  debt  which  may  be 

specified by the Minister, and which are consistent with EU State aid rules and with the European 
Commission’s  Banking  Communication,  subject  to  prior  consultation  with  the  Commission5. 

Eligible  liabilities  must  also  satisfy  the  specified  eligibility  criteria  in  that  they  must  have  a 

maximum maturity of five years and must be incurred during the period from the commencement 

date, being the date specified by the Minister as such (hereinafter the ‘commencement date’) and 
29 September 2010 (hereinafter the ‘issuance period’)6.  

1.3  The  Minister  must  review  the  draft  scheme  no  less  frequently  than  at  six-month  intervals,  the 
results of which are to be provided to the European Commission7. The Minister will monitor the 

amount  of  eligible  liabilities  guaranteed  under  the  draft  scheme,  and  will  also be  able  to  vary  its 

terms; however, any such variation will not affect any guarantee of a liability in issue at the date of 
that variation8. The draft scheme states that a fee shall be payable to the Minister or his nominee by 

each participating institution in respect of each guaranteed liability, which shall be consistent with 

the  recommendations  of  the  Governing  Council  of  the  ECB  on  government  guarantees  for  bank 

debt of 20 October 2008 (hereinafter the ‘ECB’s recommendations on government guarantees’), as 

further discussed in paragraph 3.1 of this opinion. It also states that the basis for the calculation of 
the fee shall be advised by the Minister to the participating institutions from time to time9.  

1.4  The  draft  scheme  allows  a  participating  institution  to  incur  eligible  liabilities  which  are  not 

guaranteed liabilities10. 

1.5  The draft scheme provides that eligible liability guarantees shall terminate five years after the end 

of the issuance period11.   

3  
4  
5  
6  
7  
8  
9  
10  
11  

Paragraph 3 of the schedule to the draft scheme.  
Paragraph 10 of the schedule to the draft scheme.  
Paragraph 11 of the schedule to the draft scheme.  
Paragraph 12 of the schedule to the draft scheme.  
Paragraph 5 of the schedule to the draft scheme.  
Paragraphs 6 and 13 of the schedule to the draft scheme.  
Paragraph 19 of the schedule to the draft scheme.  
Paragraph 9 of the schedule to the draft scheme.  
Paragraph 18 of the schedule to the draft scheme.  

2 

 
                                                 
2. 

General observations 

The ECB has issued opinions on the 2008 Act12, the existing scheme13 and the original draft scheme. It 

underlines  that  its  recommendations  in  relation  to  the  draft  scheme  should  be  taken  together  with  the 

recommendations expressed in the abovementioned opinions.   

3. 

Specific observations 

3.1  Fee arrangements 

The  ECB  notes  that  the  fee  arrangements  in  the  draft  scheme  provide  that  a  fee  is  to  be  paid  by 

participating institutions to the Minister or his nominee in respect of each guaranteed liability. The 

draft  scheme  states  that  this  fee  shall  be  consistent  with  the  ECB’s  recommendations  on 

government guarantees and any Eurosystem guidelines and in accordance with EU State aid rules 

or such other rules as may be applicable. The ECB notes that the draft scheme provides that fees 

shall be consistent with the ECB’s recommendations on government guarantees, and recommends 

that, in the interests of legal certainty, the reference to the ECB’s recommendations on government 

guarantees  and  any  Eurosystem  guidelines  should  be  deleted.  Such  recommendations  and 
guidelines  are  not  legal  acts  and  may  be  subject  to  revision14.  Furthermore,  for  the  sake  of 

transparency, a more precise indication should be given on the method to be used to calculate the 

fees.  

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 issued by the Heads  of State of the euro 

area  on  a  concerted  European  action  plan  of  the  euro  area  countries  (hereinafter  the 
‘Declaration’)15.  In  addition, 

the  consulting  authority  of 

the  ECB  reminds 

the  ECB’s 

recommendations  on  government  guarantees.  Concerning  the  Declaration,  the  Heads  of  State 

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 and pointed out 

that,  with  a  view  to  ensuring  a  sufficiently  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. 

3.3  The extension of a guarantee to cover interbank deposits should be avoided as this 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 

impairing 

the 

implementation  of  the  single  monetary  policy,  which  is  a  unique  competence  of  the  Eurosystem 

12  
13  
14  
15  

ECB Opinion CON/2008/44. 
ECB Opinion CON/2008/48. 
See paragraph 3.2 of ECB Opinion CON/2008/67.   
The text of the Declaration is available on the former French Presidency’s website at www.ue2008.fr. 

3 

 
 
 
                                                 
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 Ireland16. 

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

area governments committed themselves to making available for an interim period a Government 

guarantee of new medium-term (up to five years) bank senior debt issuance. In the same vein, the 

ECB’s  recommendations  on  government  guarantees  state  that  ‘Government  guarantees  on  short-

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

short-term  bank  debt  market.’  Moreover,  it  is  noticeable  that  under  the  draft  scheme  there  is  no 

stated minimum maturity for any guaranteed liabilities which means that liabilities with a maturity 

of less than three months may be guaranteed in practice.  

3.4  The  ECB  notes  that  the  guarantee  provided  for  in  the  draft  scheme  is  to  cover  all  deposits  and 

short-term debt. In this regard, the ECB notes the points made by the consulting authority on why it 

considers it necessary that short-term funding with a maturity of up to three months can continue to 

benefit from a State guarantee. In summary, it advanced the following points: (i) notwithstanding 

the  improvement  in  liquidity  conditions  overall  over  recent  months,  credit  institutions  in  Ireland 

remain subject to liquidity pressures; (ii) because the existing scheme covers interbank deposits and 

obligations  of  less  than  three  months  duration,  a  transitional  phase  is  necessary  so  that  the 

guarantees in respect of such funding can be phased out in an orderly fashion; and (iii) it will be 

possible  for  participating  institutions  to  issue  unguaranteed  deposits,  a  strategy  which  is 

encouraged by way of the fee arrangements provided for under the draft scheme.   

3.5  The ECB acknowledges the significant challenges currently faced by the banking sector in Ireland 

and  notes  the  points  made  by  the  consulting  authority  referred  to  above.  However,  granting 

government guarantees for bank debt with a maturity of less than three months should be avoided 

to  the  extent  possible.  The  ECB  reiterates  that  it  is  essential  that  the  scheme  will  not  impair  the 

implementation of the single monetary policy throughout the euro area. 

3.6  Finally, the ECB notes that the draft scheme provides that the Minister shall review the scheme and 

its rules no less frequently than at six-month intervals from the commencement date to ensure that 

it  is  achieving  the  purposes  of  the  Act.  The  results  of  such  reviews  are  to  be  provided  to  the 

European Commission which must approve the continued operation of the draft scheme on a six-

monthly basis. The ECB welcomes the fact that the draft scheme is specifically stated to terminate 

five years after the end of the issuance period. As previously stated, the ECB emphasises that, in 

16  

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 

 
                                                 
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 field17. 

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

Done at Frankfurt am Main, 9 November 2009. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

17  

See ECB Opinion CON/2009/6. 

5