Opinion of the European Central Bank of 13 April 2010 on the amendment to the Law on credit institutions and financial undertakings introducing further financial market stabilisation measures (CON/2010/31)
Date: 2010-04-13
Institutions: European Central Bank
Subjects: Hungary, banking supervision, credit institution, financial solvency, financial stability, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 13 April 2010 

on the amendment to the Law on credit institutions and financial undertakings introducing further 

financial market stabilisation measures 

(CON/2010/31) 

Introduction and legal basis 

On 11 March 2010, the European Central Bank (ECB) received a request from the Hungarian Ministry of 
Finance for an opinion on a draft law amending the Law on credit institutions and financial enterprises1 
(CIFE) and the Law on the Financial Supervisory Authority (FSA)2 (hereinafter referred to as the ‘draft 

law’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 

Functioning  of  the  European  Union  and  the  third  and  sixth  indent  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 provisions3, as the draft law relates to the Magyar Nemzeti Bank (MNB) and 

rules  applicable  to  financial  institutions  in  so  far  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  draft  law  is  motivated  by  the  financial  market  crisis  and,  in  particular,  the  need  to  avoid 

potential  systemic  risks,  thus  maintaining  confidence  in  the  national  financial  system  and 

enhancing its stability and solvency. Ensuring the uninterrupted operation of key banking services 

is important to maintain investor confidence, while the interests of the individual institutions and 

that  of  the  public  need  to  be  balanced.  The  Hungarian  Government  has  already  taken  steps  to 
stabilise the financial markets4. The provisions of the draft law aim at strengthening the supervisory 

framework by providing the FSA with enhanced powers in crisis prevention and resolution. 

1  
2  
3  
4  

Law CXII of 1996, Magyar Közlöny, 1996/109 XII. 12. 
Law CXXXV of 2007, Magyar Közlöny, 2007/162 XI. 28. 
OJ L 189, 3.7.1998, p. 42. 
For  previous  stabilisation  measures  taken  by  the  Hungarian  Government  see  ECB  Opinions  CON/2009/28  and 
CON/2008/81. All ECB opinions are available on the ECB’s website at www.ecb.europa.eu. 

 
 
 
 
                                                 
1.2  Against this background, the draft law enhances the supervisory and resolution powers of the FSA 

by providing, inter alia, for: (i) a recovery plan for the financial institutions; (ii) the possibility of 

appointing  a  supervisory  commissioner  and  his/her  tasks;  (iii)  specific  procedures  aimed  at 

financially distressed financial institutions, including, inter alia, the transfer of assets and liabilities 

from a credit institution and the possible establishment of a ‘bridge bank’ based on a Government 

decision; (iv) basic valuation principles and procedures to determine the acquisition value of assets 

and liabilities; (v) the rules and conditions for compensating a credit institution; (vi) the possible 

legal remedies against certain FSA decisions; (vii) specific administrative deadlines.  

1.3  The draft law specifies qualitative and quantitative thresholds triggering FSA specific powers that 

would  increase  in  intensity,  depending  on  the  seriousness  of  the  situation  of  the  ailing  financial 

institution.  Under  the  new  proposed  Article  151(4)  of  the  CIFE  to  maintain  the  stability  of  the 

financial intermediary system and to protect the interest of depositors and account holders, and to 

minimise public expenditure, the FSA will be liable to take the exceptional and necessary measures 

subject to the fulfilment of each of the following conditions: (i) the owners of a credit institution 

refuse  to  cooperate  with  the  FSA  or  the  supervisory  commissioner;  (ii)  the  credit  institution  is 

likely  to  fail  to  fulfil  its  obligations;  (iii)  the  credit  institution’s  insolvency  would  potentially 

jeopardise  the  stability  of  the  financial  system;  and  (iv)  other  measures  taken  by  the  FSA  have 

failed to achieve their purpose.  

1.4  Moreover,  the  draft  law  establishes  a  legal  framework  which  would  enable  the  FSA  to  transfer 

assets and liabilities from the balance sheet of a systemically important credit institution to either 

another credit institution or to a wholly State-owned special purpose bank, i.e. a ‘bridge bank’ to be 

established as explained in paragraph 2.2 below. 

2.   General observations  

2.1  The  ECB  has  issued  a  number  of  opinions  at  the  request  of  the  Member  States  on  national 

measures  adopted  in  response  to  the  global  financial  crisis.  The  ECB  invites  the  Ministry  of 
Finance to take into account the relevant observations made in its recent opinions5 on similar draft 

legislative  provisions  in  other  Member  States,  some  of  which  are  repeated  below.  The  ECB  also 
refers to the importance of the guidance provided by the Ecofin Council6, as well as the Declaration 
issued by the Heads of State of the euro area7. In particular, the ECB emphasises that any initiatives 

put  in  place  by  the  competent  national  authorities  to  restore  confidence  in  the  financial  markets 

should  be  coordinated  and  should  aim  to  implement  the  common  principles,  in  a  spirit  of  close 

cooperation  with  other  Member  States  and  the  Union  institutions.  As  a  general  remark  in  this 

5  
6  

7  

See Opinions CON/2009/34, CON/2010/7 and CON/2010/12. 
For  guidance  to  the  Member  States  in  the  conclusions  of  the  Ecofin  meeting  see  ‘Immediate  responses  to  financial 
turmoil’,  Ecofin  Council  Conclusions  of  7  October  2008,  available  on 
the  Council’s  website  at 
www.consilium.europa.eu.  
The text of the Declaration of 12 October 2008 is available on the former French Presidency’s website at www.ue2008.fr.  

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context,  the  ECB,  in  line  with  its  previous  opinions8,  notes  the  importance  of  a  transparent  and 

predictable  framework  as  regards  the  parameters  of  and  limitations  to  the  exercise  by  the 

authorities of their powers. 

2.2  Under the new legal framework proposed by the draft law, the FSA will have the right to transfer 

assets and liabilities from the balance sheet of a systemically important credit institution to a sound 

institution,  that  is  to  another  operational  credit  institution  or  to  a  newly  established  and 

organisationally  and  financially  independent  bridge  bank,  wholly  owned  by  the  State  and 

separately  established  for  this  specific  purpose.  The  establishment  of  a  bridge  bank  may  be 

necessary if, at the relevant time, no credit institution is available on the  market to take over the 

assets and liabilities of an ailing credit institution. The ECB welcomes the introduction in the draft 

law of the option of addressing a possible crisis situation through the transfer of a distressed bank’s 

assets  and  liabilities  to  a  bridge  bank.  The  Eurosystem  highlighted  the  importance  of  such  a 

resolution tool in ensuring the continuity of essential business operations of systemically important 

credit institutions when replying to the Commission’s initial analysis of the possible orientation of 
a future Union framework for crisis management and resolution9. The availability of a bridge bank 

is recognised as part of the trend towards enhanced convergence of national legal schemes for crisis 
management  and  resolution  developing  at  both  international  and  European  level10.  Taking  the 

growing  inter-dependencies  between  financial  systems  into  account  and  the  need  for  appropriate 

action  to  address  the  possible  systemic  impact  of  failing  cross-border  institutions,  the  ECB 

highlights that the domestic legal framework for crisis management and resolution may need to be 

further adapted to future regulatory initiatives at Union level addressing existing problems in the 

coordination of resolution and insolvency proceedings concerning cross-border banks. 

2.3  With  these  general  observations  in  mind,  and  against  the  background  of  the  guidance  previously 

given  by  the  ECB  and  the  Union  institutions  in  this  regard,  the  ECB  has  the  following  specific 

observations on the draft law.  

3. 

Specific observations 

3.1  Role of the MNB  

Under the new proposed Article 168A(2) of the CIFE, the draft law provides for the conditions for 

the  MNB’s  involvement,  which  is  limited  only  to  the  process  of  issuing  an  assessment  at  the 

request  of  the  FSA  of  whether  a  credit  institution’s  insolvency  would  potentially  jeopardise  the 

stability  of  the  financial  system  in  Hungary  under  the  new  proposed  Article  151(4)(c).  The  ECB 

welcomes  the  recognition  of  the  MNB’s  expertise  in  assessing  financial  stability.  Moreover,  to 

8  
9  

10  

See CON/2009/62 and CON/2009/93. 
See Eurosystem’s reply of 8 February 2010 to the public consultation by the Commission launched in its Communication 
on an EU Framework for Cross-Border Crisis Management in the Banking Sector on 20 October 2009. 
See in particular ‘Report and Recommendations of the Cross-border Bank Resolution Group’, March 2010, available at 
www.bis.org  and  ‘Practical  Guide  on  Cross-Border  Insolvency  Cooperation’  adopted  by  UNCITRAL  on  1  July  2009, 
available at www.uncitral.org. 

3 

                                                 
make  such  assessment,  a  smooth  exchange  of  information  on  the  situation  of  individual  credit 

institutions must be in place. The ECB emphasises that functions to be performed by the MNB in 

this regard for the benefit of the resolution regime  must be conducted in a manner that will fully 

comply with the Treaty obligations. In particular, it is expected that the MNB’s new task laid down 

in the draft law will neither affect the MNB’s institutional, functional and financial independence, 

nor the performance of its tasks under the Treaty and the Statute of the European System of Central 

Banks and of the European Central Bank.  

3.2  Transfer of assets  

According to the new proposed Article 168A of the CIFE, the establishment of a bridge bank will 

be restricted to cases where no other resolution to the financial difficulties of a credit institution was 

effective and it is necessary to ensure the stability of the financial system. This Article furthermore 

broadly  formulates  rules  for  the  terms  and  conditions  for  bidding  on  the  transfer  of  assets  and 

liabilities to another operational credit institution, as it specifically leaves the FSA to determine the 

detailed rules for the bidding process in an ad hoc decision. For reasons of legal clarity, the basic 

rules  for  bidding  could  also  be  reflected  in  the  draft  law.  Additionally,  the  draft  law  does  not 

specify the criteria for an operating credit institution to qualify as eligible to take over these assets 

based on the bidding process. The ECB would welcome further clarifications of the conditions for 

transferring assets to operating credit institutions. 

The ECB also advises considering the possibility of including further provisions in the draft law to 

provide  for  a  smooth  and  swift  continuation  of  the  legal  relationship  with  clients  relating  to  the 

debts taken over and the new credit institution taking over the debts. 

3.3  Valuation of the transferred assets and the pricing of compensation 

Under the new proposed Article 168A(7) to (9) of the CIFE, the draft law provides that transferred 

assets will be valued at a rate applicable on the day before transfer. The same article sets out further 

requirements concerning the valuation. In particular, the valuation will also have to be regarded as a 

revaluation  affecting  the  book  value  of  assets  and  liabilities  which  will  also  be  reflected  in  the 

income of the transferring credit institution.  

Under the new proposed Article 168C of the CIFE, the draft law regulates the pricing rules and the 

conditions for compensation. The transparency of criteria for valuation is of the essence in pricing. 

In  this  respect,  it  may  be  advisable  to  further  specify  how  a  valuation  is  obtained  when  no  valid 

market prices are available for the assets in question. Furthermore, the ECB suggests including in 

the draft law the possibility of bringing a judicial appeal against the pricing of compensation. Such 

court procedure should be expedited to avoid jeopardising the aim of the transfer of the assets. 

3.4  Property rights 

According to the new proposed Article 168B(3) of the CIFE, the cost of purchasing assets by the 

bridge  bank  will  be  covered  by  the  central  budget  and,  as  detailed  in  the  new  proposed  Article 

168C(3), compensation will only be due if the equity capital of the transferring credit institution (i) 

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has been decreased as a result of the FSA’s decision to transfer the assets, and (ii) was positive on 

the  day  before  the  time  of  transfer.  The  compensation  also  has  to  be  in  accordance  with  the 

provisions  of  the  Hungarian  Constitution  on  property  rights.  The  ECB  notes  that  any  such 

compensation must be ‘fair’ according to law. 

3.5  The possible winding up of affected credit institutions and going concerns 

The draft law is silent on whether after removing certain assets and liabilities from the portfolio of a 

credit institution, the transferring institution will continue as a going concern, or be wound up after 

the transfer takes place. Therefore, the ECB suggests including further provisions on these matters 

in  the  draft  law,  ensuring  that  if  the  transferring  credit  institution  continues  its  operations,  it  will 

base its transactions on a sound business policy and a solid business model. 

3.6  The future role, operation and temporary nature of the bridge bank 

The ECB reiterates the importance of ensuring that the State’s involvement is limited in time to the 

extent  deemed  necessary  for  the  success  of  the  reorganisation  measure.  Transferring  assets  from 

credit  institutions  in  distress  should  remain  a  measure  for  use  in  clearly  defined  and  exceptional 

circumstances. The ECB stresses that it should be ensured that such a measure is only used as a last 

resort, that disruption of the level playing-field is minimised and that the State’s role is limited in 

time. Against this background, the ECB notes that in the new proposed Article 168A of the CIFE, 

the draft law provides for the possibility for the FSA to propose the establishment of a bridge bank 

as  a  general  measure  if  any  other  measures  have  proved  inefficient,  but  the  draft  law  does  not 

specify a possible end-date for the operations of a bridge bank. Since the duration of the operation 

of  the  bridge  bank  has  to  reflect  the  amount  and  the  nature  of  the  assets  and,  in  particular,  their 

maturity structure, the ECB would welcome a generally defined exit strategy in the draft law for the 

operations of a bridge bank based on, for example, the basis of a period of time or the development 

of  market  conditions,  to  ensure  the  temporary  nature  of  the  State’s  involvement  and  at  the  same 

time preserve the value of the transferred assets and liabilities. 

3.7  Procedural issues 

The ECB is aware that the draft law was submitted to the Hungarian Parliament at a time when it 

was  no  longer  possible  for  the  legislators  to  discuss  the  draft  law  in  detail  as  the  Parliament  has 

been  dissolved  due  to  the  general  elections  in  Hungary.  The  ECB  would  like  to  remind  the 

consulting authority of the guidance given on Council Decision 98/415/EC and, in particular, that 

the duty to consult the ECB also  applies to additional substantial amendments to draft legislative 

provisions that have already been submitted to the ECB for an opinion. 

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

5 

 
 
Done at Frankfurt am Main, 13 April 2010. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

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