Opinion of the European Central Bank of 17 December 2010 on emergency stabilisation of credit institutions (CON/2010/92)
Date: 2010-12-17
Institutions: European Central Bank
Subjects: Ireland, company in difficulties, credit institution, economic stabilisation, financial stability, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 17 December 2010 

on emergency stabilisation of credit institutions  

(CON/2010/92) 

Introduction and legal basis 

On 10 December 2010, the European Central Bank (ECB) received a request from the Irish Minister for 

Finance for an opinion on the Credit Institutions (Stabilisation) Bill 2010 (hereinafter 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 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  provisions1,  as  the  draft  law  relates  to  the  Central  Bank  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, amongst other things, intends to facilitate and implement the programme agreed between 

the  Minister  for  Finance,  the  European  Commission,  the  ECB  and  the  International  Monetary  Fund 

(IMF), protect the State’s interest in respect of the guarantees issued by the State, restore confidence in 

the banking sector and  achieve financial stability in the Irish economy. 

The  draft  law  grants  far-reaching  powers  to  the  Minister  and  provides  that,  amongst  other  things,  the 

Minister may (i) make direction orders with the intention of preserving or restoring the financial position 

of  a  credit  institution,  (ii)  propose  special  management  orders  to  appoint  a  special  manager  to  an 

institution,  (iii)  propose  subordinated  liabilities  orders  on  matters,  such  as  the  payment  of  interest,  the 

repayment  of  principal,  events  of  default  and  the  timing  of  obligations,  (iv)  propose  transfer  orders 

relating to all or any part of a relevant institution’s assets and/or liabilities, (v) apply general powers to 

matters relating to companies, when an institution is formed as such, including the removal of directors 

and/or  officers  and  the  appointment  of  directors  and/or  officers.  It  also  contains  various  other 

1  

OJ L 189, 3.7.1998, p. 42. 

 
 
 
 
                                                      
miscellaneous provisions including, but not limited to, a provision overriding inconsistent provisions in 

any agreement by which an institution or any of its subsidiaries are bound. 

2. 

General observations  

2.1  The Minister for Finance has requested the ECB to deliver an opinion by 17 December 2010. The 

ECB  notes  that,  in  cases  of  particular  urgency  which  do  not  allow  for  the  normal  consultation 

period, the consulting authority may indicate such urgency in its consultation request and ask for a 

shorter deadline for the adoption of the ECB’s opinion. However, even though the ECB welcomes 

this consultation request and understands the need for an accelerated legislative procedure, it would 

have appreciated being consulted by the authority preparing the draft legislation at an earlier stage.  

2.2  Article 4 of Decision 98/415/EC requires Member States to ensure that the ECB is consulted at an 

appropriate  point  in  time  to  allow  the  consulting  authority  to  take  its  opinion  into  consideration 

before deciding on the substance of the draft legislative provisions. The ECB therefore expects that 

the consulting authority will take any additional measures necessary to reflect the ECB’s opinion to 

the  extent  appropriate.  It  also  encourages  further  consultation  on  any  new  amendments  to  the 

adopted  Act  or  any  related  implementing  measures  which  fall  within  its  field  of  competence, 

provided  that  such  measures  do  not  merely  constitute  the  implementation  of  the  ECB’s 

recommendations. More generally, internal administrative procedures should be in place to ensure 

that timely consultation of the ECB is taken into account whenever such consultation is mandatory. 

2.3  The ECB would like to stress that, given the very short time in which it has been consulted on this 

important legislation, it has not been possible to assess all the many constitutional, other legal and 

regulatory  issues  which  this  draft  law  undoubtedly  raises.  In  particular,  the  ECB  has  serious 

concerns  that  the  draft  law  is  insufficiently  legally  certain  on  a  number  of  critical  issues  for  the 

Eurosystem. For example, problems of legal uncertainty relate to the impact of, inter alia, Article 

61 (effects of orders on certain other obligations) of the draft law on the rights of the Central Bank, 

the ECB and possibly other central banks within the ESCB, the scope of collateral rights of central 

banks given as security against ELA, as well as other issues. The ECB would expect that nothing in 

this Act would affect operations, rights or entitlements of the Central Bank or the European Central 

Bank, or any other central banks within the ESCB. 

2.4 

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 
Eurosystem’s  management  of  liquidity  and  its  operational  framework2.  Against  this  background, 

any national measure 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  

See, for example, Opinion CON/2009/54. All ECB Opinions are published on the ECB’s website at ww.ecb.europa.eu. 

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The  ECB  welcomes  the  wider  powers  under  the  draft  law  that  will  be  available  to  the  Irish 

authorities  to  manage  and  solve  a  financial  institution  crisis.  They  will  include,  for  instance,  the 

appointment  of  special  managers  with  the  intent  of  preserving  or  restoring  a  credit  institution’s 

financial position. This is in line with the consensus emerging at EU level. At the same time these 

emergency powers interfere significantly with the property rights of institutions’ shareholders and 

creditors. Thus it is important for any regime to properly balance these fundamental rights with the 

general interest in the financial system’s stability. The Irish framework may have to be adapted in 

the light of the forthcoming Commission’s legislative proposals on a Union crisis management and 

bank resolution regime. Second, the draft law is a temporary emergency measure which will cease 

to have effect, unless prolonged, by the end of 2012. In view of the expected introduction in Ireland 

of legislation on bank resolution by the first quarter of 2011, the draft law needs to clarify how it 

will interact with the powers and tools under the future bank resolution regime. 

2.5  Regarding  the  features  and  implementation  modalities  of  asset  support  schemes,  the  Eurosystem 
has developed a number of guiding principles3 to: (i) safeguard financial stability and restore the 

provision of credit to the private sector while limiting moral hazard, (ii) ensure a level playing field 

within the single market to the extent possible, and (iii) contain the impact of possible asset support 

measures on public finances. 

2.6  Previous  ECB  Opinions  noted  that  it  is  appropriate  to  maintain  a  clear  distinction  between 
procedures  leading  to  antitrust  and  banking  supervision  decisions4  and  that  draft  national  laws 

should reflect in these circumstances the principle of allocating powers to authorities in accordance 
with  their  respective  objectives5.  In  the  present  case,  the  dual  competence  of  the  Minister  in 
banking  mergers  and  the  consultative  or  advisory  role  conferred  on  the  Governor6  could  conflict 

with these principles. 

2.7  Moreover,  previous  ECB  Opinions  pointed  out  the  need  to  balance  the  potentially  conflicting 

objectives of market competition and financial stability by introducing safeguards similar to those 
which apply under Union law7. While acknowledging that cases might occur in which a merger in 

the  form  of  a  balance  sheet  merger  would  be  necessary  on  stability  grounds,  although  it  raises 
concerns  for  its  effects  on  competition8,  the  ECB  stressed  that  these  cases  should  remain 
exceptional  and  should  not  unduly  restrain  competition9.  The  ECB  recommends  applying  the 

3  

4 
5  
6  
7  

8  

9  

Guiding  principles  for  bank  asset  support  schemes,  25  February  2009,  available  on  the  ECB’s  website  at 
www.ecb.europa.eu. 
See, for example, paragraph 8 of ECB Opinion CON/2005/58 and paragraph 4.1 of ECB Opinion CON/2008/44. 
See, for example, paragraph 4 of ECB Opinion CON/2007/17 and paragraph 4.1 of ECB Opinion CON/2008/44. 
Section 7(2), Section 13(2), Section 28(1)(a) and Section 33(2) of the draft law. 
See,  for  example,  paragraph  3.3,  last  sentence,  of  ECB  Opinion  CON/2006/51  and  paragraph  4.2  of  ECB  Opinion 
CON/2008/44. 
See  for  example  paragraph  8,  second  sentence,  of  ECB  Opinion  CON/2005/58  and  paragraph  4.2  of  ECB  Opinion 
CON/2008/44. 
See,  for  example,  paragraph  3.3,  last  sentence,  of  ECB  Opinion  CON/2006/51  and  paragraph  4.2  of  ECB  Opinion 
CON/2008/44. 

3 

                                                      
Minister’s prerogatives under the draft law in accordance with the principle of proportionality and 

with appropriate safeguards. 

2.8  The measures intended to safeguard financial stability should involve cooperation with the relevant 

Member State authorities, in line with Union legislation and the arrangements in place, such as the 

Memorandum  of  Understanding  on  cooperation  between  the  financial  supervisory  authorities, 
central banks and finance ministries of the European Union on cross-border financial stability10. 

2.9  The ECB recommends referring to the Eurosystem’s ‘operations’ rather than to its ‘functions’, in 

line with ECB Opinion CON/2008/37. In particular, references to the Eurosystem  should include 

all actions, rights, arrangements and agreements relating to it by all participants. 

2.10  The draft law does not contain any general provision protecting the rights of the Central Bank and 

the ECB under any relevant agreements from the effects of Article 61 and other provisions of the 

draft  law,  such  as  regarding  transfer  orders,  which  potentially  may  impact  on  the  Eurosystem’s 

operations and the functions and interests of its members. Article 5 of the draft law recognises that 

the  draft  law  has  no  effect  on  the  performance  of  the  Central  Bank  Governor’s  or  the  Central 

Bank’s ‘functions’ in relation to any credit institution authorised or regulated in Ireland. However, 

this  appears  to  refer  only  to  the  supervisory  functions  of  the  Central  Bank  and  its  Governor  and 

does not include the potential impact of the draft law provisions on the Central Bank, the ECB or 

any other central bank within the ESCB when appearing as counterparty in a monetary policy or 

emergency  liquidity  operation  concluded  with  a  relevant  institution.  It  is  essential  that  such  a 

general carve out provision is contained in the draft law to protect Eurosystem operations and the 

rights of the Central Bank, the ECB and any other central bank within the ESCB. 

3. 

Specific observations  

Role of the Central Bank of Ireland 

3.1  Any  involvement  of  the  Central  Bank  and  its  Governor  in  the  application  of  the  measures  to 

strengthen financial stability must be compatible with the Treaty and consequently with the Central 

Bank’s  institutional  and  financial  independence,  as  well  as  with  the  Governor’s  personal 

independence to safeguard the proper performance of their tasks under the Treaty and the Statute of 
the European System of Central Banks and of the European Central Bank11. The draft law specifies 

in Section 5 that nothing in its provisions prevents the performance by the Governor or the Central 

Bank of their functions in relation to any credit institution authorised or regulated in the State, or 
affects any obligation arising under the Treaties or the ESCB Statute12. Section 5 of the draft law 

should  make  clear  that  the  Treaty  principle  of  central  bank  independence  prevails  over  any 

incompatible draft law provision.  

10  
11   
12  

As published on the ECB website, www.ecb.europa.eu. 
See also similar observations in paragraph 3.1.4 of CON/2009/93. 
Section 5 of the draft law. 

4 

 
                                                      
This provision should also specify that nothing in the draft law will prejudice the compliance by the 
Central  Bank  with  the  prohibition  on  monetary  financing  under  Article  123  of  the  Treaty13. 

Furthermore,  the  ECB  suggests  further  clarification  that  the  rights  of  the  Central  Bank  and  the 

ECB,  as  creditors  of  any  relevant  institution,  will  not  be  affected.  The  ECB  also  recommends 

reinserting  the  general  provision  with  respect  to  the  preservation  of  the  operations,  rights  or 

entitlement of the Central Bank, the ECB or any other central banks within the ESCB regarding the 

provisions of the draft law which was included in a previous version of the draft law, on which the 

ECB was consulted. 

3.2    Section 61 of the draft law details the effect of the various orders that the Minister may make under 

the draft law on certain other obligations. This should not impair the ability of the Central Bank or 

the  ECB  to  maintain  the  Eurosystem’s  operations  and,  in  particular,  to  enforce  their  rights 

including, without limitation, the enforcement of security over any eligible collateral posted by any 

relevant institution, any of its subsidiaries, its holding company or any subsidiaries of its holding 

company. The Section needs to clarify this, in particular since the published Bill does not contain 

an Article 60 which appeared in a previous version of the draft law and which usefully stated that 

‘nothing in this Act affects any function, right, or entitlement of the [Central] Bank or the European 

Central Bank’.    

3.3    The draft law should also be consistent with the overall tasks and functions of the Central Bank and 

of the Governor under the existing Irish legal framework. Further, the ECB recommends drafting 

any ‘relationship framework’ under Section 6 of the draft law in agreement with the Governor to 

ensure that it does not go beyond the overall task and functions of the Central Bank and Governor 

and  that  it  is  consistent  with  the  Central  Bank’s  institutional  and  financial  independence  and  the 
Governor’s personal independence14. 

3.4    Section  22  of  the  draft  law  provides  for  the  appointment  of  a  special  manager.  It  is  important  to 

ensure  that  this  would  not  impair  the  ability  of  the  Central  Bank  or  the  ECB  to  maintain  the 

Eurosystem’s operations and, in particular, to enforce their rights including, without limitation, the 

enforcement  of  security  over  any  eligible  collateral  posted  by  an  institution.  In  this  regard, 

Section 22(2) excludes certain paragraphs of Section 22(1) from its application to the Central Bank, 

the  ECB  or  any  other  central  banks  within  the  ESCB.  The  ECB  would,  moreover,  welcome 

clarification with respect to the remainder of sub-section (1) of Section 22 in the event that actions 

not currently excluded were taken by such entities as a result of action taken in the normal course 

of Eurosystem operations. 

13  

14  

The  monetary  financing  prohibition  in  Article  123  of  the  Treaty  is  further  clarified  in  Council  Regulation  (EC) 
No 3603/93 of 13 December 1993 specifying definitions for the application of prohibitions in Article 104 and 104b(1) of 
the Treaty (OJ L 332, 31.12.1993, p. 1) according to which overdraft facilities or any other type of credit facility with the 
ECB  or  the  national  central  banks  (NCBs)  of  Member  States  in  favour  of  Community  institutions  or  bodies,  central 
governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of 
Member States are prohibited, as is any purchase directly from these public sector entities by the ECB or NCBs of debt 
instruments. 
See also similar observations in paragraph 3.1.6 of Opinion CON/2009/93. 

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Direction orders 

3.5   

In respect of direction, special management, subordinated liabilities and transfer orders, the Minster 

may,  in  exceptional  circumstances,  waive  the  requirement  to  notify  in  writing  the  relevant 

institution,  allowing  the  relevant  institution  time  to  make  written  submissions  to  the  Minister. 

Under the current draft, exceptional circumstances will exist where: (a) there is an imminent threat 

to  the  stability  of  the  institution  concerned,  (b)  there  is  an  imminent  threat  to  the  stability  of  the 

national  financial  system,  or  (c)  the  Minister  has  reasonable  grounds  for  believing  that  the 

confidentiality  of  the  proposed  order  or  the  possibility  of  making  such  an  order  would  not  be 

maintained  and  that  the  breach  of  such  confidentiality  would  have  significant  adverse 

consequences.  The  draft  law  should  clarify  whether  the  exceptional  circumstances  justifying  a 

waiver  of  the  written  notice  requirement  are  established  when  any  of  either  (a),  (b)  or  (c)  are 

satisfied or whether (a) and (b) must both be satisfied, with (c) being an exceptional circumstance 
on its own15. In the ECB’s  view, waiver of the basic  notice requirement for  measures interfering 

with creditors’ property rights would only be justified by the additional risk to the stability of the 

financial system.  

Reorganisation of credit institutions 

3.6    Section  4(1)(c)  provides  that  a  further  purpose  of  the  draft  law  is  to  continue  the  process  of 

reorganisation,  preservation  and  restoration  of  the  financial  position  of  Anglo  Irish  Bank 

Corporation Limited (Anglo) and, due to the reference in Section 4(1)(d) to the financial position of 

building societies, potentially also of Irish Nationwide Building Society (INBS). This appears to go 

beyond the position agreed with the IMF and the European Commission in liaison with the ECB, 

which  envisaged  a  specific  resolution  plan  for  these  two  non  viable  banks.  The  ECB  would 

welcome an amendment to the recital and confirmation that any action taken by the Minister under 

the draft law with respect to Anglo and INBS will be conditional on agreement by the IMF and the 

European Commission, in consultation with the ECB, and will relate to the State’s commitments 

under the agreement reached with the IMF and the European Commission, in liaison with the ECB. 

Netting agreements 

3.7    The ECB welcomes Section 65 of the draft law which provides that nothing in the draft law affects 

the operation of, among other things: (a) the netting of the Financial Contracts Act 1995, (b) the 

European  Communities  (Settlement  Finality)  Regulations,  and  (c)  the  European  Communities 

(Financial  Collateral  Arrangements)  Regulations.  In relation  to  an  agreement  to  which  a  relevant 

institution or any of its subsidiaries is a party, Section 65 should ensure that its effect is to exclude 

the  provisions  of  the  draft  law,  in  particular  Sections  21  and  61,  from  the  operation  of  contracts 

which fall within the scope of the identified excluded legislation. 

15  

Sections 7(5), 13(5), 28(6) and 33(5) of the draft law. 

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

Done at Frankfurt am Main, 17 December 2010. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

7