Opinion of the European Central Bank of 17 October 2011 on changes of rules applicable to mortgage and municipal bonds (CON/2011/81)
Date: 2011-10-17
Institutions: European Central Bank
Subjects: Slovenia, bank, bond, financial stability, mortgage, national law, regional and local authorities

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 17 October 2011  

on changes of rules applicable to mortgage and municipal bonds 

(CON/2011/81) 

Introduction and legal basis 

On 21 September 2011 the European Central Bank (ECB) received a request from the Slovenian Ministry 

of Finance for an opinion on a draft law amending the Law on mortgage and municipal bonds (hereinafter 

the ‘draft law’ and the ‘Law’, respectively). 

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 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 provisions1, as the draft law 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.  

Purposes of the draft law 

The  main  purposes  of  the  draft  law  are:  (a)  to  facilitate  issuance  of  mortgage  and  municipal  bonds  by 

banks,  for  instance,  by  extending  the  pool  of  underlying  assets  for  municipal  bonds  to  debt  securities 
issued by the State or local authorities2; and (b) to ensure better protection of bonds holders’ claims, for 

instance, by requiring that the present value of underlying assets at all times exceeds the present value of 
liabilities under mortgage bonds by at least 2%3 and that the underlying assets’ reserves are created4. The 

draft law also makes several editorial changes to the Law. 

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OJ L 189, 3.7.1998, p. 42.  
Article 2 of the draft law amending Article 5 of the Law.  
Article 9 of the draft law amending Article 22(2) of the Law. 
Article 10 of the draft law inserting new Article 22.a in the Law. 

 
 
 
 
 
 
                                                      
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2. 

General observation 

The ECB broadly welcomes the draft law which should achieve the intended purposes of the draft law.  

3. 

Specific comments 

The consultation duty regarding draft secondary legislation 

3.1  Pursuant to the draft law, municipal bonds are covered by underlying assets including, inter alia, 

loans extended to legal entities not governed by public law if the State or local authority guarantees 

for  such  entities’  liabilities  under  such  loans  without  limitations.  These  guarantees  must  ensure 
irrevocable and unconditional fulfilment of the debtor’s obligations on the creditor’s first demand5. 

Banka  Slovenije  will  set  out  more  detailed  conditions  that  must  be  fulfilled  for  such  guarantees 
within one month from the entry into force of the draft law6. The consultation duty under the Treaty 

covers all types of legally binding provisions, including secondary legislation. Given the objectives 

of  Decision  98/415/EC,  an  opinion  should  only  be  sought  from  the  ECB  on  draft  secondary 

legislation which implements primary legislation falling within the ECB’s fields of competence if 

the subject matter is closely related to the ECB’s tasks and if the impact on areas within the ECB’s 
fields of competence is different from that resulting from the primary legislation itself7. If this is 

the  case  with  the  abovementioned  Banka  Slovenije’s  secondary  legislation,  it  should  also  be 

submitted to the ECB for an opinion. 

Application of the net present value principle 

3.2 

In accordance with Article 22(2) of the Law as amended by Article 9 of the draft law, underlying 

assets and liabilities arising from mortgage bonds must at all times also match under the net present 

value  principle,  whereby  the  present  value  of  underlying  assets  must  exceed  the  present  value  of 

liabilities arising from mortgage bonds by at least 2%. If the intention of this provision is to simply 

compare  the  present  value  of  underlying  assets  with  the  present  value  of  liabilities,  it  is  not 

appropriate to refer to the net present value principle which is used, for instance, to compare the 

present  value  of  future  cash  flows  with  the  initial  investment  in  the  context  of  assessing  the 

financial advantage of an investment. 

Eligibility for Eurosystem credit operations 

3.3  New Article 22.a of the Law inserted by Article 10 of the draft law provides that the issuer must at 

all  times  ensure  underlying  assets’  reserves  in  the  form  of  certain  substitute  underlying  assets 

complying  with  the  eligibility  criteria  of  the  European  System  of  Central  Banks.  This  provision 

could  be  improved  by  referring  more  accurately  to  the  eligibility  criteria  for  collateral  in 

Eurosystem credit operations to follow the wording of Article 18.1 of the Statute of the European 

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6  
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Article 5(3) and (6) of the Law as amended or, respectively, introduced by Article 2 of the draft law. 
Article 5(6) of the Law as introduced by Article 2 of the draft law, and Article 20 of the draft law. 
Guide to consultation of the European Central Bank by national authorities regarding draft legislative provisions, p. 14. 

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System of Central Banks and of the European Central Bank. Article 20 of the Law should also be 

brought in line.   

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

Done at Frankfurt am Main, 17 October 2011. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

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