Opinion of the European Central Bank of 21 October 2011 on recovery and resolution measures for credit institutions (CON/2011/84)
Date: 2011-10-21
Institutions: European Central Bank
Subjects: Ireland, central bank, credit institution, financial stability, liquidation, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 21 October 2011  

on recovery and resolution measures for credit institutions  

(CON/2011/84) 

Introduction and legal basis 

On 28 September 2011, the European Central Bank (ECB) received a request from the Irish Minister for 

Finance for an opinion on the proposed parliamentary committee stage amendments to the Central Bank 

and Credit Institutions (Resolution) (No 2) Bill 2011 (hereinafter the ‘draft law’). On 11 October 2011, 

the  ECB  received  a  letter  from  the  Minister  indicating  the  report  stage  amendments  for  the  ECB’s 

consideration.  

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  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 of Ireland (CBI) 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 ECB published Opinion CON/2011/392 on the draft Central Bank and Credit Institutions (Resolution) 

Bill 2011 (the ‘No 1 Bill’) on 26 April 2011. Following a change in government, the No 1 Bill lapsed and 

was  reintroduced  to  Parliament  in  the  near  identical  form  of  the  draft  law.  This  Opinion  concerns  the 

amendments. 

The  draft law was  one  of the actions  implementing the financial  assistance  programme  agreed  between 

the  Minister,  the  European  Commission,  the  ECB  and  the  International  Monetary  Fund,  to  restore 
confidence  in  the  banking  sector  and  achieve  financial  stability  in  the  Irish  economy3,  alongside  the 

Credit  Institutions  (Stabilisation)  Act  2010  on  which  the  ECB  issued  Opinion  CON/2010/92  on 

17 December 2010 (the ‘2010 Act’). 

1  
2  
3  

OJ L 189, 3.7.1998, p. 42. 
All ECB opinions are available on the ECB’s website at www.ecb.europa.eu. 
See  the  Memorandum  of  Understanding  on  specific  economic  policy  conditionality,  3.12.2010,  p.  4,  available  on  the 
Commission’s website at www.ec.europa.eu. 

 
 
 
 
                                                      
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The  amendments  to  the  No  1  Bill  include  the  following:  (i)  a  new  section  to  provide  for  cooperation 

between the CBI and relevant foreign authorities in respect of the CBI’s resolution powers under the draft 

law; (ii) extra provisions to allow the CBI to require authorised credit institutions, and their subsidiary or 

holding  companies,  to  provide  information  in  connection  with  transfer  orders  in  respect  of  their  assets 

and/or  liabilities;  (iii)  a  new  section  to  deal  with  valuations  of  such  assets  and  liabilities;  (iv)  new 

provisions  on  which  creditors  of  authorised  credit  institutions  or  their  subsidiary  or  holding  companies 

may apply for compensation where they are subject to transfer orders and how such compensation is to be 

calculated;  (v)  new  provisions  to  extend  the  scope  of  the  CBI’s  powers  in  respect  of  the  liquidation  of 

authorised credit institutions; and (vi) amendments to other legislation, including to the 2010 Act. 

2. 

General observations  

2.1  The  ECB  welcomes  that  the  amendments  address  several  specific  issues  raised  by  the  ECB  in 

Opinion  CON/2011/39,  whilst  the  comments  in  that  Opinion  remain  valid  for  the  issues  not 

addressed. 

2.2  Prior to the amendments, the draft law would apply to banks, building societies and credit unions 

licensed  in  Ireland  (hereinafter  ‘authorised  credit  institutions’),  but  only  to  the  extent  that  such 

institutions were not ‘relevant institutions’ under the 2010 Act, which includes Irish licensed banks 

to  which  financial  support  has  been  given  by  the  Minister.  Thus,  relevant  Irish  licensed  banks 

would  not  have  been  subject  to  both  the  draft  law’s  resolution  regime  and  the  2010  Act’s 

stabilisation regime contemporaneously. This has been amended by the draft law, where the CBI’s 

liquidation powers under the draft law are concerned. Relevant institutions are now to be included 

within the definition of ‘authorised credit institutions’. Therefore, under the draft law, the CBI will 

be able to exercise its liquidation resolution powers over all authorised credit institutions, including 

Irish licensed banks credit institutions which are subject of the 2010 Act and which have received 

financial support from the Minister, which is welcomed by the ECB. 

2.3  Under the draft law in its current form, credit unions are no longer ‘relevant institutions’ under the 

2010 Act, as Part 5 of Schedule 2 of the draft law will delete the reference to credit unions in the 

definition of ‘relevant institution’. Consequently, the 2010 Act will no longer apply to credit unions 

except to the extent that any orders or  requirements have been  made in regard to them under the 

2010  Act  and  therefore,  credit  unions  will  be  fully  subject  to  the  draft  law’s  resolution  regime. 

Furthermore, the ECB understands and welcomes that legislation will shortly be introduced which 

will  provide  for  a  strengthened  regulatory  framework  for  credit  unions,  including  effective 

governance and stabilisation requirements.  

2.4  Opinion CON/2011/39 welcomed the wider powers under the draft law that will be available to the 

CBI to manage and resolve financial institutions which are financially distressed and whose demise 

would  threaten  the  stability  of  the  financial  system.  The  ECB  notes,  however,  that  in  certain 

instances, the draft law does not clearly link the exercise of resolution tools to the objectives of the 

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draft law and would welcome further clarity in this regard. By way of example, section 10(2) of the 

draft law provides that the purpose of the resolution fund (hereinafter the ‘Fund’) is to provide a 

source  of  funding  for  the  resolution  of  financial  instability  or  a  serious  threat  thereto  in  an 

authorised  credit  institution.  The  ECB  would  welcome  the  draft  law  clarifying  that  the  use  of 

resolution  tools,  such  as  the  establishment  of  the  Fund,  should  be  linked  to  the  objectives  of  the 

draft law, for example by making specific reference to the requirement to satisfy the intervention 

conditions prior to the exercise of any resolution tool provided for in the draft law. 

3. 

Adaptation  of  the  Irish  resolution  framework  to  future  Union  legislation  on  a  Union  crisis 

management and bank resolution regime 

The  Irish  resolution  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. 

4.   Resolution Fund 

The  draft law provides  that  ‘the Minister  may  contribute to the  Fund  such sums as  he  or she considers 
appropriate  from  the  Central  Fund  or  the  growing  produce  of  the  Central  Fund’4.  Such  contributions 

would  be  in  addition  to,  amongst  other  sources  of  funding,  contributions  made  by  authorised  credit 

institutions  to  the  Fund.  The  ECB  recommends  that  the  draft  law  should  provide  that  the  level  of  such 

additional  contributions  by  the  Minister  should  be  linked  to  the  purpose  of  the  Fund  as  set  out  in 

section 10(2) of the draft law. 

5.  

Bridge banks 

The ECB welcomes that a bridge bank is to be wholly owned by the CBI or its nominees5. However, the 

ECB  assumes  that  the  nominees  will  be  another  State  entity,  for  example  the  National  Treasury 
Management Agency, and would welcome clarification in this regard. Moreover, the ECB reiterates6 that 

it would welcome an express provision in the draft law that the CBI as a shareholder in a bridge bank will 

in no event assume or finance any obligation of a bridge bank, and that this role will remain, under any 

circumstances, consistent with the prohibition on monetary financing under Article 123 of the Treaty. In 

this respect, the ECB would welcome further clarification in the draft law to address any potential liability 

that might attach to the CBI or its nominees in regard to its ownership of the bridge bank.  

Second, the ECB notes that draft amended section 17 provides that the CBI may set up a bridge bank only 

if, having regard to any of the matters in section 9(6) of the draft law that appear to be relevant to the CBI 

in the circumstances, it would be in the public interest to do so. The ECB notes that this need to show that 

4  
5  
6  

Section 12(1) of the draft law. 
Section 17(3) of the draft law. 
See Opinion ECB/2011/39, paragraph 3.6. 

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the setting up of the bridge bank is in the public interest does not expressly apply to the other resolution 

tools and therefore appears to set the bridge bank apart from the other tools in this respect. In that case, 

however, it is unclear whether the decision to set up a bridge bank requires the intervention conditions in 

section 8 of the draft law to be first fulfilled, as is the case with the other resolution tools (section 21(1)(a) 

in respect of transfer of assets and liabilities and section 55(a) in respect of special management). These 

matters should be further  clarified in the draft law for the bridge bank to remain effective and of equal 

rank with the other resolution tools. 

6.   Disclosure of information 

The  ECB  notes  the  inclusion,  in  respect  of  transfer  orders,  of  the  new  section  23  which  providing  that 

notwithstanding  any  other  rule  of  law,  the  CBI  may  disclose  information  that  it  obtains  to  a  potential 

transferee.  The  ECB  would  welcome  clarification  in  the  draft  law  to  address  either  (i)  how  such 

disclosure is to interact with other disclosure obligations or disclosure prohibitions provisions of national 
and Union law, for example Directives 2003/6/EC7, 2004/109/EC8, 2006/48/EC9 and 2006/49/EC10, and 

the  stock  exchange  rules  etc.,  that  might  apply  to  transferors  and  transferees,  or  (ii)  where  such  other 

obligations or prohibitions do apply, that they are to be disregarded when section 23 applies. 

7.  

Transfer orders   

7.1  Valuation and compensation 

Paragraph  3.8  of  Opinion  CON/2011/39  noted  that  the  draft  law  did  not  set  out  any  specific 

approach to valuation of assets to be transferred by virtue of a transfer order. The ECB therefore 

welcomes the inclusion of extensive new provisions to deal with (i) the calculation of the value of 

the  assets  to  be  transferred  ‘market  value’  (section  28),  (ii)  circumstances  where  creditors  of 

transferor  institutions  may  apply  for  compensation  (section  35)  and  (iii)  the  appointment  of  an 

‘assessor’ to calculate any such compensation due to such a creditor (section 36).   

The  ECB  also  welcomes  the  elaboration  in  the  draft  law  dealing  with  where  a  transferor  may 

dispute the valuation of transferred assets and/or liabilities determined by the CBI for the purposes 

of  a  transfer  order  (section  48).  The  ECB  notes  that,  where  such  a  dispute  arises,  the  CBI  must 

appoint an independent valuer to determine whether a competitive process was carried out by the 

CBI and if not, what the likely market value would have been had such a competitive process been 

7  

8  

9  

10  

Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market 
manipulation (market abuse) (OJ L 96, 12.4.2003, p. 16).  
Directive  2004/109/EC  of  the  European  Parliament  and  of  the  Council  of  15  December  2004  on  the  harmonisation  of 
transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated 
market and amending Directive 2001/34/EC (OJ L 390, 31.12.2004, p. 38). 
Directive  2006/48/EC  of  the  European  Parliament  and  of  the  Council  of  14  June  2006  relating  to  the  taking  up  and 
pursuit of the business of credit institutions (OJ L 177, 30.6.2006, p. 1). 
Directive  2006/49/EC  of  the  European  Parliament  and  of  the  Council  of  14 June  2006  on  the  capital  adequacy  of 
investment firms and credit institutions (OJ L 177, 30.6.2006, p. 201). 

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carried  out  (section  48(3)).  In  determining  the  likely  market  value  in  such  circumstances,  the 

independent  valuer  is  to  assume  various  particulars  set  out  in  section  48(5)(a)  to  (e).  The  ECB 

would recommend the inclusion of a further point (f), whereby the independent valuer should also 

assume that the competitive process  would  have  been  carried  out on the  basis that the institution 

concerned had not received any state financial assistance.  

7.2  Consideration for the transfer and publication 

The ECB notes that the draft law now includes a specific obligation on the CBI to publish details of 

the  consideration  calculated  for  assets  and/or  liabilities  transferred  under  a  transfer  order 

(section 29  in  conjunction  with  section  31(1)(b)).  The  ECB  also  notes  that  Union  law  already 

imposes  are  specific  disclosure  obligations  and  prohibitions.  While  the  ECB  welcomes  the 

obligation  to  publish  the  consideration  from  a  transparency  perspective,  it  would  welcome 

clarification in the draft law as to the interaction and priority between the consideration disclosure 

to be made pursuant to the draft law and disclosure obligations or prohibitions under Union law and 

the national regulations transposing it. The ECB also queries whether the draft law should provide 

some  flexibility  to  the  CBI  as  regards  whether  to  publish  all  the  contents  of  a  transfer  order,  in 

particular details of the consideration.   

8. 

Prohibition on monetary financing  

The  ECB  emphasises  that  it  is  important  that  national  provisions  comply  with  the  monetary  financing 

prohibition  under  Article  123  of  the  Treaty.  This  provision  prohibits  central  banks  from  providing 

overdraft facilities or any other type of credit facility to the public sector, including any financing of the 
public sector’s obligations vis-à-vis third parties11.  

The  draft  law12  provides  that  the  CBI  may  make  payments  and  charge  them  to  the  deposit  protection 

account,  to  facilitate  the  transfer  of  accounts  of  eligible  depositors  of  an  authorised  credit  institution 

subject  to  the  CBI’s  liquidation  powers  under  the  draft  law  and  for  the  purpose  of  cooperating  in  the 
pursuit of Objective  113 of a liquidator. The  draft law  further  provides that, where the CBI  makes such 

payments  and  charges  them  to  the  deposit  protection  account,  the  amount  of  the  payments,  with  the 

approval of the Minister, must be repaid to the CBI out of the Central Fund or the growing produce of that 

Fund  within  three  months.  Furthermore,  any  amount  paid  out  of  the  Central  Fund  to  the  CBI  must  be 

repaid to the Central Fund from the  deposit protection account with interest at the rate or rates that the 
Minister determines, or without interest14.   

Thus,  the  ECB  understands  that  the  draft  law  implies  that  the  CBI  may  temporarily  finance  the  Irish 

DGS’  tasks,  until  it  is  reimbursed  by  the  Central  Fund,  and  that  the  CBI  may  not  be  entitled  to  be 

11   

12   
13   
14   

See  Article  1(b)(ii)  of  Council  Regulation  (EC)  No  3603/93  of  13  December  1993  specifying  definitions  for  the 
application of the prohibitions referred to in Articles 104 and 104(b)(1) of the Treaty (OJ L 332, 31.12.1993, p. 1).  
Section 81(1)(b) of the draft law. 
See section 80(1) (a) of the draft law.  
See section 81(2) of the draft law.   

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reimbursed if the Minister does not consent15. Such advance payments by the CBI in the context of the 

operation  of  its  liquidation  powers  under  the  draft  law  are  incompatible  with  the  monetary  financing 

prohibition and consequently, the draft law needs to be amended. The only compatible forms of central 

bank  financing  of  deposit  guarantee  schemes  are:  (a)  intraday  credit  in  line  with  the  general  rules  on 

provision of such credit by the central bank; and (b) short-term emergency liquidity financing under strict 

conditions  established  in  the  ECB’s  Convergence  Reports,  i.e.  if  such  funding  is  short  term,  addresses 
urgent situations, systemic stability aspects are at stake and decisions are at the NCB’s discretion16. These 
conditions need to be listed in the draft law17 where emergency liquidity financing by the CBI of the Irish 

DGS is foreseen by the draft law. In this respect, it is noted that central bank support extended to deposit 

guarantee schemes should not amount to a systematic ‘pre-funding’ operation. 

Consequently,  the  ECB  proposes  amending  the  draft  law  either  to  (i)  clarify  that  there  will  be  no  such 

advance  financing  by  the  CBI,  or  (ii)  specify  in  section  81  that  the  Minister  transfers  the  necessary 

amounts from the Central Fund to the CBI before the CBI makes any payments related to the performance 

of the Irish DGS’ tasks. Alternatively, it should provide expressly that any advance payments by the CBI 

are only intraday. If, in addition, short-term emergency liquidity financing of Irish DGS operations by the 

CBI  is  foreseen,  conditions  for  such  financing  referred  to  above  should  be  expressly  listed  in  the  draft 

law. In such case, when exercising its discretion to grant a loan, the CBI has to ensure that by doing so it 

is  de  facto  not  taking  over  a  State  task.  Moreover,  to  rule  out  any  breach  of  the  monetary  financing 

prohibition, it may be useful to specify in the draft law that the credit facilities extended by the CBI to the 

Irish  DGS  are  based  on  adequate  collateral  and  are  granted  without  prejudice  to  Article  123  of  the 
Treaty18. 

9. 

Central bank independence 

In relation to the same provisions of the draft law as mentioned in the previous paragraph, the ECB refers 

to the principle of financial independence under which a national central bank (NCB) must have sufficient 

means not only to perform its tasks related to the European System of Central Banks (ESCB), but also its 
national tasks, e.g. financing its administration and own operations19. Financial independence also implies 
that  an  NCB  should  always  be  sufficiently  capitalised20.  Previous  ECB  opinions  pointed  out  that  the 

allocation  to  the  NCBs  of  specific  non-ESCB  related  tasks,  such  as  tasks  in  the  area  of  financial 

supervision or consumer  protection, needs  to  be  accompanied by  the  allocation of  adequate  human  and 

financial  resources  allowing  such  tasks  to  be  carried  out  in  a  manner  which  will  not  affect  the  NCBs’ 
operational  capacity  to  carry  out  their  ESCB-related  tasks21.  In  particular,  the  ECB  has  advocated  a 

15  
16   
17   
18  
19   
20  
21   

See section 8(1) of the Financial Services (Deposit Guarantee Scheme) Act 2009.  
See the ECB’s Convergence Report, May 2010, p. 25. 
See paragraphs 2.2 to 2.8 of ECB Opinion CON/2008/5 and paragraph 3.1.3 of ECB Opinion CON/2011/76. 
See paragraph 13 of the ECB Opinion CON/2001/32 and paragraph 2.7 of the ECB Opinion CON/2008/5. 
See the ECB’s Convergence Report, May 2010, p. 21.   
See the ECB’s Convergence Report, May 2010, p. 21. 
See for instance paragraph 3 of ECB Opinion CON/2007/8 and paragraph 3.3 of ECB Opinion CON/2011/76. 

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prudent approach in this respect when reimbursement arrangements are proposed in national legislation to 
finance  the  non-ESCB  related  tasks23.  In  addition  to  the  monetary  financing  prohibition  observations 

made in paragraph  8, the respective provision of the draft law, in conjunction with the provision  of the 

Financial  Services  (Deposit  Guarantee  Scheme)  Act  2009  that  the  CBI  may  not  be  entitled  to  be 

reimbursed  if  the  Minister  does  not  consent,  raises  concerns  in  respect  of  the  CBI’s  financial  and 

institutional  independence  to  the  extent  that  in  practice  the  CBI  will  not  be  able  to  autonomously  avail 
itself of sufficient financial resources to fulfil its mandate22.  

Opinion  CON/2011/39  noted  that  the  draft  law  allowed  the  Minister  in  certain  circumstances  to  make 

orders mitigating any unfairness or undue hardship caused by the operation of an effective ‘switch-off’ of 

certain  rights,  such  as  netting  and  set-off,  of  counterparties  dealing  with  authorised  credit  institutions 

under relevant agreements. The ECB recommended amending the relevant section to require the Minister 

to consult with the CBI prior to making any such order and the ECB welcomes that the draft law has now 
been amended23.  

10. 

2010 Act amendments 

The  draft  law  will  make  substantial  amendments  to  the  2010  Act.  The  ECB  understands  that  such 

amendments  are  mainly  designed  to  mirror  the  amendments  made  to  the  No  1  Bill  to  ensure  coherent, 

robust  and  effective  resolution  and  stabilisation  mechanisms  and  to  reflect  the  authorities’  experience 

from  litigation  of  a  number  of  resolution  orders  under  the  2010  Act.  The  ECB  notes  for  example  the 

mirror insertions relating to, for example, (i) applications to set aside transfer orders under the 2010 Act 

(14 day window now instead of 5 day window under both the stabilisation and resolution regimes), (ii) 

the publication and effectiveness of transfer orders. In addition, the ECB welcomes the clarification that 

stabilisation  orders  made  under  the  2010  Act  are  intended  to  fall  within  Directive  2001/24/EC  of  the 

European Parliament and of the Council of 4 April 2001 on the reorganisation and winding up of credit 
institutions24.   

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

Done at Frankfurt am Main, 21 October 2011. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

22  
23  

24  

See the ECB’s Convergence Report, May 2010, p. 21.   
Section 101(1) of the draft law. Opinion CON/2011/39 also refers to the need for a ‘relationship framework’ between the 
Minister and the Governor. See also Opinions CON/2010/92 and CON/2009/93 concerning the ‘relationship framework’. 
OJ L 125, 5.5.2001, p. 15. See for example the insertion of a new sub-section 2A in section 29 of the 2010 Act dealing 
with subordinated liabilities orders. 

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