Opinion of the European Central Bank of 6 August 2014 on resolution of credit institutions and investment firms (CON/2014/62)
Date: 2014-08-06
Institutions: European Central Bank
Subjects: Hungary, banking supervision, central bank, company in difficulties, credit institution, financial stability, investment company, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 6 August 2014 

on resolution of credit institutions and investment firms 

(CON/2014/62) 

Introduction and legal basis 

On 2 June 2014 the European Central Bank (ECB) received a request from the Hungarian Ministry for the 

National  Economy  (hereinafter  the  ‘consulting  authority’)  for  an  opinion  on  a  draft  law  establishing  a 

resolution framework for credit institutions and investment firms (hereinafter the ‘draft law’). Given the 

advanced  stage  of  the  legislative  process,  the  consulting  authority  asked  for  the  adoption  of  the  ECB’s 

opinion on an urgent basis. 

On 20 June 2014 the consulting authority notified the ECB that the version of the draft law which had 

been submitted to Parliament for adoption was substantially different from the version sent to the ECB. 

The ECB has therefore adopted its opinion based on the version of the draft law available on the website 
of the Hungarian Parliament1. 

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/EC2, 

as the draft decree relates to 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. 

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Purpose of the draft law 

1.1  According  to  the  explanatory  memorandum,  the  draft  law  aims  to  transposing  Directive 
2014/59/EU of the European Parliament and of the Council3 (hereinafter the ‘BRRD’) by providing 

early intervention tools and resolution tools for the Magyar Nemzeti Bank (MNB) as the resolution 

authority designated to manage failing or likely to fail credit institutions and investment firms, in 

order  to  allow  the  MNB  to  ensure  the continuity  of  the  credit  institutions’  and  investment  firms’ 

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2  

3  

Draft law No T/262, submitted to the Hungarian Parliament on 12 June 2014. 
Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national authorities 
regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 
Directive  2014/59/EU  of  the  European  Parliament  and  the  Council  of  15  May  2014  establishing  a  framework  for  the 
recovery  and  resolution  of  credit  institutions  and  investment  firms  and  amending  Council  Directive  82/891/EEC,  and 
Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, 
and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council (OJ L 173, 
12.6.2014, p. 190.) 

 
 
 
 
                                                 
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fundamental  financial  and  economic  functions  while  minimising  the  impact  on  the  financial 

system. The draft law also aims to maintain the stability of the financial markets, and to minimise 

the cost to taxpayers of any potential resolution via the establishment of a resolution fund funded 

by levies on credit institutions and investment firms.  

1.2  To facilitate the above aims, the draft law also amends several Hungarian legal acts, including the 

Law on the Magyar Nemzeti Bank4.  

1.3  The draft law is planned to enter into force three days after its publication, with the exception of a 

number of provisions which will only enter into force sixty days after its adoption. 

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General observations 

2.1  Appropriate time to consult the ECB 

The ECB received the request from the consulting authority for an urgent consultation on the draft 

law on 2 June 2014. It requested the ECB’s opinion by 25 June 2014. On 20 June 2014 it informed 

the ECB of substantial changes to the draft law. 

The  draft  law  was  adopted  on  4  July  2014  before  the  ECB  could  adopt  this  opinion5.  As  a 

consequence,  there  was  no  possibility  for  the  Hungarian  legislator  to  take  the  ECB’s  views  into 

account before adopting the draft law. This made the request for an urgent ECB opinion obsolete. 

Furthermore,  the  draft  law  was  enacted  with  substantial  amendments  which  were  not  sent  to  the 

ECB for consultation. 

With regard to the consultation on the draft law, the Hungarian authorities have not complied with 

their  duty  to  consult  the  ECB.  The  adoption  of  this  opinion  in  no  way  divests  the  Hungarian 

authorities of their duty to consult in compliance with this obligation, since this duty is important 

for the application and interpretation of the enacted law and any possible future amendments. 

The  ECB  reiterates  that  even  cases  of  particular  urgency  do  not  relieve  national  authorities  from 

their duty under Articles 127(4) and 282(5) of the Treaty to consult the ECB and to allow sufficient 

time  to  take  its  views  into  account,  in  accordance  with  Decision  98/415/EC.  Any  significant 

amendments to the draft law, as in the case of the provisions subject to this consultation, have to be 

submitted to the ECB in order to allow it to issue its opinion based on the most recent text. In cases 

of particular urgency which do not allow for a normal consultation period, the consulting authority 

may  indicate  urgency  in  the  consultation  request  and  ask  for  a  shorter  deadline  for  the  ECB’s 

opinion to be adopted, thereby indicating the estimated course of the legislative process. However, 

the second sentence of Article 4 of Decision 98/415/EC provides that the ECB must be consulted 

‘at  an  appropriate  stage’  in  the  legislative  process.  This  implies  that  the  consultation  should  take 

place at a point in the legislative process which gives the ECB sufficient time to examine the draft 

legislative  provisions  and  to  adopt  its  opinion  in  all  required  language  versions,  and  which  also 

4  
5  

Law CXXXIX of 2013 on the Magyar Nemzeti Bank. 
Law XXXVII of 2014, published in Magyar Közlöny 98/2014 on 18 July 2014. 

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enables  the  relevant  national  authorities  to  take  the  ECB’s  opinion  into  consideration  before  the 

provisions are adopted. Article 3(4) of Decision 98/415/EC also obliges Member States to suspend 

the adoption process for draft legislative provisions, pending receipt of the ECB’s opinion. 

The ECB would appreciate the consulting authority honouring its obligation to consult the ECB in 

line with the provisions of Decision 98/415/EC in the future. 

2.2 

Independence of the MNB 

The ECB welcomes the new resolution tasks allocated to the MNB under the draft law, which are 

broadly  consistent  with  its  financial  stability role.  The  ECB  understands  that  these  tasks  will  not 

interfere  with  the  performance  of  its  ESCB-related  tasks  under  the  Treaty  or  reduce  the  funds 
available to carry them out6. The ECB reiterates that, in view of the MNB’s new role as resolution 

authority and in line with the principle of financial independence, appropriate resources will have 
to be made available to ensure that it is able to perform these new tasks7. In order to be compatible 

with the Treaty, any involvement on the part of the MNB or the members of its decision-making 

bodies  in  measures  to  strengthen  financial  stability  must  safeguard  the  MNB’s  functional, 

institutional  and  financial  independence  and  the  personal  independence  of  the  members  of  its 

decision-making  bodies,  and  the  proper  performance  of  their  tasks  from  an  operational  and 

financial point of view under the Treaty and the Statute of the European System of Central Banks 

and of the European Central Bank.  

3. 

Specific observations 

3.1  Funding and replenishment of the resolution fund 

The  ECB  welcomes  the  fact  that  the  initial  capitalisation  of  the  resolution  fund  will  be  achieved 

through  the  imposition  of  an  ex  ante  levy  on  the  financial  services  industry,  as  this  will  protect 

public  funds  and  reduce  moral  hazard.  This  is  considered  to  be  broadly  in  line  with  the 

countercyclical  approach  taken  in  the  BRRD  of  building  up  funds  before  a  crisis.  As  funds 

accumulated ex ante may prove insufficient in a crisis situation, the ECB welcomes the provisions 
of  the  draft  law8  requiring  the  banking  sector  to  repay  any  funds  provided  by  the  State  during  a 

resolution, if these are not recovered during the resolution process. This concept of extraordinary 

ex post levies, which is enshrined in the BRRD, promotes additional market discipline and is aimed 
at addressing moral hazard risk9. The ECB also welcomes the provision of the draft law10 stating 

that the MNB may not under any circumstances finance the resolution fund, which is in line with 

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7  
8  
9  
10  

See  paragraph  4  of  Opinion  CON/2014/31,  paragraph  3.3  of  Opinion  CON/2013/10,  paragraph  2.3  of  Opinion 
CON/2012/52, paragraph 3 of Opinion CON/2011/69, and paragraph 3.2.3 of Opinion CON/2010/33. All ECB opinions 
are published on the ECB’s website at www.ecb.europa.eu. 
See paragraph 3.1.2 of Opinion CON/2013/56. 
See Articles 127, 132 and 140 of the draft law. 
See further paragraph 6.3 of Opinion CON/2010/83. 
See Article 132(3) of the draft law. 

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the prohibition of monetary financing11. The ECB understands that this provision applies to all of 

the MNB’s activities related to the resolution fund, including the management of the account of the 

resolution fund pursuant to Article 134 of the draft law. 

3.2  Cooperation with the ECB 

Hungary is not a participating Member State under Council Regulation (EU) No 1024/2013 of 15 
October 201312, i.e. it is not a Member State whose currency is the euro or a Member State whose 

currency  is  not  the  euro  which  has  established  close  cooperation  in  accordance  with  Article  7  of 

Regulation  (EU)  No  1024/2013.  While  there  is  no  reference  in  the  draft  law  to  the  MNB  as  the 

competent  authority  of  a  non-participating  Member  State  cooperating  with  the  ECB  in  the 

performance  of  supervisory  tasks  under  Union  law,  such  cooperation  is  essential  and  should  be 

carried out in accordance with Article 3(6) of Regulation (EU) No 1024/2013.  

3.3  Operational separation of the MNB’s supervisory and resolution functions 

In  view  of  the  MNB  carrying  out  both resolution  and  supervisory  functions,  the  ECB  notes  that, 

while  the  draft  law  states  the  principle  that  the  resolution  function  will  be  operationally 

independent from the MNB’s other functions, it does not specify any particular arrangements that 

are to be put in place in order to safeguard this independence. The BRRD ‘exceptionally’ allows an 

authority  to  carry  out  both  resolution  and  supervisory  functions  on  the  condition  that  adequate 

structural arrangements are put in place to ensure operational independence and to avoid conflicts 

of interest between the resolution function and the authority’s other functions. By way of example, 

the BRRD envisages structural separation being achieved through separate reporting lines for staff 

involved  in  carrying  out  resolution  tasks  from  those  involved  in  supervision  activity.  The  ECB 

recommends  introducing  the  requirements  for  adequate  structural  separation  as  laid  down  in  the 
BRRD13,  in  order  to  ensure  the  operational  independence  of  the  resolution  function  within  the 

MNB. That separation should not, however, prevent the resolution function from having access to 

any necessary information which is available to the supervisory function. 

3.4 

Independent valuation  

The MNB is required to determine the value of the assets and liabilities of the institution that will 

undergo resolution by means of an independent valuation. Article 23(8) of the draft law provides 

that the MNB, acting in its resolution capacity, has to approve the independent valuation by issuing 

an order. The order can only be overturned as part of a legal challenge to the decision ordering the 

resolution  of  the  institution.  The  ECB  considers  that  it  should  be  made  clear  that  the  valuation 

report is an integral part of the decision ordering the resolution and thus should not require separate 

approval. It is important that upon ordering a valuation report the MNB does not take any action 

11  

12  

13  

See the ECB’s June 2014 Convergence Report, p. 38. See also paragraph 4 of Opinion CON/2011/103, paragraph 4.3 of 
Opinion CON/2011/93, paragraph 3.6 of Opinion CON/2011/39 and paragraph 3.2 of Opinion CON/2008/59. 
Council  Regulation  (EU)  No  1024/2013  of  15  October  2013  conferring  specific  tasks  on  the  European  Central  Bank 
concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63). 
Pursuant to the third indent of Article 288 of the Treaty, national authorities are free to choose the form and methods of 
implementing a directive. 

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during or after the preparation of the report that could cast doubt on the independence of the entity 

which prepared it. 

3.5  Legal remedies 

Article  116  of  the  draft  law  grants  affected  parties  the  right  to  appeal  against  an  MNB  decision 

ordering a resolution or exercising resolution powers. However, the ECB notes that Article 116(4) 

of  the  draft  law  imposes  a  number  of  restrictions  on  the  rights  of  appellants.  The  consulting 

authority  is  invited  to  consider  whether  these  restrictions  are  necessary  to  ensure  the  expeditious 

determination  of  such  appeals,  and  consistent  with  the  need  to  preserve  a  balance  between  the 

property rights of affected parties and the public interest in a prompt resolution being affected by 

the  resolution  authority.  What  is  critical  is  that  the  filing  of  the  appeal  does  not  suspend  the 

resolution process.  

3.6 

Sale of business tool 

Article 36(2) of the draft law appears to allow the MNB in its capacity as resolution authority to 

require an institution to search for a buyer of its business, or even take over from the institution’s 

management in conducting such a search, although the competent authorities have not yet placed 
the institution into resolution14. In this context the ECB notes that Article 36(2) of the draft law is 

not fully in line with Article 27(2) of the BRRD. This provision of the BRRD sets out that if the 

conditions  for  early  intervention  are  met,  the  resolution  authority  may  require  the  institution  to 

contact potential purchasers in order to prepare for its resolution. In contrast, the draft law makes 

the power to require the institution to contact potential purchasers conditional on the unsuccessful 

use of intervention measures. Furthermore, the BRRD also grants resolution authorities the power 

to decide on the timing for the potential application of the sale of business tool, without linking it to 

the unsuccessful application of intervention measures. With a view to the above, Article 36(2) of 

the law would benefit from being brought in line with the provisions set out in Article 27(2) of the 

BRRD. 

3.7  Depositor preference rules  

The ECB considers that a depositor preference as set out in Article 108 of the BRRD, i.e. ‘super 

priority’ for covered deposits in the ranking of creditors in insolvency, and ‘simple priority’ for all 

eligible deposits held by natural persons, and by micro, small and medium-sized enterprises in the 

ranking of creditors in insolvency, should be fully and clearly introduced into Hungarian law. The 

ECB  understands  that  Article  154  read  in  conjunction  with  Article  160(6)  of  the  draft  law 

introduces some form of preference, which, however, does not clearly and fully reflect Article 108 

of  the  BRRD,  because  the  distinction  between  covered  and  eligible  deposits  is  not  reflected 

adequately, thereby allowing for multiple interpretations of these provisions of the draft law. The 

14  

In  this  connection  see  also  the  conditions  for  a  resolution  to  commence  and  the  procedure  to  be  followed  set  out  in 
Article 17 of the draft law. 

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ECB  points  out  that  it  is  necessary  to  fully  and  clearly  implement  the  depositor  preference  in 

Hungarian legislation by the 31 December 2014 transposition deadline set by the BRRD.  

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

Done at Frankfurt am Main, 6. August 2014. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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