Opinion of the European Central Bank of 11 November 2014 on the resolution of credit institutions and investment firms (CON/2014/80)
Date: 2014-11-11
Institutions: European Central Bank
Subjects: Hungary, banking supervision, company in difficulties, credit institution, financial solvency, financial stability, investment company, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 11 November 2014 

on the resolution of credit institutions and investment firms 

(CON/2014/80) 

Introduction and legal basis 

On 2 October 2014, the European Central Bank (ECB) received a request from the Magyar Nemzeti Bank 

(MNB) for an opinion on a draft decree establishing certain specific criteria for the purposes of assessing 

whether a credit institution or an investment firm qualifies as failing or likely to fail (hereinafter the ‘draft 

decree’). 

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/EC1, 

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. 

1. 

Purpose of the draft decree 

1.1  The Hungarian Parliament has recently adopted Law XXXVII of 20142 on the resolution of credit 

institutions  and  investment  firms  (hereinafter  the  ‘Law  on  resolution’)  in  order  to  transpose 
Directive  2014/59/EU  of  the  European  Parliament  and  of  the  Council3  (hereinafter  the  ‘BRRD’) 

into  Hungarian  law.  The  ECB  considered  the  Law  on  resolution,  in  its  draft  form,  in  Opinion 
CON/2014/624. This law provides for early intervention and resolution tools for use by the MNB as 

the  resolution  authority  designated  to  manage  credit  institutions  and  investment  firms  that  are 

failing or likely to fail. 

1.2  Article 32  of the BRRD  sets  out conditions for resolution which were transposed into  Hungarian 
law by Article 17 of the Law on resolution. The Law on resolution5 also empowers the Governor of 

1  

2  
3  

4  
5  

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). 
Published in Magyar Közlöny 2014/98. 
Directive 2014/59/EU of the European Parliament and of 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.) 
All ECB’s opinions are available on its website at: www.ecb.europa.eu. 
See Article 145(2)(d)and (e) of the Law on resolution. 

 
 
 
 
                                                 
ECB-PUBLIC 

the MNB to  adopt criteria applicable to the procedure for the resolution of credit institutions and 

investment firms. Accordingly, in order to facilitate an assessment of whether the conditions set out 

in Article 17(2)(a) to (c) of the Law on resolution are met, the draft decree:  

 

sets  out  the  quantitative  criteria  for  establishing  if  there  has  been  an  infringement  of  the 

requirements, for assessing whether a credit institutions or investment firm is failing or likely 

to fail; 

 

sets out  certain percentages applicable to the capital requirements of credit institutions and 

investment  firms  as  an  upper  limit  at  which  an  institution  may  or  will  be  deemed  to  be 

failing; 

 

sets out detailed rules on the criteria the MNB will take into account when deciding whether 

a credit institution or an investment firm is likely to fail. 

1.3  The  draft decree is expected to enter into force on 1 January 2015. According to the explanatory 

memorandum attached to the draft decree, the MNB intends to review the provisions of the draft 

decree following the European Banking Authority’s adoption of guidelines on the interpretation of 

the different circumstances in which an institution will be deemed to be failing or likely to fail, as 

foreseen in Article 32(6) of the BRRD. 

2. 

Observations 

2.1 

In accordance with Article 1(2) of Council Decision 98/415/EC, this opinion only addresses issues 

that go beyond the mere transposition of the BRRD into Hungarian law.  

2.2  Supervisory  decisions  deeming  an  institution  to  be  failing  or  likely  to  fail  should  be  taken  on  a 
case-by-case basis, after  an assessment of all  pertinent circumstances of the individual situation6. 

Any such decision should therefore include discretionary elements, which cannot be determined ex 

ante.  This  is  reflected  in  Article  32(4)(a)  of  the  BRRD,  which  involves  the  consideration  of 

whether  the  infringement  or  likely  infringement  of  requirements  for  continuing  authorisation 

justifies the withdrawal of the authorisation, and refers to the depletion of all or significant amounts 

of own funds without setting fixed thresholds. That said, a reference to thresholds relating to own 

funds requirements, below which an institution may be deemed to be failing, could provide guiding 

principles  for  the  institutions  involved,  and  may  limit  the  scope  for  supervisory  forbearance. 

Therefore, also with reference to Article 145(2)(d) and (e) of the Law on resolution, which, in the 

understanding  of  the  ECB,  empowers  the  Governor  of  the  MNB  to  adopt  a  set  of  quantitative 

criteria  instead  of  binding  thresholds,  such  thresholds  in  the  draft  decree  should  be  merely 

indicative. 

2.3  When laying down the abovementioned criteria, it is important that a thorough impact analysis is 

carried out as regards the actual level of inadequacy that would cause a specific institution to fail. 

The explanatory memorandum attached to the draft decree does not contain any information about 

6  

As an example for assessing other circumstances, see Article 3 and Article 4(2) of the draft decree.  

2 

 
                                                 
ECB-PUBLIC 

whether  the  MNB  has  carried  out  such  an  impact  assessment.  If  such  an  impact  analysis  has  not 

been  carried  out,  the  ECB  would  recommend  that  such  an  assessment  be  performed  before  the 

adoption of the draft decree, to make sure that the percentage prescribed in Article 4(1)(b) do not 

need to be recalibrated in order to ensure an effective resolution regime. 

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

Done at Frankfurt am Main, 11 November 2014. 

[signed] 

The President of the ECB 

Mario DRAGHI 

3