Opinion of the European Central Bank of 29 October 2015 on the deposit guarantee scheme (CON/2015/40)
Date: 2015-10-29
Institutions: European Central Bank
Subjects: Ireland, bank deposit, central bank, credit institution, financial stability, guarantee, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 29 October 2015 

on the deposit guarantee scheme 

(CON/2015/40) 

Introduction and legal basis 

On  9  October  2015  the  European  Central  Bank  (ECB)  received  a  request  from  the  Irish  Minister  for 
Finance  (hereinafter,  the  ‘Minister’)  for  an  opinion  on  a  draft  law1  amending  the  Financial  Services 

(Deposit  Guarantee  Scheme)  Act  2009  (hereinafter  the  ‘draft  law’),  and  draft  regulations  transposing 
certain provisions of Directive 2014/49/EU2 (hereinafter the ‘draft regulations’, and together with the draft 

law, the ‘draft laws’) into Irish 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  and  sixth  indents  of  Article  2(1)  of  Council  Decision 
98/415/EC3,  as  the  draft  laws  relate  to  the  Central  Bank  of  Ireland  (‘CBI’)  and  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 law 

1.1  The  draft  regulations  provide  that  the  CBI  may,  where  it  considers  it  appropriate  and  necessary 

having  regard  to  the  objectives  of  the  draft  regulations,  provide  finance  to  the  deposit  guarantee 

contributory fund on a short-term and urgent basis in order to meet the financing requirements of 

that fund under the draft regulations. The draft law provides that, where the CBI uses its own funds 

in respect of a payment from the contributory fund due to: (a) the available financial means of the 

contributory fund not being sufficient in respect of the costs to the fund of a particular compensation 

event  in  Ireland;  (b)  there  being  no  funds  standing  to  the  credit  of  the  credit  institutions  in  the 

legacy fund; and (c) the extraordinary ex-post contributions referred to in the draft regulations not 

being  immediately  accessible,  including  for  reasons  relating  to  the  financial  position  of  the  credit 

institution  or  credit institutions concerned, the  amount of the payment is,  with  the  approval  of  the 

Minister,  to  be  repaid  out  of  the  State’s  Central  Fund  or  the  growing  produce  thereof  within  two 

weeks. 

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Finance (Miscellaneous Provisions) Bill 2015. 
Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes 
(OJ L 173, 12.6.2014, p. 149). 
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). 

 
 
 
 
 
 
                                                 
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1.2  The  draft  law  also  provides  for  a  transitional  funding  arrangement  for  the  new  deposit  guarantee 

scheme for the period during which the new contributory fund is being built up, and for the return of 

money  recovered  by  the  deposit  protection  account  to  credit  institutions  for  compensation  events 

occurring on or before 1 November 2015. 

2.   General observations 

2.1  The ECB welcomes the draft laws. 

2.2  The ECB stresses that it does not  opine  on  whether the  draft  laws  effectively  discharge Ireland’s 

obligations to implement Directive 2014/49/EU. Rather, the ECB focuses on those provisions which 

may affect the CBI’s role as a member of the European System of Central Banks. 

3.   Monetary financing prohibition  

3.1  

In  line  with  its  previous  opinions,  including  ECB  Opinion  CON/2008/69,  addressed  to  the  Irish 
authorities and concerning the Financial Services (Deposit Guarantee Scheme) Bill 20084, the ECB 

reiterates its view that activities performed by the CBI need to comply with the monetary financing 
prohibition laid down in Article 123(1) of the Treaty and Council Regulation (EC) No 3603/935. This 

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 parties. In the 

same vein, the ECB expects that functions to be performed by the CBI for the benefit of the deposit 

guarantee  scheme  will  be  conducted  in  a  manner  fully  compatible  with  the  CBI’s  institutional  and 

financial  independence,  as  a  safeguard  for  the  proper  performance  of  the  CBI’s  tasks  under  the 

Treaty  and  the  Statute  of  the  European  System  of  Central  Banks  and  of  the  European  Central 
Bank6. 

3.2  

In this context, the ECB has consistently emphasised that the only forms of central bank financing 

of  a  national  deposit  guarantee  scheme  for  credit  institutions  compatible  with  the  monetary 

financing prohibition are: (a) intraday credit in line with the general rules on provision of such credit 
by  the  central  bank7;  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 central bank’s discretion8. 
Provisions to this effect need to be inserted into the draft law9. Taking these criteria into account, 

the following points are made. 

3.3  The ECB welcomes the fact that the CBI is to be repaid the monies advanced to the contribution 

fund  within  two  weeks. However,  it is of utmost importance  in satisfying the ‘short term’ financing 

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9  

See  most  recently  CON/2015/17.  See  also  ECB  Opinion  CON/2008/69,  ECB  Opinion  CON/2008/5,  and  ECB 
Opinion CON/2007/26. All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 

Council  Regulation  (EC)  No  3603/93  of  13  December  1993  specifying  definitions  for  the  application  of  the 
prohibitions referred to in Articles 104 and 104b(1) of the Treaty (OJ L 332, 31.12.1993, p. 1). 
See e.g. paragraph 3.4 of ECB Opinion CON/2008/52 and paragraph 3.4 of ECB Opinion CON/2008/65. 

Article 4 of Regulation (EC) No 3603/93. 
See e.g. paragraph 2.2 of ECB Opinion CON/2014/86. 
See e.g. paragraphs 2.2 to 2.8 of ECB Opinion CON/2008/5. 

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aspect of the convergence criteria that the role of the CBI is clearly defined, and that the process by 

which  it can  recover  monies paid  to  the  deposit  guarantee  contribution fund in  the circumstances 

described  in  the  draft  regulations  is  clear  and  unambiguous.  In  this  respect,  the  inclusion  of  an 

obligation  to  seek  ministerial  approval  for  repayment  of  the  monies  advanced  to  the  contributory 

fund by the CBI implies that there is discretion as to whether or not the money should be repaid. In 

order  to  satisfy  the  criteria  it  is  clear  that  the  monies  must  be  repaid.  Therefore,  to  eliminate 

ambiguity  on  this  point,  the  ECB  suggests  that  the  reference  to  seeking  ministerial  approval  is 

deleted.  Also,  in  the  interests  of  legal  certainty,  it  should  be  made  clear  in  the  draft  law  that  the 

‘contributory  fund’  referred  to  therein  is  one  and  the  same  as  the  ‘deposit  guarantee  contributory 

fund’ referred to in the draft regulations. 

3.4 

In  addition,  the  draft  law  provides  that  the  CBI  is  to  be  repaid  where  it  has  used  own  funds  in 

respect of a payment from the contributory fund money where the payment of own funds was made 

due to the reasons set out in (a) to (c) in paragraph 1.1. For the sake of clarity, it would be helpful if 

the draft regulations are amended so as to refer explicitly to the circumstances set out in the draft 

law and in (a) to (c) in paragraph 1.1. 

3.5  

In  respect  of  the  ‘urgency’  requirement  of  the  criteria,  the  draft  regulations  are  clear  that  the  CBI 

may provide finance to the deposit guarantee contributory fund where required on an ‘urgent basis’ 

to meet the funding requirements of that fund under the regulations. 

3.6 

In respect of the requirement that an NCB has discretion as to whether or not to advance finance, 

the draft regulations provide the CBI with a broad discretion to advance monies where it considers 

it  ‘appropriate  and  necessary’  having  regard  to  the  objectives  of  Part  6  of  the  draft  regulations. 

These  objectives  are  not  clearly  identified  in  the  draft  regulations.  In  order  to  more  fully  align  the 

text  of  the  draft  regulations  with  the  convergence  criteria,  the  ECB  suggests  that  the  general 

reference  to  the  objectives  of  Part  6  of  the  regulations  should  be  replaced  with  an  express 

reference to the objective of safeguarding systemic stability. 

3.7  Finally,  the  ECB  invites  the  consulting  authority  to  consider  whether  it  may  be  useful  to  insert  a 

reference to Article 123(1) of the Treaty into the text of the draft laws. 

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

Done at Frankfurt am Main, 29 October 2015. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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