Opinion of the European Central Bank of 15 December 2016 on the powers of Česká národní banka to conduct financial market transactions (CON/2016/60)
Date: 2016-12-15
Institutions: European Central Bank
Subjects: Czechia, central bank, competence of the institution, financial stability, investment aid, liquidity control, money, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 15 December 2016  

on the powers of Česká národní banka to conduct financial market transactions 

(CON/2016/60) 

Introduction and legal basis 

On 24 November 2016 the European Central Bank (ECB) received a request from the Minister of Finance 

of the Czech Republic for an opinion on a draft law amending the Law on Česká národní banka and the 

Law on the circulation of banknotes and coins (hereinafter the ‘draft 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 first, third and sixth indents of Article 2(1) of Council Decision 
98/415/EC1, as the draft law contains provisions relating to currency matters, Česká národní banka and 

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  main  purpose  of  the  draft  law  is  to  amend  certain  provisions  of  the  Law  on  Česká  národní 
banka2, which are seen as not sufficiently reflecting or in step with developments in the conduct of 

monetary  and  macroprudential  policy,  particularly  regarding  the  central  bank’s  monetary  and 

macroprudential  policy  instruments.  The  draft  law  aims  therefore  to  give  Česká  národní  banka 

(ČNB)  the  flexibility  to  use  a  wider  range  of  monetary  and  macroprudential  policy  instruments  to 

protect the financial system against threats to financial stability. In place of the current provisions 
on  transactions  conducted  with  banks3  and  other  transactions,  which  specify  which  types  of 

transaction ČNB may enter into and with what types of institution, the draft law authorises ČNB to 

conduct  transactions  in  the  financial  market  generally  and  sets  out  a  non-exhaustive  list  of  such 
transactions  and  their  counterparties4.  The  draft  law  also  changes  the  formula  for  setting  the 

penalty  interest  to  be  applied  for  a  breach  of  minimum  reserve  requirements  to  make  it  a  more 

effective sanction.  

1.2.  The  draft  law  also  amends  the  rules  allowing  ČNB  to  provide  emergency  liquidity  assistance  to 

permit  ČNB,  in  the  interests  of  maintaining  the  liquidity  of  a  bank,  foreign  bank  branch  or  credit 

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2  
3  
4  

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). 

Law No 6/1993 Coll. 
Articles 27 to 29a of the Law on ČNB. 

Draft new Article 32 of the Law on ČNB.  

 
 
 
 
                                                 
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union,  to  exceptionally  provide  an  institution  of  that  kind  with  short-term  credit,  if  adequately 

collateralised,  or  to  enter  into  a  repo  transaction  for  up  to  three  months.  Furthermore,  if  the 

Guarantee  System  for  the  Financial  Market  (GSFM)  has  insufficient  funds  to  perform  its  tasks 
arising  under  the  legislation  governing  deposit  insurance5  and  this  situation  might  jeopardise 

stability in the financial market, the draft law authorises ČNB in urgent cases to provide the GSFM, 

upon request, with short-term credit or enter into a repo transaction with the GSFM for a maximum 
period of three months6. 

1.3.  The  draft  law  also  amends  provisions  of  the  Law  on  ČNB  concerning  ČNB’s  other  statutory 

activities.  The  most  significant  amendment  is  the  express  authorisation  of  ČNB  to  establish  or 
participate in the capital of another legal entity in order to support the carrying out of ČNB’s tasks7. 

According  to  the  explanatory  memorandum  to  the  draft  law  this  is  not  a  new  power  but  simply  a 

clarification  for  reasons  of  legal  certainty.  Until  now  this  power  has  been  derived  from  an 

interpretation of the general wording of Article 40 of the Law on ČNB, which provides that ČNB is 

entitled  to  engage  in  investment  activity.  According  to  the  explanatory  memorandum,  the  said 

authorisation  is  without  prejudice  to  the  responsibility  of  ČNB  for  the  proper  performance  of  its 

central bank objectives and tasks. It is also explained that it is without prejudice to the prohibition of 

monetary  financing,  set  out  in  Article  34a  (1)  of  the  Law  on  ČNB,  which  means  that  any  ‘form  of 

arrangement  is  excluded  which  might  lead  to  the  provision  of  credit  by  the  central  bank  to  the 

State, to another public law entity or to a person under the public law entity’s control or which might 
entail any form of financing of State tasks by the central bank’8.  

1.4. 

In addition, ČNB’s other activities are extended to expressly include ‘security activities insofar as is 
necessary to provide for its own operations’9. According to the explanatory memorandum this is not 

a new power but simply a clarification for reasons of legal certainty. Until now this power has been 

derived  from  an  interpretation  of  the  general  wording  of  Article  47a  of  the  Law  on  ČNB,  which 

provides that ČNB shall manage its assets with due diligence. As regards consumer credit secured 

by  residential  property,  the  draft  law  introduces  a  macroprudential  regulatory  regime  for  credit 

indicators to be used by providers of consumer credit, allowing ČNB to set upper limits on selected 

credit indicators concerning consumer credit secured by residential property if it identifies systemic 

risks related to the provision of the credit. 

1.5. 

In the area of banknotes and coins, the draft law amends the Law on ČNB and consequentially the 
Law  on  the  circulation  of  banknotes  and  coins10,  authorising  ČNB  to  issue  commemorative 
banknotes  and  trade  coins11.  The  term  ‘commemorative  banknote’  is  defined  as  a  domestic 

banknote  intended  for  collection  which  is  defined  as  a  commemorative  banknote  by  an 

5  
6  
7  
8  

9  

10  
11  

Law No 374/2015 Coll. on recovery and resolution in the financial market and Law No 21/1992 Coll. on banks. 
Draft new Article 33a of the Law on ČNB. 
Draft new Article 40(2) of the Law on ČNB. 
See  the  explanatory  memorandum,  p.  22-23.  The  explanatory  memorandum  is  available  in  Czech  on  the  Czech 
Government’s website at www.odok.cz. 
Draft new Article 40(1) of the Law on ČNB. According to the explanatory memorandum, this is not meant to be a new 
statutory task. 

Law No 136/2011 Coll. 
Draft new Article 20 of the Law on ČNB as regards issue of trade coins and draft new Article 16(2) of the Law on 
ČNB law as regards commemorative banknotes. 

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implementing legal rule governing its issuance12. Trade coins will not be legal tender and have no 

par value.  

1.6.  Finally,  the  draft  law  makes  a  number  of  technical  amendments  to  the  Law  on  ČNB,  principally 

concerning  ČNB’s  cooperation  with  foreign  or  other  international  organisations,  its  financial 

management, statistical reporting and annual reporting. As regards annual reporting, the disclosure 

of  salaries  in  ČNB’s  annual  financial  report  is  extended  to  include  the  senior  officers  reporting 

directly to ČNB’s Board and remote access to the annual report is introduced. 

2. 

General observations 

The ECB broadly welcomes the draft law, which is generally designed to bring the Law on ČNB in 

line with the statutory framework of the European System of Central Banks (ESCB) with respect to 

the conduct of monetary policy, particularly regarding ČNB’s monetary and macroprudential policy 

instruments, and other activities of ESCB members. 

3. 

Specific observations 

3.1  The  ECB  welcomes  the  broadening  of  the  provisions  of  the  Law  on  ČNB  concerning  ČNB’s 

transactions on the market to allow it to conduct a wider range of transactions with financial market 

participants. The ECB notes that the provisions of the draft law which deal with ČNB’s open market 

and credit operations are inspired in this regard by the  wording of Article 18 of the Statute of the 

European System of Central Banks and of the European Central Bank (hereinafter the ‘Statute of 

the ESCB’).  

3.2  The ECB also welcomes the provisions of the draft law clarifying the conditions for ČNB’s provision 

of  urgent,  short-term  liquidity  to  the  GSFM.  The  ECB  understands  that  the  reference  to  ‘tasks 

arising  under  the  legislation  governing  deposit  insurance’  is  a  consequential  amendment 

necessitated by the legislation implementing Directive 2014/59/EU of the European Parliament and 
of the Council13, which specifies the tasks and financing of the deposit guarantee scheme (DGS), 

as distinct from the resolution fund, which although  also administered by the GSFM, must not be 

financed by ČNB by reason of the prohibition of monetary financing under Article 123 of the Treaty. 

The ECB considers that in this respect the draft law is in line with the ECB’s position according to 

which  national  legislation  that  provides  for  the  financing  by  a  national  central  bank  (NCB)  of  a 

national DGS for credit institutions is compatible with the monetary financing prohibition only if it is 

short term, addresses urgent situations, systemic stability aspects are at stake, and decisions are 
at the NCB’s discretion14. The ECB notes that the draft law aims to fully reflect these criteria by also 

specifying that the funding may be granted only in urgent cases. Furthermore, the draft law enables 

12  

13  

14 

Draft  new  Article  2(3)  of  the  Act  No.  136/2011  Coll.,  on  the  circulation  of  banknotes  and  coins  and  on  the 
amendment of Act No. 6/1993 Coll., on the Czech National Bank. 
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). 
ECB  Convergence  Report  2016,  p.  33;  see  also  paragraph  3.1.3  of  Opinion  CON/2015/22.  All  ECB  opinions  are 
published on the ECB’s website at www.ecb.europa.eu. 

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ČNB to enter into a repurchase transaction (repo) with the GSFM as an alternative to a short term 

credit facility. The ECB considers repo  operations to fall within the concept of a ‘credit facility’ for 

the  purposes  of  assessing  the  compliance  of  such  transactions  with  the  prohibition  of  monetary 

financing under Article 123 of the Treaty. This is because repo operations entail the creation of a 

claim  in  favour  of  ČNB  against  the  GSFM,  as  ČNB  would  have  the  right  to  be  repaid  the  cash 

amount,  increased  by  the  applicable  repo  rate,  upon  the  transfer  back  to  GSFM  of  the  collateral 

securities.  

3.3  The ECB notes that the draft law permits ČNB to establish a legal entity or acquire holdings therein 

in order to support the carrying out of its tasks. The ČNB’s tasks include the task of contributing to 
the tasks and objectives of the ESCB pursuant to the Treaty and the Statute of the ESCB15. Tasks 

assigned to the ESCB by the Treaty and the Statute of the ESCB must be fulfilled by the ECB and 
the  NCBs16.  As  a  consequence,  ČNB’s  ESCB-related  tasks  must  not  be  transferred  to  another 

legal entity. Activities that are ancillary and preparatory to these tasks may be outsourced if  ČNB 

retains full legal responsibility and maintains supervision and control over the relevant activities, in 

particular  to  ensure  that  the  applicable  legal  regime,  including  confidentiality  provisions,  is 

maintained. The ECB invites ČNB to seek the ECB’s views if ČNB intends to make arrangements 

using  the  power  to  establish  a  legal  entity  or  acquire  holdings  therein  in  order  to  support  the 

carrying out of its ESCB-related tasks. 

3.4 

In  addition,  the  ECB  understands  that  ČNB’s  establishment  of,  or  acquisition  of  any  holding  in, 

another legal entity will be without prejudice and subject to the monetary financing prohibition under 
Article 123 of the Treaty, as referred to in Article 34a of the Law on ČNB, which is not amended17 

and applies across the Law on ČNB. In this regard, The ECB wishes to emphasise in this respect 

that  ČNB  must  not  establish  another  legal  entity  which  is  involved  in  the  performance  of  a 

government task without being adequately remunerated in advance for the costs involved, and that 

ČNB  must  in  no  event  assume  or  finance,  even  in  its  capacity  as  shareholder,  any  obligation  of 

such a legal entity, for example, a bridge bank for the purposes of bank resolution.  

3.5  The ECB notes that ČNB will be authorised to issue commemorative banknotes. The competence 

to decide on the denominations and specifications of banknotes denominated in national currency 

remains at the national level as long as the Czech Republic is a Member State with a derogation in 

accordance with Article 140(1) of the Treaty. As and when the Czech Republic’s derogation will be 

abrogated  in  accordance  with  Article  140(2)  of  the  Treaty,  this  competence  will  be  transferred  to 

the  ECB  Governing  Council.  The  existing  Decision  of  the  ECB  of  19  April  2013  on  the 

denominations,  specifications,  reproduction,  exchange  and  withdrawal  of  euro  banknotes 
(ECB/2013/10)18 does not refer to the issuance of commemorative euro banknotes, thus reflecting 

that no such notes may currently be issued by Eurosystem central banks. In addition, the potential 

issuance  of  commemorative  banknotes  of  very  high  value  could  thwart  efforts  to  combat  money 

15  
16  
17  
18  

Article 1a of the Law on ČNB. 

Paragraph 4 of Opinion CON/1998/35 and paragraph 4 of Opinion CON/1999/20. 
Other than the insertion of a footnote reference to Article 123(2) of the Treaty.  

OJ L 118, 30.4.2013, p. 37. 

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laundering  and  terrorism  financing,  taking  into  account  concerns  that  such  banknotes  could 

facilitate illicit activities. 

3.6  Finally,  the  ECB  welcomes  the  clarifying  amendments  in  particular  in  the  area  of  statistics  and 

reporting, and the proposed inclusion of citations to relevant Union regulations on reporting and the 
sharing of confidential statistical information19. These amendments are mainly aimed  at dispelling 

any  doubt  that  the  relevant  provisions  of  the  Law  on  ČNB  are  in  line  with  Union  regulations.  As 

regards Article 43b of the Law on ČNB, consistent with their approach to cite relevant provisions of 

Union  legal  acts  in  footnotes,  the  legislative  authorities  are  invited  to  add  a  footnote  reference  to 
the  relevant  provision  of  Council  Regulation  (EC)  No  2533/9820  from  which  the  obligation  of 

cooperation between the members of the ESCB and the European Statistical System derives. 

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

Done at Frankfurt am Main, 15 December 2016. 

[signed] 

The President of the ECB 

Mario DRAGHI 

19   Citations are added to Articles 41, 42 and 43f of the Law on ČNB.  
20   Article  2a  of  Council  Regulation  (EC)  No  2533/98  of  23  November  1998  concerning  the  collection  of  statistical 

information by the European Central Bank (OJ L 318, 27.11.1998, p. 8). 

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