Opinion of the European Central Bank of 4 December 2017 on limiting the number of central credit unions (CON/2017/54)
Date: 2017-12-04
Institutions: European Central Bank
Subjects: Lithuania, banking supervision, credit union, financial stability

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 4 December 2017  

on limiting the number of central credit unions 

(CON/2017/54) 

Introduction and legal basis 

On  12  October  2017  the  European  Central  Bank  (ECB)  received  a  request  from  the  Lithuanian 

Parliament for an opinion on a draft law amending the Law on central credit unions (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  sixth  indent  of  Article 2(1)  of  Council  Decision 
98/415/EC1, as the draft law relates to rules applicable to financial institutions insofar as they materially 
influence  the  stability  of  financial  institutions  and  markets  and  the  ECB’s  specific  tasks  concerning  the 

prudential supervision of credit institutions pursuant to Article 127(6) of the Treaty. 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  law  amends  the  Law  on  central  credit  unions  by  limiting  the  number  of  central  credit 

unions  to  one.  The  aim  of  the  draft  law  is  to  prevent  regulatory  arbitrage  within,  and  the 

fragmentation of, the Lithuanian credit union system.  

1.2  More particularly, central credit unions have regulatory and supervisory powers over credit unions, 

which are their members under the existing legislation. The authors of the draft law argue that the 

existence of several central credit unions may lead to a situation where they compete against each 
other, by easing their regulatory or supervisory requirements, with a view to gaining credit unions 

as members, and that this will result in a general lowering of regulatory and supervisory standards 

in  the sector. The  authors  of  the  draft  law consider that this may  increase the  likelihood  of  credit 

unions and central credit unions becoming bankrupt, and ultimately harm the stability of the entire 

sector.  

2. 

General observations  

2.1  The  ECB  notes  that  Lietuvos  bankas  is the  supervisory  authority  for  credit  unions.  Although  they 

are exempted from Union prudential regulation pursuant to Article 2(5)(14) of Directive 2013/36/EU 

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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). 

 
 
 
 
 
                                                 
ECB-PUBLIC 

of  the  European  Parliament  and  of  the  Council2,  credit  unions  are  required  to  follow,  on  an 

individual basis, the minimum prudential requirements established by Lietuvos bankas. Considering 

that central  credit  unions  may  only set additional requirements  for  affiliated credit unions that are 

compatible  with  legal  acts  and  the  mandatory  instructions  issued  by  Lietuvos  bankas,  the  ECB 

takes  the  view  that  the  risk  of  a  potential  ‘race  to  the  bottom’  in  respect  of  the  regulatory  and 

supervisory standards to be applied by central credit unions is immaterial. 

2.2 

In addition, the ECB considers that the existence of different central credit unions will possibly also 

have positive effects, as it would foster more efficient organisation of the credit union sector by not 

forcing credit unions with very different operating business models and policies to be members of 

the same central credit union.   

2.3  The ECB further  notes that credit unions have  a very  small market share  in the  national  banking 
sector,  accounting  for  approximately  for  2 %  of  its  total  assets,  so  the  risk  that  the  credit  union 

sector poses to the stability of financial institutions and markets in Lithuania is rather limited.  

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

Done at Frankfurt am Main, 4 December 2017. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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Directive 2013/36/EU of  the  European  Parliament and of the Council of 26  June 2013 on access  to the activity  of 
credit  institutions  and  the  prudential  supervision  of  credit  institutions  and  investment  firms,  amending  Directive 
2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338). 

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