Opinion of the European Central Bank of 11 May 2018 on the governance and financial independence of the Central Bank of Cyprus (CON/2018/23)
Date: 2018-05-11
Institutions: European Central Bank
Subjects: Cyprus, administration of the Institutions, central bank, institutional activity

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 11 May 2018 

on the governance and financial independence of the Central Bank of Cyprus 

(CON/2018/23) 

Introduction and legal basis 

On 8 February 2018 the European Central Bank (ECB) received a request from the Ministry of Finance of 
the Republic of Cyprus for an opinion on a draft law amending the Central Bank of Cyprus Law of 2002 1 

(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 third indent of Article 2(1) of Council Decision 98/415/EC2, as 

the  draft  law  relates  to  the  Central  Bank  of  Cyprus  (CBC).  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 introduces amendments to the Central Bank of Cyprus Law of 2002 (hereinafter the 

‘CBC Law’) in respect of (a) the governance structure of the CBC; (b) the provisions relating to the 

independence  of  the  directors  of  the  CBC;  and  (c)  the  capital  of  the  CBC  and  its  alteration.  The 

draft law also contains a provision that removes the task of managing public debt from the CBC, as 

this  function  is  performed by  the  Public  Debt  Management  Office  (Γραφείο  Διαχείρισης  Δημόσιου 
Χρέους) pursuant to the Law of 2012 on public debt management3.  

1.2  The CBC’s governance structure 

1.2.1  The explanatory memorandum for this opinion notes that the draft law reorganises the governance 

of the CBC with a view to rendering it more efficient and effective. The draft law establishes a new 

decision-making  body,  the  executive  committee,  comprised  of  the  governor,  the  deputy  governor 

and two executive directors. The composition of the board of directors remains as it is, consisting of 

the governor, the deputy governor, two executive directors and five non-executive directors. 

1.2.2  The draft law redefines the duties of the CBC’s decision-making bodies in order to reflect the new 

governance structure. In particular, the board of directors is responsible, inter alia, for (a) oversight 

of  the  CBC’s  administration;  (b)  defining  the  CBC’s  strategy,  except  for  matters  falling  within  the 

1  
2  

3  

Ο περί της Κεντρικής Τράπεζας της Κύπρου Νόμος του 2002 (Ν. 138(I)/2002). 
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). 
Ο Περί της Διαχείρισης του Δημόσιου Χρέους Νόμος του 2012 (Ν. 195(I)/2012). 

 
 
 
 
                                                 
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fields  of  competence  of  the  European  System  of  Central  Banks  (ESCB),  the  competence  of  the 
ECB  pursuant  to  Council  Regulation  (EU)  No  1024/20134,  and  the  competent  of  the  Single 

Resolution Board (SRB) pursuant to Regulation (EU) No 806/2014 of the European Parliament and 
of  the  Council 5;  (c)  the  approval  of  the  CBC’s  budget,  annual  accounts  and  financial  statements; 

and (d) the organisation of the CBC, including the general framework establishing the powers and 

duties  of  the  CBC’s  employees,  the  framework  for  the  appointment,  promotion  and  disciplinary 

procedure of the CBC’s employees and the internal procedures of the CBC. The draft law confers 

on the  board of directors all powers under the CBC Law that  are not specifically reserved for the 

governor,  the  deputy  governor  or  the  executive  committee.  The  board  may  from  time  to  time 

delegate any of its powers to any of its members, to the executive committee or to any employees 

of the CBC on such terms and for such periods as the board will decide. 

1.2.3  The executive committee is responsible, amongst other tasks, for (a) the day-to-day activities of the 

CBC and the management of the CBC’s business; (b) the implementation of policy decisions taken 

by the ECB and SRB; (c) the carrying out of tasks and the exercise of powers granted to the CBC 

by  virtue  of  the  Treaty  and  the  Statute  of  the  European  System  of  Central  Banks  and  of  the 

European Central Bank (hereinafter the ‘Statute of the ESCB’); (d) the implementation of the CBC’s 

objectives, in particular the CBC’s primary objective to ensure price stability, and the CBC’s tasks 

pursuant  to  Articles  5,  5A  and  6  of  the  CBC  Law,  including  the  CBC’s  ESCB-related  tasks,  the 

supervision of authorised credit institutions, the macroprudential supervision of the financial system 

and the provision of services or performance of the role of banker and financial agent for Cyprus in 
financial  matters6;  (e)  the  oversight  of  payment,  clearing  and  settlement  systems;  and  (f)  the 

submission of recommendations to the board with respect to the CBC’s strategy, except for matters 

which  fall  within  the  fields  of  competence  of  the  ESCB,  the  competence  of  the  ECB  pursuant  to 

Council  Regulation  (EU)  No 1024/2013,  and  the  competence  of  the  SRB  pursuant  to  Regulation 

(EU) No 806/2014.  

1.2.4  In  addition,  the  draft  law  removes  the  provisions  on  the  establishment  and  operation  of  the  CBC 

personnel  committee  and  confers  on  the  executive  committee  the  power  to  appoint,  suspend  or 

dismiss  any  employees  of  the  CBC,  except  as  regards  senior  directors  whose  appointment, 

suspension  and  dismissal  falls  within  the  competence  of  the  board  of  directors,  and  to  conduct 

other relevant tasks of the personnel committee and generally act as a personnel committee.  

1.2.5  The  draft  law  further  provides  that  the  members  of  the  executive  committee  will  head  certain 

directorates  and/or  departments  of  the  CBC  and  will  each  be  responsible  for  separate  executive 

4  

5  

6  

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). 
Regulation (EU) No  806/2014 of the European Parliament and  of the Council of 15 July  2014  establishing uniform 
rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of 
a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010 (OJ L 
225, 30.7.2014, p. 1). 
According to Article 5 of the CBC Law, the primary objective of the CBC is to ensure price stability. Without prejudice 
to this primary objective, the CBC shall support the general economic policy of the State. Article 5A provides that the 
CBC is an integral part of the ESCB. The CBC shall perform all tasks required for the achievement of its objectives 
including those under Article 6. Article 6 lists the main tasks of the CBC, which reflect the basic ESCB tasks under 
Article 127 (2) of the Treaty and which also include, among others, the licensing and supervision of authorised credit 
institutions,  the  macroprudential  supervision  of  the  financial  system  in  order  to  ensure  the  stability  of  the  financial 
system and the provision of services or performance of the role of banker and financial agent for Cyprus in financial 
matters. 

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tasks  within  the  CBC.  The  executive  committee  will  confer  on  each  executive  director  executive 

responsibility  for  one  or  more  divisions  of  the  CBC.  The  draft  law  also  requires  the  executive 

committee  to  provide  the  board  of  directors,  on  a  regular  basis  or  as  requested,  with  detailed 

information required for the exercise of the board’s powers. The executive committee members will 

have no voting rights at meetings of the board of directors on matters pertaining to the oversight of 

the  administration  of  the  CBC,  for  which  the  board  is  responsible,  and  in  connection  with  the 

management  of  the  day-to-day  activities  of  the  CBC,  for  which  the  executive  committee  is 

responsible.  

1.2.6  The draft law replaces the section on the tasks of the governor and provides that the governor (a) 

participates  ex  officio,  as  an  independent  personality,  in  the  Governing  Council  and  the  General 

Council  of  the  ECB;  (b)  represents  the  CBC  in  its  relations  with  external  persons,  including  the 

Cypriot  government,  and  in  legal  proceedings  to  which  the  CBC  is  a  party;  and  (c)  signs  any 

contracts concluded by the CBC, its annual reports, financial statements and other documents on 

behalf of the CBC. In addition, the governor will chair the meetings of the board of directors and the 

executive committee and will have the casting vote.  

1.2.7  Under  the  draft  law  the  governor  will  no  longer  be  responsible  for  the  tasks  of  implementing  the 

CBC’s policy; managing and controlling the CBC’s business; appointing, suspending or dismissing 

CBC employees; carrying out the tasks and powers granted to the CBC by virtue of the Treaty and 

the  Statute  of  the  ESCB;  and  overseeing  the  payment,  clearing  and  settlement  systems.  The 

provision granting the governor the power to take decisions as to the issuing of licenses to credit 

institutions and the carrying out  of the business of credit institutions is also removed from the CBC 

Law.  In  addition,  the  draft  law  introduces  a  new  provision  stating  that  without  prejudice  to  the 

provisions of Article 10.2 of the Statute of the ESCB, the Governor may appoint an alternate as a 

member of the Governing Council of the ECB. 

1.3  The independence of directors  

1.3.1  The draft law introduces a fit and proper criterion to the eligibility criteria for the appointment of the 

CBC’s  executive  and  non-executive  directors.  This  criterion  aims  to  fulfil  the  requirements  laid 

down in Article 11 of the CBC’s Directive of 2014 on the assessment of the fitness and probity of 
the  members  of  the  management  body  and  managers  of  authorised  credit  institutions 7.  The 

Directive  sets  out  the  reputational  criteria  to  be  complied  with  by  members  of  the  management 

body  and  managers  of  authorised  credit  institutions  and  the  means  of  assessment.  A  number  of 

factors  are  taken  into  account  during  the  assessment,  including  criminal  record,  the  cumulative 

effect of more minor incidents, which individually do not impinge on a person’s reputation, but may 

in sum have a material impact, as well as other factors, such as evidence that the relevant person 

has not been transparent, open and cooperative in his/her dealings with supervisory or regulatory 

authorities,  a  declaration  of  personal  bankruptcy  or  inclusion  on  a  list  of  unreliable  debtors.  A 

person may be considered to be of good repute  if there is no evidence to suggest otherwise and 

nothing to cast reasonable doubt on the presumption of his/her good repute. A person will not be 

considered to be of good repute if his/her personal or business conduct gives rise to any material 

7  

Η  περί  της  Αξιολόγησης  της  Ικανότητας  και  Καταλληλότητας  Μελών  Διοικητικού  Οργάνου  και  Διευθυντών  των 
Αδειοδοτημένων Πιστωτικών Ιδρυμάτων Οδηγία του 2014. 

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doubt  as  to  his/her  ability  to  ensure  the  sound  and  prudent  management  of  an  authorised  credit 

institution.  The  draft  law  adds  that  the  eligible  candidate  should  also  have  recognised  and 

continuous professional experience in monetary, financial and banking matters. 

1.3.2  The draft law also sets out the procedure for the appointment of the CBC’s directors. The Cypriot 

Council  of  Ministers  appoints  the  directors  following  receipt  of  a  formal  reasoned  opinion  by  a 

newly-established independent selection committee. This selection committee will be comprised of 

three  members  appointed  by  the  Council  of  Ministers  for  a  term  of  five  years  and  will  have  the 

mandate of identifying at least three eligible and qualified candidates for every vacancy. Directors 

are appointed for a period of five years and may be re-appointed for one additional term of office, 

provided that the term of office for three of the five members appointed for the first time after the 

entry into force of the draft law would be three years and the term of office of two members would 

be four years. 

1.3.3  The draft law extends the grounds for the dismissal of board members to include (i) a conviction for 

infringement  of  a  confidentiality  or  professional  secrecy  obligation;  (ii)  a  conviction  for  a 

dishonourable or morally reprehensible offence that constitutes an impediment to the appointment 

of public office; or (iii) a sentencing to a term of imprisonment for any offence. Where such grounds 

are applicable, the member, on a proposal from the Minister for Finance, will be dismissed from the 

board  of  directors  by  the  Council  of  Ministers,  after  she/he  has  been  invited  to  present  her/his 

defence. 

1.3.4  A  conflict  of  interest  provision  has  been  added  whereby  persons  who  themselves  or  whose 

relatives up to the first degree have an interest in entities or are members of the board of entities 

under  the  supervision  of  the  CBC  are  ineligible  to  be  appointed  as  executive  or  non-executive 

directors.  A  similar  provision  has  been  added  in  relation  to  the  appointment  of  the  governor  and 

deputy governor.  

1.3.5  The draft law further provides that any expenses and damages awarded by the courts in relation to 

any  act  or  omission  of  the  governor,  the  deputy  governor  and  any  members  of  the  board  in  the 

exercise of their duties will be borne by the CBC. This provision will apply irrespective of whether 

their term of office has expired.  

1.3.6  Finally,  the  draft  law  contains  a  transitional  provision  according  to  which  a  person  who  holds  a 

position on the board of directors of the CBC on the date on which the draft law enters into force 

will retain that position on the same terms until the expiry of his/her term of office. 

1.4  The CBC’s capital and its alteration 

1.4.1  The draft law provides for an automatic recapitalisation of the CBC whenever the CBC’s net equity 

falls below the level of the CBC’s capital provided in the CBC Law. Under the draft law, the level of 

CBC’s capital will be raised from EUR 30 million to EUR 90 million. The capital of the CBC can be 

altered by a decision of the board of directors, which must be notified to the Council of Ministers, 

provided that any increase in capital entailing additional payments by the State is agreed between 

the  CBC  and  the  Council  of  Ministers.  In  addition,  the  general  reserve  of  the  CBC  should  not 

exceed twice its capital. 

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1.4.2  Furthermore, the draft law confers on the board of directors the power to set the maximum level of 

possible reserves, which include capital, general reserves and provisions. Any additional net profit 

will be attributed to the State irrespective of any other provision in the CBC Law. The precise level 

of  reserves  will  be  based  on  an  annual  report  which  takes  into  account  the  possible  risks  and 

means of addressing them, as well as the provisions and the total amount of reserves that need to 

be held.  

2. 

General observations  

2.1  When  a  statute  of  a  national  central  bank  (NCB)  (in  this  case  the  CBC  Law)  is  amended,  the 

amending law should ensure that central bank independence, guaranteed under Article 130 of the 

Treaty  and  Articles  7  and  14.2  of  the  Statute  of  the  ESCB,  is  respected.  The  compatibility  of  a 

Member State’s legislation, including its NCB’s statute, with the requirements of the Treaty and the 

Statute of the ESCB concerning central bank independence must be ensured on accession to the 

Union.  Compatibility  with  Article  130  of  the  Treaty  and  Article  7  of  the  Statute  of  the  ESCB  is  a 

fundamental  aspect  of  the  legal  convergence  in  a  Member  State,  which  is  examined  in  the 

convergence reports required by Article 140(1) of the Treaty to assess a country’s readiness to join 
the euro area8. 

2.2  The  ECB  notes  the  establishment  of  an  executive  committee  and  the  restructuring  of  the  CBC’s 

decision-making  structure.  The  introduction  of  a  collegiate  decision-making  process  aims  at 

strengthening the quality of the CBC internal deliberations with respect to the exercise of its tasks 

and  is  comparable  with  the  regimes  applicable  in  other  jurisdictions  across  the  EU.  The  ECB 

therefore understands that the establishment of a new collegiate decision-making body serves the 

purpose of greater responsibility-sharing.  

2.3  The  ECB  welcomes  the  amendments  introduced  into  the  CBC  Law  clarifying  the  division  of 

competences between the decision-making bodies of the CBC, in line  with past  ECB opinions on 
the  CBC’s  governance9.  The  ECB  understands  that  the  executive  committee  will  be  exclusively 

responsible for carrying out all of the CBC’s tasks and exercising all of the CBC’s powers under the 

Treaty and the Statute of the ESCB. The ECB further understands that the executive committee will 

be responsible for carrying out the CBC’s tasks in relation to the supervision of, but not the granting 
of licenses to, credit institutions, without prejudice to the provisions of the SSM Regulation 10. In this 

respect the ECB recommends that Article 6(2)(d) of the CBC Law be amended so as to remove the 

licensing  of  credit  institutions  as  one  of  the  tasks  of  the  CBC  and  to  note  that  the  supervision  of 

credit institutions is without prejudice to the SSM Regulation.  

2.4  With  respect  to  the  provision  of  the  draft  law  on  the  limited  voting  rights  of  members  of  the 

executive committee (see paragraph 1.2.5 above), the ECB understands that this provision applies 

only  to  the  CBC’s  day-to-day  activities  and  management  of  its  work  under  the  newly  amended 

Article  17A(1)(a)  of  the  CBC  Law  and  that  it  will  not,  in  any  case,  affect  the  independence  and 

8  
9   
10  

See paragraph 3.1 of Opinion CON/2010/56. 
See paragraphs 2.3 and 2.4 of Opinion CON/2013/41 and paragraph 4 of Opinion CON/2013/78. 
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).  

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powers of the executive committee to carry out its ESCB-related and other tasks. For the sake of 

legal certainty it is suggested to reformulate this provision to reflect this understanding. 

2.5  The  ECB  understands  that  under  Article  119  of  the  Constitution  of  the  Republic  of  Cyprus 11  the 

governor is responsible for the management of the CBC and exercises all powers and performs all 

functions and duties within the scope of the CBC’s competences, assisted by the deputy governor. 

The ECB therefore understands that given that the draft law confers on the executive committee all 

ESCB-related competences and on the board of directors all residual competences, the draft law 
and Article 119 of the Constitution may need to be aligned12. In such an event, the ECB would like 

to  remind  the  consulting  authority  of  the  obligation  to  consult  the  ECB  on  any  relevant  draft 

legislation. 

2.6  The  ECB  notes  the  amendments  in  relation  to  the  appointment,  suspension  and  dismissal  of  the 

CBC  employees  and  understands  that  the  removal  of  the  provisions  relating  to  the  personnel 
committee will facilitate the internal functioning of the CBC13. 

2.7  As  regards  the  provision  of  the  draft  law  which  confers  upon  the  board  of  directors  the  power  to 

adopt  the  accounting  policies  and  procedures  of  the  CBC  in  accordance  with  international 
accounting  standards 14,  the  ECB  understands  that  for  the  purpose  of  Eurosystem  financial 

reporting the CBC adheres to the Eurosystem accounting and financial reporting framework as set 
out in Guideline (EU) 2016/2249 of the European Central Bank (ECB/2016/34)15.  

2.8  The ECB notes that the provision of the draft law concerning the appointment of an alternate as a 

member of the Governing Council of the ECB should be in line with Article 10.2 of the Statute of the 

ESCB  and  with  the  relevant  provisions  of  the  Rules  of  Procedure  of  the  ECB.  The  provisions 

stipulate,  inter  alia,  that,  if  a  member  of  the  Governing  Council  is  prevented  from  voting  for  a 

prolonged period (i.e. more than one month),  he/she may appoint an alternate  as member of the 

Governing Council.  

3. 

Specific observations   

3.1  Central bank independence 

Personal independence 

3.1.1  The  personal  independence  of  the  CBC  would  be  at  stake  if  the  same  rules  for  the  security  of 

tenure and grounds for dismissal of governors did not also apply to other members of the decision-

making  bodies  of  NCBs  involved  in  the  performance  of  ESCB-related  tasks.  As  the  draft  law 

entrusts the executive committee with the performance of the CBC’s ESCB-related tasks, then the 

same rules must be applicable to the executive directors of the CBC.  

3.1.2  With regard to security of tenure, the draft law ensures that all board members have a term of office 

11  
12   
13  

14   
15  

Το Σύνταγμα της Κυπριακής Δημοκρατίας. 
See paragraph 3.4.2 of Opinion CON/2017/17. 
See  paragraph  1  of  Opinion  CON/2016/9  where  it  was  noted  that  the  CBC  could  not  recruit  permanent  staff  or 
promote, dismiss or suspend employees when there was a vacant position on its personnel committee. 
See Article 15(1)(k) of the draft law. 
Guideline  (EU)  2016/2249  of  the  ECB  of  3  November  2016  on  the  legal  framework  for  accounting  and  financial 
reporting in the European System of Central Banks (ECB/2016/34) (OJ L 347, 20.12.2016, p. 3). 

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of five years. There is, however, a transitional period in which the term of office of three of the five 

members appointed for the first time after the entry into force of the draft law would be three years 

and  the  term  of  office  of  two  members  would  be  four  years.  The  ECB  understands  that  the 

transitional  period  would  be  applicable  only  in  relation  to  the  non-executive  directors  of  the  CBC, 

since members of the executive committee must have a term of office of five years. The ECB notes 

that the reasons for the different periods of appointment for members of the board of directors and 

the relevant criteria for appointing some members for three years and others for four years are not 
clear 16.  

3.1.3  As  noted  in  the  ECB  Convergence  Reports,  NCB  statutes  must  ensure  that  governors  are  not 

dismissed for reasons other than those mentioned in Article 14.2 of the Statute of the ESCB, that 

is,  where  they  no  longer  fulfil  the  conditions  required  for  the  performance  of  their  duties  or  have 

been  guilty  of  serious  misconduct.  This  principle  also  applies  to  other  members  of  NCB  decision 

making-bodies involved in the performance of ESCB-related tasks, especially where a governor is 

‘first among equals’ with colleagues with equivalent voting rights, or where other such members are 
involved in the performance of ESCB-related tasks17. With respect to the governor and the deputy 

governor, the current version of the CBC Law is in line with Article 14.2 of the Statute of the ESCB. 

The  introduction  under  the  draft  law  of  new  grounds  for  the  dismissal  of  executive  committee 

members,  including  for  the  governor  and  the  deputy  governor,  raises  concerns  as  these  are  not 

aligned  with  Article  14.2  of  the  Statute  of  the  ESCB.  In  the  light  of  this,  the  ECB  would  support 

using the current wording of the CBC Law in respect of members of the executive committee. It is 

also  noted  that  on  the  basis  of  Article  14.2  of  the  Statute  of  the  ESCB,  a  decision  to  relieve  a 

Governor  from  office  may  be  referred  to  the  Court  of  Justice  by  the  Governor  concerned  or  the 

ECB Governing Council on grounds of infringement of the TFEU or of any rule of law relating to its 

application.   

3.1.4  Personal independence also entails ensuring that no conflict of interest arises between the duties 

of members of NCB decision-making bodies involved in the performance of ESCB-related tasks in 

relation to their respective NCBs (and of Governors in relation to the ECB) and any other functions 

which  such  members  of  decision-making  bodies  may  have  and  which  may  jeopardise  their 

personal independence. As a matter of principle, membership of a decision-making body involved 

in the performance of ESCB-related tasks is incompatible with the exercise of other functions that 

might create a conflict of interest. In particular, members of such decision-making bodies may not 

have an office or have an interest that may influence their activities, whether through office in the 

executive  or  legislative  branches  of  the  State  or  in  regional  or  local  administrations,  or  through 

involvement  in  a  business  organisation.  Particular  care  should  be  taken  to  prevent  potential 
conflicts  of  interest  on  the  part  of  non-executive  members  of  decision-making  bodies 18.  The  ECB 

therefore welcomes the new provisions on the eligibility criteria for the appointment of individuals to 

16   

17   
18  

It is recalled that Article 13(3) of the CBC Law previously gave the Council of Ministers the right to appoint a member 
to the board of directors for a term of less than five year. This provision was removed following a recommendation in 
the ECB Convergence Report of December  2006 that the relevant provision needed to comply with Article 14.2  of 
the Statute of the ESCB. The ECB Convergence Report of May 2007 confirmed the removal of the aforementioned 
incompatibility. 
See paragraph 2.2 of Opinion CON/2014/51. 
See page 24 of the ECB Convergence Report of June 2016. 

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the  positions  of  executive  director,  deputy  governor  and  governor  of  the  CBC,  which  aim  to 

strengthen the independence of these posts. These new provisions reinforce the current provisions 

of  the  CBC  Law  which  require  the  executive  directors,  the  deputy  governor  and  the  governor  to 
perform  their  duties  full-time  and  not  to  take  up  any  other  employment19.  In  addition,  and 

considering  that  the  board  of  directors  is  comprised  of  five  non-executive  directors,  the  ECB 

understands that the obligation imposed by the draft law on the executive committee to provide the 

board of directors with detailed information required for the exercise of the board’s powers would 

not  compromise  the  independence  of  the  governor  and  the  rest  of  the  executive  committee. 

Financial independence 

3.1.5  The  independence  of  an  NCB,  as  required  under  Article  130  of  the  Treaty  and  Article  7  of  the 

Statute of the ESCB, would be at stake if it could not autonomously avail itself of sufficient financial 

resources  to  fulfil  its  mandate  (i.e.  the  performance  of  ESCB-related  tasks  required  under  the 
Treaty and the Statute of the ESCB) 20. The principle of financial independence requires an NCB to 

have  sufficient means  not  only  to  perform  its  ESCB-related  tasks  but  also  its  own  national  tasks, 

e.g.  financing  its  administration  and  own  operations.  Therefore,  a  Member  State  may  not  put  its 

NCB  in  a  position  where  it  has  insufficient  financial  resources  and  inadequate  net  equity  to  carry 

out  its  tasks.  For  these  reasons,  financial  independence  implies  that  an  NCB  should  always  be 
sufficiently  capitalised 21.  In  particular,  any  situation  should  be  avoided  whereby  for  a  prolonged 

period  of  time  an  NCB’s  net  equity  is  below  the  level  of  its  statutory  capital  or  is  even  negative, 
including  where  losses  beyond  the  level  of  capital  and  the  reserves  are  carried  over 22.  Any  such 

situation  may  negatively  impact  on  the  NCB’s  ability  to  perform  both  its  national  tasks  and  its 

ESCB-related  tasks.  Moreover,  such  a  situation  may  affect  the  credibility  of  the  Eurosystem’s 

monetary  policy.  Therefore,  where  an  NCB’s  net  equity  is  less  than  its  statutory  capital  or  even 

negative  the  respective  Member  State  must  provide  the  NCB  with  sufficient  financial  means  to 

raise  the  net  equity  level  at  least  up  to  that  of  the  statutory  capital  within  a  reasonable  period  of 

time so as to avoid compromising the principle of financial independence. 

3.1.6  In  light  of  this,  the  ECB  welcomes  the  provision  of  the  draft  law  providing  that  the  CBC  will  be 

recapitalised to the level prescribed under the CBC Law whenever the net equity of the CBC falls 

below this level. The CBC must have, at all times, sufficient financial resources and adequate net 
equity for the performance of its ESCB-related tasks23. In this context, the ECB takes note of the 

proposed increase of the CBC’s capital from EUR 30 million to EUR 90 million and of the fact that 

the current capital of the CBC amounts to EUR 150 million. The ECB understands that the capital 

of the CBC has been raised to its current level by a decision of the board of directors pursuant to 

Article  56(2)  of  the  CBC  Law.  The  ECB  understands  that  the  proposed  increase  of  the  capital 

under  the  draft  law  will  not  impact  the  current  level  of  the  CBC’s  capital.  In  view  of  this,  the 

difference  between  the  capital  referred  to  under  the  draft  law  and  the  actual  capital  of  the  CBC 

could result in uncertainty and will, therefore, require further clarification. 

19   
20  
21  
22  
23  

See Articles 17A(2) and 19(1) of the CBC Law. 
See paragraph 2.3 of Opinion CON/2017/17. 
See, e.g., page 25 of the ECB Convergence Report of June 2016. 
See paragraph 2.5 of Opinion CON/2016/55. 
See paragraph 3.3.7 of Opinion CON/2017/17. 

8 

                                                 
ECB-PUBLIC 

3.1.7  Furthermore,  clarifications  may  be  needed  in  respect  of  the  requirement  in  the  draft  law  that  the 

general  reserve  of  the  CBC  should  not  exceed  twice  its  capital,  in  particular,  whether  this 

requirement refers to the amount of the capital proposed under the draft law or of the actual capital 

of the CBC. The ECB also wishes to emphasise that the CBC is best positioned to assess the risks 

involved in its operations and  what financial precautions need to be taken to guard against these 

risks, including the establishment of the necessary level of general reserves within the limits set by 

the legislator or any other types of appropriate financial buffers. In addition, it should be considered 

whether the power to define the level and the limit of the general reserves should be conferred only 

on  the  board  of  directors,  which  has  the  overall  responsibility  for  the  financial  soundness  of  the 

CBC.  

3.1.8  With  regard  to  the  alteration  of  the  capital,  the  ECB  understands  that  according  to  the  newly 

inserted provisions of the draft law, the CBC will be entitled to be automatically recapitalised up to 

the level of the prescribed capital referred to in the CBC Law (as amended by the draft law).  

3.1.9  Under  the  principle  of  financial  independence,  an  NCB,  in  the  performance  of  its  tasks,  can 

independently  assess  the  risks  involved  and  has  the  power  to  decide  on  any  necessary 

precautions  to  take.  An  NCB  is  best  placed  to  make  these  assessments  and  must  have  the 
necessary tools to evaluate the relevant circumstances and to make forecasts24. In particular, the 

ECB  is  of  the  view  that  the  higher  the  level  of  capital,  reserves  and  provisions  against  financial 
risks,  the  higher  the  safeguards  will  be  against  future  losses25.  Consequently  NCBs  should  be 

given  the  ability  to  safeguard  the  real  value  of  their  capital  and  assets  by  being  free  to 

independently create adequate financial buffers. The ECB therefore welcomes the provision of the 

draft law conferring powers on the board of directors to determine the level of “maximum reserves” 

and  understands  that  this  provision  intends  to  address  financial  buffers  comprising  general 

reserves,  capital  and  financial  risk  provisions.  The  ECB  furthermore  understands  that  the 

“maximum  reserves”  exclude  (i)  specific  provisions  against  already  incurred  losses  and  (ii)  any 

amounts recorded by the CBC on revaluation accounts, and that the profit to be distributed by the 

CBC  to  the  general  government  account  is  determined  following  the  establishment  of  adequate 

“maximum reserves”.  

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

Done at Frankfurt am Main, 11 May 2018. 

[signed] 

The President of the ECB 

Mario DRAGHI 

24  
25  

See paragraph 2.3 of Opinion CON/2017/17. 
See paragraph 3.1 of Opinion CON/2013/96. 

9