Opinion of the European Central Bank of 29 March 2019 on requiring the consent of borrowers to transfers of loans secured by mortgages on residential property (CON/2019/14)
Date: 2019-03-29
Institutions: European Central Bank
Subjects: Ireland, claim, credit institution, credit transfer, debt, financial stability, loan, mortgage, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 29 March 2019 

on requiring the consent of borrowers to transfers of loans secured by mortgages  

on residential property 

(CON/2019/14) 

Introduction and legal basis 

On 4 March 2019 the European Central Bank (ECB) received a request from Chairman of the Oireachtas 

(Irish National Parliament) Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach 

(Irish Prime Minister) for an opinion on a No Consent, No Sale Bill 2019 (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  and  sixth  indents  of  Article 2(1)  of  Council  Decision 
98/415/EC1,  as  the  draft  law  relates  to  (a)  the  basic  task  of  the  European  System  of  Central  Banks 

(ESCB) to implement the monetary policy of the Union pursuant to the first indent of Article 127(2) of the 

Treaty,  (b)  the  specific  tasks  conferred  upon  the  ECB  concerning  policies  relating  to  the  prudential 

supervision of credit  institutions  pursuant to  Article 127(6) of the Treaty, (c) the  Central  Bank of Ireland 

(CBI)  and  (d)  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 law introduces a new rule to the effect that lenders may not transfer loans secured by the 

mortgage of residential property without the written consent of the borrower. It specifies that when 

seeking  a  borrower’s  consent  to  such  a  transfer,  the  lender  must  provide  a  statement  giving 

sufficient information on how the transfer would affect the individual borrower so that the borrower 

may make an informed decision and be given a reasonable time within which to give or decline to 

give such consent. This statement of information must be approved by the CBI before it is provided 

to a borrower.  

1.2  The  draft  law  sets  out  the  information  that  must  be  provided  in  the  statement  of  information  to  a 

borrower,  namely:  (i)  the  name  and  address  of  the  intended  transferee,  and  of  any  holding 

company  applicable;  (ii)  the  relationship,  if  any,  between  the  lender  and  the  transferee;  (iii)  a 

description  of  the  intended  transferee  and  of  its  business,  including  how  long  it  has  been  in 

operation,  and  details  of  its  involvement  in  the  management  of  mortgages;  (iv)  details  of  the 

1  

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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policies  and  procedures  which  will  apply  for  the  setting  of  mortgage  interest  rates  and  for  the 

making  of  repayments  if  the  transfer  takes  place;  and  (v)  confirmation  that  in  the  absence  of  a 

specific consent the existing arrangements will continue to apply. 

1.3  The  draft  law  also  covers  transfers  in  the  context  of  securitisation-type  transactions  where  the 

original lender would service the mortgage as an agent of the transferee. In such cases, the lender 

must confirm that the transferee’s policy  on handling  arrears and setting interest rates will be the 

same as that of the original lender, and that the original lender will handle arrears as its agent. 

1.4  The  draft  law  also  provides  that  where,  following  a  transfer  of  a  mortgage,  the  lender  would  no 

longer  have  control  of  setting  the  interest  rates  and/or  determining  the  conduct  of  relations  with 

borrowers  seriously  in  arrears,  the  lender  must  seek  the  borrower’s  consent  notwithstanding  any 

previous consent the borrower has given. It also lays down certain requirements for any mortgage 

transfer agreement, including that a transferee must allow transferred mortgages to be redeemed 

without charging a redemption fee and must allow the borrower to arrange their own insurance. 

1.5  The requirements of the draft law do not apply in certain limited cases, including where the lender 

is subject to winding-up proceedings, or has been determined by the CBI to be failing or likely to fail 

and the lender has satisfied the CBI that the application of the draft law would not be appropriate 

and that the transfer is being effected on terms which are just and equitable and which a borrower 

would reasonably be entitled to expect. 

2. 

General observations  

2.1  The ECB understands the draft law applies to the transfer of all loans secured by a mortgage of a 

residential  property.  While  the  draft  law  does  not  define  the  term  ‘residential  property’,  the  ECB 

understands that the draft law applies to both owner-occupied and rented or buy-to-let properties, 

regardless  of  whether  the  loan  secured  by  the  mortgage  is  classified  as  performing  or  non-

performing.  In  addition,  there  are  no  restrictions  on  borrowers  withholding  their  consent  to  a 

transfer;  rather,  borrower  consent  may  be  withheld  in  any  and  all  circumstances.  The  ECB  also 

understands  that  the  draft  law  applies  not  only  to  the  transfer  of  ‘new’  residential  mortgages  –

entered  into  after  the  enactment  of  the  draft  law  –  but  also  applies  to  transfers  of  ‘existing’ 

mortgages – entered into prior to the enactment of the draft law.  

2.2  The  ECB  understands  that  the  draft  law  applies  to  all  transfers  of  residential  mortgages,  without 

distinguishing between the purpose and the means of the transfer. The ECB notes that, under Irish 

law,  in  order  for  credit  institutions  to  issue  asset-backed  securities  (ABSs),  covered  bonds,  or 

residential  (or  special  residential)  mortgage-backed  promissory  notes,  or  to  create  security  over 

pools of credit claims, the underlying residential mortgages must be transferred or, in the case of a 

security interest, capable of subsequent transfer. The effect of the draft law would be to render the 

type  of  asset  transfers  required  to  utilise  these  financial  instruments  and  techniques  effectively 

impossible  for  Irish  credit  institutions.  However,  all  of  these  instruments  and  techniques  are 

essential,  both  in  relation  to  performing  and  non-performing  loans,  for  the  funding  and,  thus  the 

day-to-day  functioning  of  the  Irish  banking  sector.  As  such,  the  draft  law  would  make  the  use  of 

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Irish  residential  mortgages  as  collateral  for  bank  funding  significantly  more  difficult,  if  not 

impossible.  

2.3  Moreover,  the  presence  of  significant  volumes  of  non-performing  loans  (NPLs)  on  credit 

institutions’  balance  sheets  reduces  the  ability  of  those  institutions  to  fulfil  their  function  as 

providers  of  credit  to  the  real  economy,  and  hampers  the  operational  flexibility  and  overall 

profitability  that  are  indispensable  to  a  well-functioning  banking  sector.  It  is  essential  that  the 

national  legal  framework  enables  the  efficient  transfer  of  NPLs  off  the  balance  sheet  of  credit 

institutions, through asset sales, securitisations and other measures. 

2.4  The  draft  law  is  being  introduced  without  the  benefit  of  a  thorough  impact  assessment.  Only  by 

making such a prior assessment would it be possible both to i) determine whether the draft law is 

able  to  achieve  its  aim  –  presumed  to  be  consumer  protection,  and  ii)  mitigate  any  negative 

implications.  However,  in  the  absence  of  an  impact  assessment,  it  is  difficult  to  be  confident 
whether the objectives set by the draft law would be achieved 2. Indeed, for the reasons outlined in 

this opinion, the ECB has concerns that the draft law would have significant adverse effects on Irish 

credit institutions’ ability to participate in Eurosystem monetary policy operations, as well as on their 

funding  situation  and  capacity  to  properly  manage  their  balance  sheets.  In  turn,  this  is  likely  to 

result  in  additional  costs  being  passed  on  to  other  borrowers;  it  could  also  result  in  a  significant 

impact on mortgage pricing and availability, and even an increase in NPLs, all of which are likely to 

impact financial stability, Irish taxpayers, and ultimately the Irish economy. 

2.5  Finally, the ECB notes that it is not clear whether the draft law applies retrospectively to transfers of 

mortgages which took place prior to the enactment of the draft law. Hence, the draft law may raise 

issues of legal certainty in respect of the validity of such transfers. 

3. 

Specific observations  

3.1  Access of Irish credit institutions to Eurosystem credit operations and effects on the transmission of 

monetary policy in Ireland 

3.1.1  In  accordance  with  Article  18.1  of  the  Statute  of  the  ESCB  and  of  the  ECB,  the  Eurosystem 

provides  credit  to  eligible  monetary  policy  counterparties,  with  lending  based  on  adequate 

collateral. The types of assets which can be pledged as collateral in Eurosystem credit operations 

include  marketable  assets  such  as  ABSs  and  covered  bonds,  as  well  as  non-marketable  assets 
such  as  credit  claims,  mortgage-backed  promissory  notes  (MBPNs)3  and  additional  credit  claims 
(ACCs)4. 

3.1.2  The  ECB  notes  that  Irish  credit  institutions  are  heavily  reliant  on  mobilising  collateral  backed  by 

residential mortgages, in particular ABSs, covered bonds and ACCs, to access Eurosystem credit 

2    

See  paragraph  2.2.2  of  Opinion  CON/2018/13,  paragraph  2.3  of  Opinion  CON/2012/70,  paragraph  2.3  of  Opinion 
CON/2012/40, and paragraph 2.2 of Opinion CON/2010/34. All ECB opinions are published on the ECB’s website at 
www.ecb.europa.eu. 

3     Guideline  (EU)  2015/510  of  the  European  Central  Bank  of  19  December  2014  on  the  implementation  of  the 

4    

Eurosystem monetary policy framework (ECB/2014/60) OJ L 91, 2.4.2015, p. 3. 
Article  4  of  Guideline  2014/528  of  the  European  Central  Bank  of  9  July  2014  on  additional  temporary  measures 
relating  to  Eurosystem  refinancing  operations  and  eligibility  of  collateral  and  amending  Guideline  ECB/2007/9 
(ECB/2014/31) OJ L 240, 13.8.2014, p. 28. 

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operations. Such ABSs, covered bonds and ACCs are generally backed by performing residential 

mortgages, transfers of which are also affected by the draft law. 

3.1.3  By requiring the written consent of the borrower for the transfer of a mortgage, the draft law would 

significantly  reduce  the  possibility  for  Irish  credit  institutions  to  mobilise  pools  of  residential 

mortgage loans under the ACC scheme as collateral in Eurosystem credit operations. Moreover, by 

materially  restricting  the  issuance  of  residential  mortgage-backed  securities  (RMBSs)  and  of 

covered bonds, it would also impede the ability of Irish credit institutions to generate collateral that 

could be pledged to access Eurosystem credit operations. 

3.1.4  This  potentially  relevant  reduction  in  the  availability  of  collateral  assets  could  limit  the  amount  of 

central  bank  liquidity  that  Irish  banks  could  obtain  from  the  Eurosystem,  both  in  the  main 

refinancing  operations  (MRO)  and  in  the  long-term  refinancing  operations  (LTRO).  In  this  regard, 

the  Eurosystem’s  fixed-rate  full  allotment  policy  has  recently  been  extended  until  the  end  of  the 
reserve  maintenance  period  starting  in  March  20215.  Under  this  policy,  eligible  monetary  policy 

counterparties  can  obtain  the  entire  amount  of  liquidity  requested  from  the  Eurosystem.  In  this 

context,  the  availability  of  a  sufficiently  large  amount  of  eligible  collateral  is  crucial  for  credit 

institutions to be able to participate in Eurosystem credit operations and then to obtain the amount 

of  liquidity  they  need.  From  the  perspective  of  Irish  credit  institutions,  and  given  that  residential 

mortgages  comprise  a  large  proportion  of  their  business,  the  draft  law  could  therefore  severely 

restrict  their  ability  to  access  Eurosystem  credit  operations.  This  ability  is  of  fundamental 

importance  to  credit  institutions  under  normal  circumstances,  and  is  critical  in  times  of  financial 

stress.  The  inability  of  Irish  credit  institutions  to  generate  mortgage-backed  collateral  would,  de 

facto, also prevent Irish credit  institutions from using mortgage-backed collateral for the purposes 

of  accessing  programmes  under  several  of  the  Eurosystem’s  non-standard  monetary  policy 

measures,  notably  for  purchases  under  the  ABS  purchase  programme  (ABSPP)  and  the  third 

covered bond purchase programme (CBPP3). This is because the eligibility of an ABS or a covered 

bond  under  the  Eurosystem’s  collateral  framework  is  a  necessary  condition  for  determining  its 

eligibility for purchase under the ABSPP and CBPP3. 

3.1.5  By reducing the available types of collateral that can be charged by Irish credit institutions, the draft 

law  could  significantly  limit  the  effectiveness  in  Ireland  of  monetary  policy  measures  intended  to 

ensure  the  smooth  functioning  of  the  monetary  policy  transmission  mechanism,  and  thus,  the 

achievement of the Eurosystem’s primary objective of maintaining price stability. Such limitation on 

the  effectiveness  of  monetary  policy  measures  in  Ireland  could  give  rise  to  fragmentation  across 

the euro area concerning the extent to which monetary policy measures are reflected in the funding 

costs of Irish banks and then – ultimately – in the interest rates charged to borrowers.  

3.1.6  Moreover,  to  the  extent  that  participation  in  Eurosystem  monetary  policy  operations  reduces  the 

funding costs of credit institutions and increases their funding sources, impediments to making full 

use  of  those  monetary  policy  tools  would  increase  funding  costs  and  decrease  funding  sources. 

Ultimately, this could also be reflected in increased interest rates charged to borrowers.  

5    

See ECB press release on monetary policy decisions dated 7 March 2019 (link).  

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3.2 

Implications for bank funding and lending conditions 

3.2.1  If, as a result of the effects of the draft law, Irish credit institutions could no longer reliably access 

Eurosystem credit operations, they would have to increase their market-based wholesale funding, 

either through short-term interbank borrowing or issuance of debt instruments. However, funding by 

way  of  debt  issuance  also  relies,  to  some  extent,  on  the  ability  of  credit  institutions  to  securitise 

performing and non-performing loans  and to  issue covered bonds to be sold to market investors. 

Since  the  draft  law  would  effectively  prevent  any  future  issuance  of  securitisations  or  covered 

bonds,  Irish  credit  institutions  would  need  to  issue  a  larger  amount  of  unsecured  bonds,  which 

would be subject to less favourable pricing than secured debt instruments.  

3.2.2  These factors would then contribute to an increase in the funding costs of Irish credit institutions, 

which  may  then  be  passed  through  to  borrowers  via  an  increase  in  interest  rates.  In  addition,  if 

credit institutions with reduced access to funding sources encounter difficulties in raising wholesale 

debt funding from the private market, this could, in turn, lead to capacity constraints in bank lending 

to the real economy more generally. 

3.3  Effects on the banking sector 

3.3.1  In the context of its direct responsibility for the supervision of significant banking groups within the 

euro  area,  the  ECB  closely  monitors  the  stability  of  credit  institutions.  The  high  level  of  NPLs  in 

Ireland  has  brought  large  credit  losses  to  Irish  credit  institutions  in  the  recent  past.  Thus,  it  is 

important  that  NPLs  are  dealt  with  in  an  efficient  and  effective  manner  –  balancing,  on  the  one 

hand,  the  need  to  ensure  observance  of  the  general  duty  of  debtors  to  meet  their  payment 

obligations  and,  on  the  other  hand,  the  need  to  provide  assistance  to  individuals  in  dire  financial 
situations6.  Risk  transfer  through  asset  sales,  securitisation  and  other  measures  is  an  important 

part of the toolkit available to credit institutions to reduce NPLs in an effective manner; these are in 

addition  to  other  tools,  such  as  the  originating  credit  institutions’  internal  procedures  for  handling 

the work-out of NPLs. 

3.3.2  Provided that the consumer protection framework remains fully applicable to transfers regulated by 

the draft law, borrowers should not be worse off in the event that their mortgage is transferred to a 

purchaser.  In  that  respect,  the  ECB  understands  that  borrowers  currently  benefit  from  the 

protections afforded to them under the CBI’s Code of Conduct on Mortgage Arrears 2013 and the 

Consumer Protection Code 2012, as well as Part V of the Central Bank Act 1997 – as amended by 

the  Consumer  Protection  (Regulation  of  Credit  Servicing  Firms)  Act  2015  and  the  Consumer 

Protection  (Regulation  of  Credit  Servicing  Firms)  Act  2018  –  which  provides  for  the  regulation  of 
credit  servicing7.  The  draft  law  does  not  appear  to  provide  additional  protection  to  borrowers,  as 

the  existing  consumer  protection  framework  applies  regardless  of  whether  the  mortgage  is  held 

and serviced by the original lender, or is transferred to a purchaser and serviced through a credit 

6    
7    

See paragraph 2.2.1 of Opinion CON/2018/13 and paragraph 3.1 of Opinion CON/2013/34.  
Following the amendments made to Part V of the Central Bank Act 1997 by the Consumer Protection (Regulation of 
Credit  Servicing  Firms)  Act  2018,  the  term  ‘credit  servicing’  in  relation  to  a  credit  agreement  is  defined  to  include 
holding the legal title to credit granted under the credit agreement. 

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servicing firm8. 

3.3.3  The ECB notes that, for a number of reasons, addressing high levels of NPLs has been one of the 
ECB’s supervisory priorities since the inception of the Single Supervisory Mechanism9. First, NPLs 

weigh  on  the  balance  sheets  of  credit  institutions,  curbing  their  profits.  Second,  NPLs  are 

distracting for credit institutions, and represent a drain on their resources. Third, NPLs undermine 

investors’ confidence in credit institutions. In addition, internal analysis by the ECB shows that, over 

recent  years,  credit  institutions  with  high  stocks  of  NPLs  have  consistently  lent  less  than  credit 

institutions  whose  loans  are  of  better  credit  quality,  thereby  providing  less  support  to  firms  and 
households  and  the  economy  generally10.  Further,  high  stocks  of  NPLs  are  a  macroprudential 
issue and often affect entire economies11. 

3.3.4  It  is  worth  considering  in  further  detail  how  the  draft  law  may  impact  the  ability  to  address  high 

levels of NPLs, and why this may raise concerns from a supervisory perspective. First, it is noted 

that  the  other  elements  of  the  toolkit  available  to  credit  institutions  to  reduce  NPLs  include  split 

mortgages, mortgage-to-rent  schemes  and  voluntary  surrender.  However,  these  solutions  rely  on 

the engagement of the borrower. Currently, repossession activity in Ireland remains limited, and the 
length of proceedings continues to be protracted12. In such a context, some borrowers may not be 

incentivised to engage fully with these solutions, and the draft law may further adversely affect the 

balance  of  incentives  from  the  point  of  view  of  borrowers.  The  protracted  nature  of  some  NPL 

workouts  can  have  a  significant  impact  on  the  balance  sheets  of  the  credit  institutions  involved, 

given the time value of money: the value of an asset must be discounted over time until its value 

can  be  realised.  Using  even  modest  interest  rates,  a  delay  of  several  years  in  the  workout  of  an 

NPL  can  have  a  significant  impact  on  valuation  due  to  the  compounding  of  interest.  In  those 

circumstances the effect of the draft law would be to deprive credit institutions of the possibility of 

disposing  of  non-performing  portfolios  that  can  be  worked  out  by  transferees  which  have 

specialised  expertise  and  a  specialised  business  model.  Removing  this  possibility  would  have 

serious implications for credit institutions’ balance sheets. 

3.3.5  Second,  the  proper  management  of  NPL  exposures,  in  full  compliance  with  both  prudential 

requirements  and  the  consumer  protection  framework,  is  an  expensive  process;  it  requires 

specialised  expertise  which consumes valuable resources that could otherwise  be devoted to the 

prudent  management  of  the  credit  institution.  When  NPL  stocks  on  credit  institutions’  balance 

sheets  reach  critical  levels  the  burden  can  become  severe  and  debilitating.  Credit  institutions’ 

ability to sell portfolios of assets can alleviate these issues, strengthen  credit  institutions’ balance 

sheets,  and  reduce  the  costs  of  capital  and  funding.  However,  the  draft  law  is  likely  to  impede 

credit institutions’ ability to sell portfolios of assets.  

8    
9    

10   

11    
12   

See also paragraph 2.4.1 of Opinion CON/2018/31 and paragraph 2 of Opinion CON/2014/69. 
See  the  speech  by  Danièle  Nouy,  Chair  of  the  Supervisory  Board  of  the  ECB,  and  Sharon  Donnery,  Chair  of  the 
ECB’s High Level Group on non-performing loans, ‘Introductory remarks to the public hearing on the draft addendum 
to  the  ECB  guidance  to  banks  on  non-performing  loans’,  Frankfurt  am  Main,  30  November  2017,  available  on  the 
ECB’s Banking Supervision website at www.bankingsupervision.europa.eu.   
See ‘European banking supervision three years on,’ Welcome remarks by Mario Draghi, President of the ECB, at the 
second ECB Forum on Banking Supervision, Frankfurt am Main, 7 November 2017, available on the ECB’s website 
at www.ecb.europa.eu. 
See paragraph 1 of Opinion CON/2018/32. 

European Commission, Post-Programme Surveillance Report. Ireland, Spring 2018, 6 July 2018, page 17. 

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3.3.6  Third,  the  draft  law  may  have  an  adverse  impact  on  current  and  prospective  Irish  borrowers 

generally.  When  pricing  mortgages  and  setting  interest  rates,  credit  institutions  take  account  of 

many factors including: the actual and future cost of funding; expenses and overheads; the cost of 

capital; and expected credit losses. By depriving credit institutions of an important tool available for 

the workout of NPLs, additional costs would be generated. These additional costs are likely to be 

passed  on  to  other  borrowers  and  could  result  in  a  significant  impact  on  mortgage  pricing  and 

availability – further increasing interest rates charged to borrowers in Ireland, including holders of 

variable rate mortgages – and potentially leading to higher levels of NPLs. 

3.4  Effects on secondary markets for credit institution assets 

3.4.1  The  ECB  has  been  a  strong  proponent  of  the  development  of  secondary  markets  for  credit 

institution  assets  –  particularly  NPLs  –  as  reflected  in  the  action  plan  of  the  Council  of  the 
European Union to tackle NPLs in Europe 13. In the context of the large stocks of NPLs that remain 

on  the  balance  sheets  of  some  European  credit  institutions,  and  as  part  of  a  comprehensive 
solution  to  NPL  resolution14,  the  development  of  secondary  markets  may  contribute  to  reducing 

NPLs. Looking ahead,  well-functioning secondary markets may also  prevent stocks of NPLs from 

building up in the future. 

3.4.2  Moreover,  a  well-functioning  secondary  market  for  credit  institution  assets  may  have  a  positive 

effect  on  financial  stability  to  the  extent  that  it  could  facilitate  the  transfer  of  NPLs  off  credit 

institutions’ balance sheets. As noted above, the presence of significant volumes of NPLs on credit 

institutions’  balance  sheets  reduces  the  ability  of  those  institutions  to  fulfil  their  function  as 

providers  of  credit  to  the  real  economy,  and  hampers  the  operational  flexibility  and  overall 

profitability  that  are  essential  to  a  well-functioning  banking  sector.  It  is  essential  that  the  national 

legal  framework  applicable  to  secondary  markets  enables  the  efficient  transfer  of  NPLs  off  the 

balance sheets of credit institutions. 

3.4.3  From a procedural perspective, further consideration should be given to the practical implications of 

the  draft  law  on  the  process  for  transferring  portfolios  of  mortgages,  whether  performing  or  non-

performing. The provisions of the draft law would mean that a credit institution could only approach 

borrowers to obtain their consent after the completion of negotiations between the transferee and 

the  credit  institution,  and  the  conduct  and  completion  of  due  diligence  in  respect  of  the  portfolio. 

Thus,  consent  could  only  be  sought  once  various  terms  of  the  transfer,  including  the  price,  have 

been  agreed.  If  one  or more  borrowers  in  the  portfolio  refuse  to  grant  consent,  the  agreed  terms 

would have to be renegotiated. This is likely to render such transfers effectively impossible and, in 

any  case,  increase  costs  and  impede  the  functioning  of  secondary  markets  for  credit  institution 

assets. 

3.4.4  In  this  context,  the  draft  law  must  carefully  balance  the  benefits  of  creating  well-functioning 

13  

14  

See the Council of the European Union’s press release of 11 July 2017 on the ‘Council conclusions on Action plan to 
in  Europe’,  available  at:  http://www.consilium.europa.eu/en/press/press-
tackle  non-performing 
releases/2017/07/11/conclusions-non-performing-loans/. See also Opinion CON/2018/31. 
See, for example, Special features, Section B of the ECB’s November 2016 Financial Stability Review, available at: 
https://www.ecb.europa.eu/pub/pdf/other/sfbfinancialstabilityreview201611.en.pdf. 

loans 

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secondary markets against the need to protect borrowers. The draft law would impede the transfer 

of NPLs off credit institutions’ balance sheets and impede the development of secondary markets. 

As  noted  above,  if  credit  institutions  (or  secondary  market  purchasers  of  assets)  are  deprived  of 

efficient tools to work out NPLs in an effective and timely manner, the result could be unnecessarily 

high  levels  of  NPLs  and  private  sector  debt,  which  in  turn  have  an  adverse  impact  on  financial 
stability and could undermine future credit supply15.  

3.5  Effects on financial stability  

The implementation  of the  draft law  would  entail financial costs for the banking sector. Given the 

scope  of  the  draft  law  and  the  importance  of  mortgage  portfolios  in  total  credit  institution  assets, 

these  factors  would  have  a  negative  impact  on  the  profitability,  capitalisation  and  future  lending 

capacity  of  the  credit  institutions  affected,  and  ultimately  may  have  implications  for  financial 

stability.  Combined  with  the  potential  impact  of  a  shift  away  from  stable,  relatively  cheap,  central 

bank  funding  towards  more  volatile  wholesale  markets,  the  draft  law  could  undermine  financial 

stability. 

3.6  Effects on the Irish economy 

In view of the  above considerations, the  draft law  is likely to adversely  affect the future supply of 

credit  and  the  pricing  of  mortgages.  Credit  institutions  may  respond  to  the  likely  increases  in 

finance  costs  resulting  from  the  draft  law  by  unduly  tightening  lending  conditions,  in  particular  by 

charging  higher  interest  rates  and  by  decreasing  lending  volumes  –  with  a  potentially  negative 

compositional effect in terms of credit allocation. This could reduce economic capacity in Ireland.  

3.7 

Impact on tasks of Central Bank of Ireland 

The draft law does not confer genuinely new tasks on the CBI in the area of prudential supervision 

or consumer protection. Rather, it complements the CBI’s existing tasks, in particular in the field of 

supervision  of  regulated  financial  service  providers  and  regulated  businesses.  For  example,  in 

respect of retail credit firms and credit servicing firms, the CBI already has powers to authorise and 

supervise such entities, to make them subject to CBI codes or directions, and to take enforcement 

measures against them – including for the purposes of protecting natural persons and micro, small 
or  medium-sized  enterprises  that  have  entered  into  credit  agreements 16.  Consequently,  the 

question of whether new tasks conferred on a national central bank constitute government tasks in 
the context of the prohibition of monetary financing does not arise17.  

3.8  Compliance with Irish constitutional and other legal principles 

It  is  for  the  Irish  authorities  to  assess  whether  the  draft  law,  including  its  potentially  retroactive 

15  
16  

17  

See paragraphs 2.2 and 2.3 of Opinion CON/2015/14. 
See  sections  28  to  36N  of  the  Central  Bank  Act  1997,  as  amended.  See  also  the  recent  Consumer  Protection 
(Regulation of Credit Servicing Firms) Act 2018. 
See paragraph 3.1 of Opinion CON/2018/27. 

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character, complies with Irish constitutional and other legal principles, in particular property rights. 

For its part, the ECB notes that introducing measures with retroactive effect would undermine legal 

certainty and not be in line with the principle of legitimate expectations. 

ECB-PUBLIC 

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

Done at Frankfurt am Main, 29 March 2019. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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