Opinion of the European Central Bank of 4 April 2023 on the imposition of a temporary solidarity contribution (CON/2023/9)
Date: 2023-04-04
Institutions: European Central Bank
Subjects: banking supervision, financial stability, monetary policy

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 4 April 2023 

on the imposition of a temporary solidarity contribution  

(CON/2023/9) 

Introduction and legal basis 

On 13 March 2023 the European Central Bank (ECB) received a request from the Lithuanian Ministry of 

Finance for an opinion on a draft law on the imposition of a temporary solidarity contribution (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 concerns Lietuvos bankas 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 draft law imposes an obligation on credit institutions2 that, on 31 December 2022, held at least 

EUR 400 million in deposits from clients who are residents of Lithuania to pay a temporary solidarity 

contribution. As noted in the explanatory memorandum accompanying the draft law, this threshold is 

set considering that EUR 400 million of deposits represents 1 % of the deposit market of Lithuanian 

residents and covers credit institutions with a more significant share of residents’ deposit portfolios. 

At the same time the threshold imposes an obligation to contribute on those deposit takers that have 

a surplus of liquid funds held with Lietuvos bankas. 

1.2 

The explanatory memorandum states that the rationale for the draft law is based, inter alia, on the 

following elements: (1) the exceptionally high levels of liquid funds in credit institutions in euro area 

member countries as a result of monetary and fiscal measures in recent years; (2) the strong increase 

in  credit  institutions’  interest  income  on  loans  and  a  large  excess  of  liquid  funds,  following  the 

increase of key interest rates by the ECB; (3) an exceptionally high liquidity, which only creates a 

limited  incentive  for  credit  institutions  to  raise  deposit  interest  rates;  and  (4)  the  Lithuanian 

governmental support to companies and residents that reduced the negative impact of the pandemic, 

1  

2  

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). 

Comprising  banks  established  in  Lithuania,  foreign  banks  established  in  Lithuania  and  branches  of  Member  State 
banks in Lithuania, central credit unions and credit unions operating in accordance with the Laws of the Republic of 
Lithuania on Central Credit Union and Credit Unions (Lietuvos Respublikos centrinių kredito unijų įstatymas, Lietuvos 
Respublikos kredito unijų įstatymas). 

 
 
 
 
 
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the energy crisis and the military invasion of Ukraine on the credit risk exposure of companies and 

households. 

1.3 

The explanatory memorandum further points out that inflation, the rise of interest rates and the high 

levels  of  liquid  assets  in  the  credit  institutions’  system  may  further  increase  the  banking  sector’s 

profits.  

1.4 

The draft law aims to set the temporary solidarity contribution for the period from the adoption of the 

draft law, planned for April 2023, until 31 December 2024, while the draft law will remain in force until 

15 June 2025.  

1.5 

The base for the temporary solidarity contribution is calculated as the net interest income that is 50 % 

greater  than  the  average  net  interest  income  in  the  credit  institution’s  consolidated  financial 

statements in the four-year reference period3. The explanatory memorandum explains that the base 

is set at 50 % in order to provide space for further growth of credit institutions’ loan portfolios and to 

avoid adverse effects on the resilience of credit institutions and on overall financial stability. Possible 

adverse effects on the resilience of credit institutions and overall financial stability have been taken 

into account when determining the four-year reference period, chosen to neutralise one-off factors. 

Lietuvos  bankas’  stress  tests  show  that  Lithuanian  credit  institutions  are  resilient  to  large-scale 

economic  shocks  and  able  to  absorb  significant  increases  in  credit  losses  under  normal 

circumstances. The parameters for the calculation of the temporary solidarity contribution are said to 

have been calibrated in such a way as to consider the credit needs of the economy. This leaves room 

for interest income to increase due to the growth of loan portfolios or any other positive scenarios in 

the market, and the remaining net interest income would be sufficient to cover unexpected losses 

(e.g. in case of a deterioration in the quality of loans).  

1.6  Net interest income base is the difference between interest income and interest expenditure (costs), 

calculated  in  accordance  with  applicable  accounting  standards  and  presented  in  the  credit 

institution’s  consolidated  financial  statements.  The  base  is  reduced  by  the  deposit  insurance 

premiums paid to the Deposit Insurance Fund and by contributions to the Single Resolution Fund in 

accordance with Regulation (EU) No 806/2014 of the European Parliament and of the Council 4.  

1.7 

Further, to calculate the temporary solidarity contribution a 60 % rate is then applied to the base. 

1.8  Credit institutions subject to the obligation must pay the advance temporary solidarity contribution on 

a quarterly basis. The advance temporary solidarity contribution must be paid to the State budget 

after the end of the quarter and by the last day of the second month of the next quarter. 

1.9 

The  proceeds  collected  under  the  draft  law  will  be  used  to  finance  military  mobility  and  military 

transport infrastructure projects. 

1.10  Lietuvos  bankas  must  submit  to  Valstybine  mokesciu  inspekcija  (State  Tax  Inspectorate)  the 

information necessary for the administration of the temporary solidarity contribution. 

3  

4  

For 2023, the reference period starts on 1 January 2018 and ends on 31 December 2021. For 2024, the reference 
period starts on 1 January 2019 and ends on 31 December 2022. 
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. 

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2. 

Monetary policy context 

2.1 

The  current  surge  in  euro  area  inflation  poses  significant  challenges  to  the  conduct  of  monetary 

policy. Energy was the dominant component of overall inflation. However, inflation has become broad 

based and is projected to remain too high for too long. In view of these developments and guided by 

its primary objective to maintain price stability 5, the ECB has taken determined action to ensure a 

timely return of inflation to the 2 % target over the medium term. Net purchases of assets have ended, 

the asset purchase programmes’ portfolio is declining at a measured and predictable pace and the 

key ECB policy rates have been raised with the intention of dampening demand and guarding against 

the  risk  of  a  persistent  upward  shift  in  inflation  expectations.  The  ECB  stands  ready  to  adjust  all 

instruments within its mandate to ensure that inflation returns to the ECB’s medium-term target and 

to preserve the smooth functioning of monetary policy transmission.  

2.2  As the normalisation of the ECB’s monetary policy continues, it is important to recall that monetary 

policy  operations  always  have  distributional  implications.  Naturally,  they  have  effects  on  incomes 

and the profitability of credit institutions. From a monetary policy perspective, credit institutions play 

a  special  role  for  ensuring  the  smooth  transmission  of  monetary  policy  measures  to  the  wider 

economy.  In  this  context,  an  adequate  capital  base  helps  credit  institutions  to  avoid  abrupt 

adjustments to their lending to the real economy 6.  

2.3  Evidence shows that net interest income typically tends to expand on impact as policy rates increase. 

This effect is higher the larger the weight of short-term or variable interest rate loans, as is the case 

in Lithuania where the bulk of household and company loans are granted at variable rates 7. However, 

this effect can be offset by lower lending volumes, losses recorded in the securities portfolio and an 

increase  in  provisions  resulting  from  a  deterioration  of  the  quality  of  the  credit  portfolio.  The 

realisation  of  downside  risks  in  the  current  environment  may  significantly  reduce  the  repayment 

capacity  of  debtors.  The  net  effect  of  monetary  policy  normalisation  on  bank  profitability  might 

therefore  be  less  positive,  or  even  negative,  over  an  extended  horizon.  The  temporary  solidarity 

contribution  targets  the  portion  of  net  interest  income  that  is  50 %  greater  than  the  average  net 

interest  income  over  a  four-year  reference  period  (with  a  60 %  rate  applied  to  such  net  interest 

income) and thus would allow credit institutions to retain the portion (40 %) of their net interest income 

that  is  50%  greater  than  the  average  over  a  four-year  reference  period.  Nonetheless,  as  the 

temporary solidarity contribution is solely levied on net interest income, rather than broader profits, it 

may be the case that the temporary solidarity contribution is still levied even if downside scenarios 

materialise with adverse developments for a credit institution. Moreover, as the temporary solidarity 

contribution is levied to volumes of net interest income, caution is required to ensure that it does not 

unduly  penalise  credit  institutions  experiencing  strong  growth  in  business  or  involved  in  mergers. 

More generally, caution must be taken to ensure that the temporary solidarity contribution does not 

impact the ability of individual credit institutions to build strong capital bases and adequately provision 

for  increased  impairments  and  a  deterioration  in  credit  quality.  This  is  particularly  relevant  in  the 

context of current market tensions. Damaging the ability of credit institutions to maintain adequate 

5  
6  
7  

See Article 127(1) TFEU.  
See paragraph 2.2 of Opinion CON/2022/36. All ECB opinions are published on EUR-Lex.  
See Lietuvos bankas, 2022 Financial Stability Review, p. 61. 

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capital bases could endanger a smooth bank-based transmission of monetary policy measures to 

ECB-PUBLIC 

the wider economy.  

3. 

Financial stability context 

3.1 

Imposing  a  financial  contribution  on  the  banking  sector  could  have  negative  economic  effects  by 

making credit institutions less resilient to economic shocks. A sound capital base of credit institutions 

is essential to fulfil their role of credit intermediaries within the economy. Higher costs and reduced 

credit supply can adversely affect real economic growth8. 

3.2 

The higher net interest income associated with excessive liquidity is only one of the consequences 

of  the  normalisation  of  monetary  policy  and  tightening  of  financial  conditions.  As  noted  above, 

increasing interest rates can also create potential losses on outstanding loan portfolios. Moreover, in 

the  long  term,  the  rise  in  inflation  can  have  negative  effects  on  companies’  financial  situations, 

increasing  the  credit  risk  for  credit  institutions 9.  These  effects  are  not  reflected  in  the  temporary 

solidarity contribution, and  it is unlikely they will fully  materialise in the upcoming years when this 

temporary solidarity contribution is levied. These different factors should be considered to ensure 

that credit institutions remain well capitalised and positioned to absorb potential future losses. 

3.3 

In its current design, the temporary solidarity contribution could create disincentives to attract new 

deposit funding and provide lending to the real economy. At the same time, domestic and foreign 

investors  could  have  less  appetite  to  invest  in  credit  institutions  as  the  temporary  solidarity 

contribution decreases the profitability outlook of credit institutions. In addition, the draft law could 

make it more difficult for credit institutions to build up extra capital buffers and increase resilience to 

withstand future economic shocks. Therefore, the potential negative effects of the temporary solidarity 

contribution on the banking sector and its impact on financial stability should be closely monitored, 

particularly within the current context of higher uncertainty and increased volatility in financial markets.  

3.4 

The draft law ensures that the solidarity contribution is temporary in nature. Additionally, the proceeds 

of  the  temporary  solidarity  contribution  will  automatically  decrease  once  excess  liquidity  and  the 

elevated interest rate income decline, whereas interest expenditure needs may go well beyond the 

draft law’s time horizon. In line with these considerations, the ECB has previously recommended that 

a clear separation is necessary between the extraordinary nature of the proceeds and the general 

budgetary resources of a government to avoid their use for general fiscal consolidation purposes 10. 

3.5 

The  temporary  solidarity  contribution  can  lead  to  fragmentation  in  the  domestic  and  European 

financial system because of the heterogeneous nature of the banking sector. This would particularly 

be the case where the interest income of some credit institutions is relatively high compared to other 

activities. It would also be useful to analyse potential behavioural effects, including liquidity aspects 

of  credit  institutions  that  may  want  to  minimise  the  temporary  solidarity  contribution,  inter  alia,  by 

shifting their deposit base.  

3.6 

Furthermore, the application of the temporary solidarity contribution only to certain Lithuanian credit 

8    

9  
10  

See paragraph 3.2.1 of Opinion CON/2010/62, paragraph 2.1 of Opinion CON/2011/29 and paragraph 3.1 of Opinion 
CON/2022/36. 
See Lietuvos bankas, 2022 Financial Stability Review, pp. 59-64. 
See paragraph 3.2.2 of Opinion CON/2010/62 and paragraph 3.1 of Opinion CON/2022/36. 

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institutions could distort market competition and impair the level playing field both within the country 

and across the banking union11. 

3.7 

In  light  of  the  above,  the  ECB  recommends  that  the  analysis  provided  in  the  explanatory 

memorandum also includes a thorough analysis of potential negative consequences for the banking 

sector12,  detailing  in  particular  the  specific  impact  of  the  temporary  solidarity  contribution  on  the 

longer-term profitability and capital base of banks and the provision of new lending and competition 

conditions  in  the  market,  to  ensure  that  its  application  does  not  pose  risks  to  financial  stability, 

banking sector resilience and avoids market distortion.  

4. 

Considerations relating to the prudential supervision of credit institutions 

4.1 

The ECB understands that the temporary solidarity contribution would, as a practical matter, apply 

to  credit  institutions,  including  those  credit  institutions  directly  supervised  by  the  ECB  within  the 

framework of the Single Supervisory Mechanism.  

4.2 

The  basis  on  which  the  temporary  solidarity  contribution  would  be  established  does  not  take  into 

consideration the full business cycle and does not include, inter alia, operational expenses other than 

interest  expenditure. As a  result, the amount of the temporary solidarity contribution might  not be 

commensurate with the profitability of a credit institution. Thus, as a result of the general application 

of the temporary solidarity  contribution, credit institutions that  are not  necessarily benefitting from 

current  market  conditions  could,  if  they  become  subject  to  the  temporary  solidarity  contribution, 

become less able to absorb the potential downside risks of an economic downturn 13. 

5. 

Role of Lietuvos bankas in providing information to the Lithuanian State Tax Inspectorate  

The ECB understands that the obligation imposed on Lietuvos bankas under the draft law to submit 

to the State Tax Inspectorate the information necessary for administration of the temporary solidarity 

contribution is  not a new task of Lietuvos bankas. In accordance with the  Lithuanian Law on Tax 

Administration14, Lietuvos bankas already has the duty to provide all necessary information and data 

for the performance of the functions of the tax administration. The ECB understands that this duty of 

Lietuvos bankas is without prejudice to the obligation to maintain professional secrecy in respect of 

confidential prudential supervisory information under Union law 15. 

11  
12  
13  
14  

15  

See paragraph 3.3 of Opinion CON/2022/36.  
See paragraph 3.4 of Opinion CON/2022/36.  

See paragraph 4.2 of Opinion CON/2022/36.  
Article 30(1) of the Lithuanian Law on Tax Administration (Lietuvos Respublikos mokesčių administravimo įstatymas) 
stipulates that  where performing  its  functions,  the  tax administrator must  cooperate  with  other  State  and  municipal 
institutions and agencies of the Republic of Lithuania and institutions as well as ensure the exchange of information. 
Article 30(2) stipulates that the State and municipal institutions and agencies of the Republic of Lithuania must provide 
comprehensive assistance to the tax administrator. Article 33(1) stipulates that when performing the functions assigned 
to it, the tax administrator may obtain from persons the data required for the performance of its obligations. Article 49 
establishes that unless the laws provide otherwise, the information and data specified in Article 33(1) of this Law as 
are necessary for the tax administrator to perform its functions is to be submitted not later than within ten days from 
the date of receipt of instructions from the relevant tax administrator or within a longer time limit set forth by the tax 
administrator. 
See, e.g., Article 53 of 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); see also 
paragraph 2.1 of Opinion CON/2021/13. 

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This opinion will be published on EUR-Lex. 

Done at Frankfurt am Main, 4 April 2023. 

[signed] 

The President of the ECB 

Christine LAGARDE 

ECB-PUBLIC 

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