Opinion of the European Central Bank of 4 February 2025 on flood insurance (CON/2025/3)
Date: 2025-02-04
Institutions: European Central Bank
Subjects: financial stability

ECB-PUBLIC 

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 4 February 2025 

on flood insurance 

(CON/2025/3) 

Introduction and legal basis 

On 10 October 2024 the European Central Bank (ECB) received a request from the Chair of the Oireachtas 

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

(Irish Prime Minister) for an opinion on the Flood Insurance Bill 2021 (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 Article 2(1), third and sixth indents, of Council Decision 98/415/EC 1, 

as the draft law relates to the Central Bank of Ireland (CBI), rules applicable to financial institutions insofar 

as  they  materially  influence  the  stability  of  financial  institutions  and  markets,  and  the  ECB’s  tasks 

concerning the prudential supervision of credit institutions pursuant to Article 127(6) of the Treaty. 

In accordance with Article 17.5, first sentence, 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 contains provisions intended to achieve fairness in the market for property and flood 

insurance  in  Ireland  by  prohibiting  insurers  from  discriminating  between  certain  persons  when 

offering property insurance policies and by prohibiting insurers from unreasonably refusing to offer 

an insurance policy. To achieve this purpose, the draft law places certain obligations on insurance 

undertakings carrying out business in Ireland (hereinafter ‘insurers’) and confers certain powers upon 

the CBI.   

1.2  The  draft  law  prohibits  insurers  from  discriminating  when  offering  property  insurance  policies 

between: (a) persons with an insurable interest in a property located in an area designated as being 

at low or at medium risk of flooding (hereinafter ‘affected persons’); and (b) persons with an insurable 

interest in a property located in an area which is not designated as being at low, at medium or at high 

risk of flooding (hereinafter ‘unaffected persons’) 2. In this regard, the draft law employs the risk levels 

within the meaning of Directive 2007/60/EC of the European Parliament and of the Council3. Insurers 

are prohibited from discriminating as regards the following matters. First, insurers cannot discriminate 

in their decision whether to offer an insurance policy to an affected or an unaffected person. Second, 

1  

2  
3  

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). 
Section 3 of the draft law. 
Sections 1 and 2 of the draft law and Article 6 of Directive 2007/60/EC of the European Parliament and of the 
Council of 23 October 2007 on the assessment and management of flood risks (OJ L 288, 6.11.2007, p. 27).  

 
 
 
 
 
 
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insurers  cannot  discriminate  as  regards  the  price  at  which  a  policy  is  offered,  unless  the  price  is 

reasonably  justified  by  the  current  risk  profile  of  the  property.  In  other  words,  the  prohibition  on 

discrimination does not appear to prevent insurers from calculating a higher premium for affected 

persons  than  for  unaffected  persons,  subject  to  reasonable  justification  based  on  the  current  risk 

profile  of  the  property.  Finally,  insurers  cannot  discriminate  as  regards  other  terms  on  which  the 

insurance is offered 4.  

1.3 

In addition, the draft law prohibits insurers from unreasonably refusing to offer an insurance policy to 

affected persons or offering a policy at an unreasonable price or on unreasonable terms to them 5.  

1.4  The draft law confers upon the CBI the power to carry out an assessment of the manner in which an 

insurer deals with applications for insurance by affected persons6. This assessment may include the 

extent  to  which  the  insurer  in  question  acts  in  compliance  with  the  draft  law’s  prohibition  on 

discrimination and the duty not to act unreasonably in its dealings with an affected person. The draft 

law does not set any further parameters for such an assessment or the circumstances in which the 

CBI might carry out such an assessment.   

1.5  Where the CBI has performed such an assessment, the draft law confers upon the CBI the powers 

to issue a direction to the insurer concerned to take such steps or to adopt or cease such practices 

as it considers appropriate and necessary to ensure compliance by that insurer with its obligations 

under the draft law7. With regard to enforcement, the draft law confers powers on the CBI to enforce 

such  directions  on  insurers  that  fail  to  comply  with  them  by  applying  to  the  High  Court  for  an 

enforcement order8. When granting the enforcement order, the High Court must also impose a fine 

on the insurer unless the High Court determines that it would be unjust to impose such a fine. In such 

a case, it may impose a lesser fine or dispense with the requirement to impose a fine9.  

2. 

General observations  

This  opinion  assesses  the  provisions  of  the  draft  law  that  impact:  (a)  the  stability  of  the  financial 

system, (b) the prudential supervision of credit institutions, and (c) the tasks of the CBI as a national 

central bank (NCB) and a member of the Eurosystem and the European System of Central Banks 

(ESCB). This opinion does not comment on the elements of the draft law that pertain to the prudential 

supervision  of  insurance  undertakings,  as  these  matters  fall  outside  the  ECB’s  fields  of 

competence10.  Moreover,  this  opinion  does  not  address  whether  the  draft  law  is  compatible  with 

Directive 2009/138/EC of the European Parliament and of the Council11.  

4  
5  
6  
7  
8  
9  
10   
11  

Section 3 of the draft law. 
Section 4 of the draft law. 
Section 8 of the draft law. 
Section 9 of the draft law. 
Section 10(3) of the draft law. 
Section 10(5) of the draft law. 
See Article 127(6) of the Treaty. 
Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and 
pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ L 335, 17.12.2009, p. 1).  

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3. 

Impact of the draft law on financial stability 

3.1  The draft law is relevant to financial stability, insofar as it relates to the climate insurance protection 

gap. The climate insurance protection gap refers to the uninsured portion of economic losses caused 

by climate-related natural disasters and this gap is expected to widen in the light of the increasing 

frequency and severity of such events due to climate change12. In 2023, the ECB, in conjunction with 

the European Insurance and Occupational Pensions Authority (EIOPA), released a joint discussion 

paper  analysing  the  climate  insurance  protection  gap  throughout  EU  Member  States,  whilst  also 

identifying policy options to tackle the gap13. This joint report also set out the economic relevance of 

the gap, including its implications for financial stability, and noted the role that private insurance may 

play in addressing the impact of climate-related natural disasters. More recently, the ECB and EIOPA 

have  released  a  follow-up  report,  which  analyses  12  existing  national  insurance  schemes 14  and 

outlines  the  possible  role  that  European  solutions  may  play  in  reducing  the  impact  of  natural 

catastrophes 15. 

3.2  The  joint  ECB-EIOPA  work  on  this  topic  outlines  that  climate-related  natural  disasters  can  be  a 

source of systemic risk for financial institutions and financial markets through two main channels. 

First, physical damage to assets such as buildings can lead to reduced collateral values, including 

mortgage  collateral.  It  can  also  lead  to  substantial  repricing  of  loans  and  securities  for  financial 

institutions  exposed  to  high-risk  areas.  Second,  physical  damage  can  lead  to  supply  chain 

disruptions, which can, in turn, cause large losses for the real economy and on financial institutions’ 

balance sheets. In both cases, a high concentration of key economic activities in high-risk areas can 

amplify such losses, giving local events wider significance. This can result in a lower provision of 

credit in high-risk areas and to lower income borrowers, especially from less well-capitalised or less 

profitable banks 16. 

3.3  Catastrophe insurance can increase banks’ resilience to such shocks by mutualising and transferring 

collateral and property losses to (re)insurance companies, which are better equipped to manage their 

climate-related exposures. By accelerating reconstruction, insurance can also help to reduce losses 

from  supply  chain  disruptions.  Finally,  a  lack  of  insurance  may  prevent  the  qualification  of  some 

property as eligible collateral, potentially increasing the exposure of banks to credit risk 17. 

3.4  Catastrophe  insurance  is  also  a  key  tool  to  mitigate  macroeconomic  losses  following  extreme 

climate-related events such as floods and fires, as it provides prompt funding for reconstruction and 

should incentivise risk reduction and adaptation18. Insurance payouts reduce uncertainty and support 

12  

13  
14  

15  

16  
17  
18  

See European Central Bank and European Insurance and Occupational Pensions Authority, Policy options to reduce 
the climate insurance protection gap: Discussion Paper, April 2023 (the ‘2023 joint ECB-EIOPA paper’). 
See generally 2023 joint ECB-EIOPA paper. 
Consorcio de Compensación de Seguros (CCS; Spain), Caisse Centrale de Réassurance (CCR; France), 
Norwegian Natural Perils Pool (NNPP; Norway), Belgian Natural Catastrophe Pool (CANARA; Belgium), Natural 
Disaster Insurance Pool (PAID, Romania), Natural catastrophe insurance of Iceland (NCI, Iceland), Danish Storm 
(DSC; Denmark), FloodRe (United Kingdom), Japan Earthquake Reinsurance (JER; Japan), National Flood 
Insurance Program (NFIP; United States), Australian Reinsurance Pool Corporation (ARPC; Australia), and Swiss 
National Hazard Pool (SNHP; Switzerland). 
See European Central Bank and European Insurance and Occupational Pensions Authority, Towards a European 
system for natural catastrophe risk management, December 2024 (the ‘2024 joint ECB-EIOPA paper’). 
See 2023 joint ECB-EIOPA paper, p. 12. 
See 2023 joint ECB-EIOPA paper, p. 12. 
See 2023 joint ECB-EIOPA paper, p. 2. 

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aggregate  demand  and  investment  for  reconstruction,  enabling  economies  to  recover  faster  and 

limiting the period of lower economic output. By contrast, without insurance, households and firms 

must finance post-disaster recovery mainly with savings, credit and/or uncertain government relief, 

which is likely to be much less efficient. In addition, low insurance coverage may increase the burden 

on  governments,  both  in  terms  of  macroeconomic  risks  and  in  terms  of  fiscal  spending  to  cover 

uninsured damage. 

3.5  The  wider  advantages  of  catastrophe  insurance  for  the  financial  system,  the  economy  and 

governments’  fiscal  balances  are  not  reflected  in  individual  insurance  contracts,  which  leads  to 

market  failure  and  insurance  coverage  that  may  be  lower  than  is  socially  optimal19.  The  positive 

externalities  of  insurance,  such  as  a  faster  recovery  following  a  disaster,  less  burden  on  fiscal 

budgets and reduced costs through better risk management, benefit not only policyholders but also 

the wider economy. However, individual insurers and consumers do not typically take these broader 

economic benefits of insurance into account, which leads to a market failure that exacerbates the 

insurance protection gap. Furthermore, the expectation that governments will ultimately cover natural 

catastrophe losses can encourage underinsurance, a moral hazard issue that further reduces the 

overall effects of insurance. 

3.6  From this perspective, it might be beneficial to develop solutions that help address this market failure 

and  reduce  the  insurance  protection  gap.  However,  to  be  effective,  such  solutions  should  be 

comprehensive and well designed. In particular, the joint ECB-EIOPA work on this topic suggests 

that such solutions require a multi-layered approach involving both the private and public sectors, 

while also considering the intricate interaction between insurance supply and demand20. 

3.7 

In this respect, the ECB welcomes the objective of the draft law, to achieve fairness in the market for 

property  and  flood  insurance.  However,  the  design  of  the  draft  law  could  benefit  from  certain 

improvements. This is because the draft law, as it currently stands, may not effectively achieve its 

stated objective. First, given that the draft law prohibits insurers from discriminating between affected 

and unaffected persons as regards whether an insurance policy is offered, and as regards the price 

and terms on which an insurance policy is offered, it negatively impacts the ‘risk signalling role’ of 

insurance,  which  might  in  turn  lead  to  less  risk  reduction  and  adaptation21  as  well  as  lower  risk 

awareness. Second, it may widen rather than reduce the flood insurance protection gap in Ireland 

over time. Finally, and most importantly, it is not sufficiently comprehensive: it narrowly targets the 

private sector and focuses only on its supply side. 

3.8  Regarding the first point, the ECB would recommend that the draft law is carefully designed to ensure 

that the conditions under which insurance is offered encourage adaptation and reduce vulnerability 

to climate-related catastrophes over time. In that respect, the draft law should not undermine the role 

of insurance in providing incentives for risk reduction and adaptation by, for example, promoting risk 

19 
20   
21   

See 2024 joint ECB-EIOPA paper, p. 12. 
See generally the 2023 and 2024 joint ECB-EIOPA papers. 
Adaptation is a key component of the long-term global response to climate change. Climate change adaptation 
refers to enhancing adaptive capacity, strengthening resilience and reducing vulnerability to climate change. See 
Article 5 of Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing 
the framework for achieving climate neutrality and amending Regulations (EC) No 401/2009 and (EU) 2018/1999 
(‘European Climate Law’) (OJ L 243, 9.7.2021, p. 1). 

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awareness and providing risk-based incentives linked to premiums. In particular, impact underwriting 

is an underwriting and pricing strategy aimed at incentivising the policyholder to implement ex ante 

(structural)  measures  and  reduce  exposure  to  climate-related  hazards 22.  Both  (a)  the  price  of 

insurance and (b) the contractual terms and conditions under which insurance is offered are strong 

signals of the level of risk. Therefore, risk-based incentives linked to premiums and other contractual 

terms  help  enhance  the  awareness  of  policyholders  of  current  vulnerabilities  and  can  provide 

incentives to implement adaptation and mitigation measures that minimise physical risk exposure to 

climate-related  hazards 23.  For  example,  premium  reductions  could  be  associated  with  properties 

meeting  certain  standards  with  respect  to  flood-proofing  in  flood-prone  areas.  The  cost  of 

implementing  the  risk  reduction  measure  could  be  compensated  by  a  lower  premium.  From  this 

perspective, the provisions of the draft law, particularly those prohibiting discriminatory treatment by 

insurers  as  between  affected  persons  and  unaffected  persons,  be  it  in  relation  to  price  or  other 

contractual  terms,  may  negatively  impact  the  role  that  insurers  play  in  signalling  climate  risk  and 

incentivising risk reduction and adaptation.  

3.9  As to the second point, the increasing frequency and severity of climate-related catastrophe events 

such as floods is likely to trigger repricing of insurance contracts or even prompt insurers to cease to 

offer cover in certain areas 24. If insurers are restricted from doing so, this may lead them to withdraw 

from  certain  markets  altogether,  thereby  possibly  increasing  rather  than  reducing  the  climate 

insurance protection gap25. Thus, the provisions of the draft law prohibiting discriminatory treatment 

between affected and unaffected persons might lead to a situation where insurers weigh the costs of 

providing flood insurance to a broad range of individuals in Ireland against the insurers’ benefits from 

being in the Irish flood insurance market.  

3.10  This may happen where the internal risk assessments of certain insurers do not correspond to the 

risk levels of the flood hazard maps utilised by the draft law in assessing discrimination. For example, 

an insurer’s internal risk assessment might designate a specific geographical area as being high risk 

(or  uninsurable),  whereas  the  flood  hazard  maps  may  designate  the  same  geographical  area  as 

medium risk. The non-discrimination provisions in the draft law then imply that the insurer has only 

two options: (a) offer insurance to ‘affected’ and ‘unaffected’ persons including those that – according 

to  its  own  assessment  –  are  at  high  risk  (or  uninsurable)  or  (b)  withdraw  from  the  (Irish  flood 

insurance) market altogether. Since climate change brings more uncertainty and makes flood risk 

more  unpredictable,  diverging  risk  assessments  between  private  financial  institutions  and  public 

authorities cannot be excluded.  

3.11  The  climate  insurance  protection  gap  may  also  be  widened  by  other  inadvertent  effects  such  as 

higher  premiums  or  lower  competition.  If  the  draft  law  mandates  insurers  to  treat  unaffected  and 

affected persons similarly in terms of flood protection insurance, this could lead to insurers offering 

higher cost premiums to both affected and unaffected persons. Higher insurance premiums could 

22  
23  
24  
25  

See 2023 joint ECB-EIOPA paper, p. 18. 
See 2023 joint ECB-EIOPA paper, p. 18 and p. 33.  
See 2024 joint ECB-EIOPA paper, p. 9. 
Some national insurance schemes include elements that allow for a certain degree of solidarity and cross-
subsidisation among policyholders, but these elements are often complemented by other measures. See 2024 joint 
ECB-EIOPA paper, in particular Section 2. 

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then lower insurance demand, especially from unaffected persons. This could in turn lead to adverse 

selection bias and the concentration of insurers’ portfolios on high-risk contracts, which could trigger 

further repricing of the contracts. Similarly, the retreat of some insurers from the Irish flood insurance 

market, or the potential unattractiveness of the market for new entrants, could lead to less market 

competition and thus to generally higher prices, which could in turn further lower insurance demand, 

in particular from unaffected persons.   

3.12  As to the final point, all these examples illustrate that solutions that aim to address the insurance 

protection gap should be comprehensive and carefully designed. Overall, they should consider both 

the demand and supply sides of private insurance and involve, as appropriate, both the private and 

public sector. In addition to comprehensive solutions at national level, EU-level solutions could also 

be considered, notably in view of the potentially larger risk pooling and risk diversification benefits at 

EU compared to national level.   

3.13  For instance, insurers’ reluctance to offer cover in certain areas may be justified where risks become 

excessively high or unpredictable 26. In such cases, insurance cannot make up for inadequate climate 

adaptation, spatial planning and (re)building conventions27.  

3.14  More generally, Member States should not only aim at addressing the insurance protection gap but 

also  develop  their  fiscal  frameworks  to  identify  and  account  for  the  costs  of  natural  disasters, 

adaptation and mitigation in order to make informed assessments of trade-offs 28. This requires better 

information  and  data  and  improved  governance  and  management  of  climate  risks.  Pro-active 

measures on the vulnerability of buildings, planning rules that determine the location of exposures 

and climate change-resilient public investments are also likely to be important elements of a resilient 

society.   

4. 

Impact of the draft law on the prudential supervision of credit institutions 

4.1  The ECB expects credit institutions under its prudential supervision to consider climate-related and 

environmental risks at all relevant stages of the credit-granting process and to monitor these risks in 

their portfolios 29. For lending secured by immovable properties, in particular for mortgage lending, 

catastrophe  insurance,  such  as  flood  insurance,  plays  an  important  role  in  mitigating  credit  risk, 

especially  from  the  context  of  physical  risk.  Consequently,  credit  institutions  should  consider 

insurance availability when assessing the potential financial impact of physical risk on collateral taken 

for risk management purposes30.  

26  
27  

28  

29  
30  

See 2024 joint ECB-EIOPA paper, p. 9. 
See also Elderson F. (2024), ‘“Know thyself’ – avoiding policy mistakes in light of the prevailing climate science’, 
keynote speech at the Delphi Economic Forum IX, Delphi, April. 
See 2023 joint ECB-EIOPA paper, p. 25. See also Article 9(2), point (d), and Article 14(3) of Council Directive 
2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States (OJ L 306, 
23.11.2011, p. 41). 
European Central Bank, Guide on climate-related and environmental risks, November 2020.  
See Supervision Newsletter, ‘Climate-related data for the real estate sector: challenges and solutions’, 13 November 
2024.  

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4.2  Credit institutions are, inter alia, required to consider environmental, social and governance risks, 

including physical risks arising from flooding, in their collateral valuations 31. Catastrophe insurance, 

such  as  flood  insurance,  plays  a  central  role  in  this  regard.  Notably,  Article  208(5)  of  the  Capital 

Requirements Regulation32 requires that immovable property taken as credit protection is adequately 

insured  against  the  risk  of  damage.  Furthermore,  credit  institutions  are  required  to  have  in  place 

procedures to monitor the adequacy of insurance. As described in the previous section, the draft law 

may negatively affect insurance coverage in Ireland, and this may in turn negatively affect the ability 

of credit institutions to recognise immovable properties as eligible collateral in cases where insurance 

coverage cannot be deemed as adequate. 

4.3  The ECB further wishes to highlight that credit institutions can also mitigate the impact of physical 

risks from flooding by financing improvements to the resilience, protection and adaptation to physical 

risks of buildings or housing units. Where such modifications to immovable property unequivocally 

increase its value, credit institutions can recognise such increases in their valuation of immovable 

property 33.  As  outlined  above,  the  draft  law  may  negatively  impact  the  role  that  insurers  play  in 

incentivising such risk reduction and adaptation measures, thereby undermining incentives for such 

modifications. 

5. 

Impact of the draft law on the Central Bank of Ireland 

5.1  The ECB observes that it adopted an opinion in 2017 on a substantially identical draft Irish law 34. 

Since then the Court of Justice of the  European Union has given  a ruling on the interpretation of 

Union law having implications for the ECB’s assessment of the conferral of new tasks on NCBs in 

the ESCB, including the CBI35.  

5.2 

In accordance with Article 14.4 of the Statute of the European System of Central Banks and of the 

European  Central  Bank,  NCBs  may  perform  functions  other  than  those  specified  in  that  Statute, 

unless the Governing Council finds that those functions interfere with the objectives and tasks of the 

ESCB. Where a Member State assigns such a function to its NCB, that NCB is responsible and liable 

for the performance of that function. Nevertheless, when defining the responsibility and liability of an 

NCB in relation to that function, Member States are required to comply with their obligations deriving 

from Union law and, in particular, Article 123(1) and Article 130 of the Treaty 36. 

5.3  Monetary financing prohibition 

31  

32  

33  

34  
35  
36  

See Article 208(3) of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 
on prudential requirements for credit institutions and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, 
p. 1).  
Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential 
requirements for credit institutions and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1). 
See Article 229(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 
on prudential requirements for credit institutions and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, 
p. 1). 
See Opinion CON/2017/12. All ECB opinions are published on EUR-Lex. 
See judgment of the Court of Justice of 13 September 2022, Banka Slovenije, C-45/21, ECLI:EU:C:2022:670. 
See judgment of the Court of Justice of 13 September 2022, Banka Slovenije, C-45/21, ECLI:EU:C:2022:670, 
paragraphs 53, 54, 57 and 97.  

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5.3.1  Article 123(1) of the Treaty prohibits the NCBs from granting overdraft facilities or any other type of 

credit facility to public authorities and bodies of the Member States. Article 1(1), point (b), of Council 

Regulation No 3603/9337 defines the term ‘other type of credit facility’ for the purposes of Article 123 

of  the  Treaty  as,  inter  alia,  any  financing  of  the  public  sector’s  obligations  vis-à-vis  third  parties. 

Accordingly,  the  NCB  concerned  must  not  assume  obligations  vis-à-vis  third  parties  that  could 

potentially be incumbent on the public sector. Consequently, the NCB concerned must not finance 

pre-existing obligations vis-à-vis third parties that are incumbent on other public authorities or bodies 

and the effective financing of the obligations vis-à-vis third parties by the NCB concerned must not 

result  directly  from  the  measures  adopted  by,  or  from  the  policy  choices  made  by,  other  public 

authorities or bodies 38. 

5.3.2  While the draft law does not as such impose any financing obligations on the CBI, the conditions 

under which the CBI is to exercise the function assigned to it under the draft law must be in line with 

the above limitations deriving from Article 123(1) of the Treaty. In particular, the liability of the CBI 

must be limited to infringements by the CBI of the rules imposed on it in that context, to the effect 

that the compensation of third parties who have suffered harm is the consequence of the actions of 

the CBI and not the assumption of a pre-existing obligation vis-à-vis third parties incumbent on other 

public authorities or bodies 39.  

5.3.3  The draft law does not specifically state the liability regime applicable to the CBI in carrying out the 

tasks under the  draft law.  The  ECB understands, however, that there  is a general liability regime 

applicable to the CBI for anything done or omitted in the performance or purported performance or 

exercise  of  any  of  its  functions  or  powers 40.  The  functions  or  powers  of  the  CBI  include  the 

performance of such other functions as are imposed on it by or under the Central Bank Act 1942 and 

any other act or law. Moreover, the Central Bank Act 1942 grants the CBI the power to do whatever 

is necessary for or in connection with, or reasonably incidental to, the performance of its functions 41. 

The Central Bank Act 1942 provides that the general liability regime applicable to the CBI only applies 

if it is proved that the act or omission was in bad faith42. It follows that the general liability regime 

applicable to the CBI is fault based. The CBI will only be liable for the compensation of third parties 

who have suffered harm, where such harm is the consequence of the actions of the CBI acting in 

bad  faith.  Against  this  backdrop,  the  liability  regime  applicable  to  the  CBI,  when  exercising  the 

function assigned to it under the draft law, is in line with the limitations deriving from Article 123(1) of 

the Treaty.  

5.4  Financial independence 

37  

38  

39  

40  
41  
42  

Council Regulation (EC) No 3603/93 of 13 December 1993 specifying definitions for the application of the 
prohibitions referred to in Articles 104 and 104b (1) of the Treaty (OJ L 332, 31.12.1993, p. 1). 
See judgment of the Court of Justice of 13 September 2022, Banka Slovenije, C-45/21, ECLI:EU:C:2022:670, 
paragraphs 67 to 75 and 84. 
See judgment of the Court of Justice of 13 September 2022, Banka Slovenije, C-45/21, ECLI:EU:C:2022:670, 
paragraph 71. 
Section 33AJ(1) and (2) of the Central Bank Act 1942. 
Section 5A(1)(i) and Section 5A(2) of the Central Bank Act 1942. 
Section 33AJ(2) of the Central Bank Act 1942. 

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5.4.1  Article 130 of the Treaty prohibits Member States from placing their NCBs in a situation which in any 

way undermines their ability to carry out independently a task falling within the scope of the ESCB43. 

This would be the case if, for example, an NCB were prevented from building up adequate financial 

resources in the form of reserves or buffers to offset losses, particularly those resulting from monetary 

policy operations, and the Member State concerned did not ensure in advance that the NCB had the 

necessary funds to bear the financial burden resulting from exercising a function outside the scope 

of the ESCB (such as the funds necessary to be able to pay the compensation resulting from the 

liability regime for the performance of that function), while retaining its ability to carry out its ESCB 

tasks effectively and independently 44. An NCB constrained in its ability to create and/or restore its 

reserves  or  buffers  may  need  to  seek  the  consent  of  political  authorities  to  obtain  funding  or 

recapitalisation. This places the NCB in a situation of dependence on those political authorities of 

the Member State 45. 

5.4.2  The ECB notes that, in the light of the general limitations applicable to the CBI’s liability, i.e. liability 

is  limited  to  acts  or  omissions  which  are  in  bad  faith,  the  CBI’s  risk  of  exposure  to  liability  in  the 

context of the exercise of its functions under the draft law appears to be sufficiently remote. It does 

not appear that the draft law would lead to substantial losses of a magnitude that might constrain the 

CBI’s ability to build up adequate financial resources to carry out its ESCB tasks. 

This opinion will be published on EUR-Lex.  

Done at Frankfurt am Main, 4 February 2025. 

[signed] 

The President of the ECB 

Christine LAGARDE 

43  

44  

45  

See judgment of the Court of Justice of 13 September 2022, Banka Slovenije, C-45/21, ECLI:EU:C:2022:670, 
paragraph 97. 
See judgment of the Court of Justice of 13 September 2022, Banka Slovenije, C-45/21, ECLI:EU:C:2022:670, 
paragraph 105. 
See judgment of the Court of Justice of 13 September 2022, Banka Slovenije, C-45/21, ECLI:EU:C:2022:670, 
paragraphs 100 to 102. 

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