text: OJ L 189, 3.7.1998, p. 42.

text: See recital 2 of the draft decision.

text: See Article 1 of the draft law. These shares give voting rights and a right to a fixed dividend on the capital contributed and shall allow for State representation at a general meeting of ordinary shareholders and on the Board entailing a right to veto any decision on dividend distribution and executive pay considered to jeopardise the interest of depositors or to substantially affect the solvency and smooth running of the bank; finally, these shares may not be transferred by the Greek State to third parties or listed on regulated markets; in case of liquidation, the claims of the Greek State as a shareholder shall be satisfied in priority to any other ordinary shareholder.

text: See Article 2 of the draft law. State representation on the Board has the same legal effects as under

text: Article 1(3)

text: for the period of the guarantee’s validity.

text: See Article 3 of the draft law.

text: The SC will be chaired by the MEF; other participants will be the BoG Governor, the deputy MEF in charge of the State General Accounting Department and the State representative appointed to the Board of beneficiary CIs.

text: See the Guide to consultation of the European Central Bank by national authorities regarding draft legislative provisions, Title IV, Section 1, available on the ECB’s website at www.ecb.europa.eu.

text: See the following ECB Opinions:

text: of 3 October 2008 at the request of the Irish Minister for Finance on a draft Credit Institutions (Financial Support) Bill 2008;

text: of 8 October 2008 at the request of the Belgian Ministry of Finance on a preliminary draft law on measures promoting financial stability and in particular establishing a State guarantee for the provision of credit in the context of financial stability;

text: of 15 October 2008 at the request of the Irish Minister for Finance on a draft Credit Institutions (Financial Support) Scheme 2008;

text: of 17 October 2008 at the request of the Belgian Ministry of Finance on a draft royal decree adopted under

text: Article 117

text: bis of the Law of 2 August 2002 on the supervision of the financial sector and on financial services;

text: of 17 October 2008 at the request of the Greek Ministry of Economy and Finance on a draft law on, inter alia, the establishment of the ‘Depositors and Investors of Credit Institutions Compensation Fund’;

text: of 17 October 2008 at the request of the Spanish State Secretary for Economic Affairs on a Royal Decree-Law creating a Fund for the acquisition of financial assets and on a Royal Decree-Law adopting urgent financial and economic measures in relation to the concerted European action plan of the euro area countries;

text: of 17 October 2008 at the request of the Danish Ministry of Economic and Business Affairs on a proposed Law on financial stability;

text: of 20 October 2008 at the request of the Austrian Ministry of Finance on draft legal measures to ensure the stability of the Austrian financial market;

text: of 21 October 2008 at the request of the Banque de France on a draft amending finance law for the financing of the economy;

text: of 21 October 2008 at the request of the German Ministry of Finance on a Law on the implementation of a package of measures to stabilise the financial market and an order on its implementation;

text: of 23 October 2008 at the request of the Banca d’Italia on behalf of the Italian Ministry for Economic Affairs and Finance on two Decree-Laws containing urgent measures to guarantee the stability of the banking system and the continuity of the provision of credit;

text: of 24 October 2008 at the request of the Swedish Ministry of Finance on a draft proposal on stabilising measures for the Swedish financial system;

text: of 27 October 2008 at the request of the Spanish State Secretary for Economic Affairs on a draft Order implementing Royal Decree-Law 6/2008 creating the Fund for the acquisition of financial assets and on a draft Basic Agreement of the Fund’s Executive Council;

text: of 28 October 2008 at the request of the Belgian Minister for Finance on a draft royal decree implementing the Law of 15 October 2008 on measures promoting financial stability and in particular establishing a State guarantee for the provision of credit in the context of financial stability, in relation to the protection of deposits and life insurance and amending the Law of 2 August 2002 on the supervision of the financial sector and on financial services;

text: of 29 October 2008 at the request of the Swedish Ministry of Finance on a draft ordinance on State guarantees for banks etc.;

text: of 12 November 2008 at the request of the Banca d’Italia on behalf of the Italian Ministry for Economic Affairs and Finance on a draft ministerial decree containing provisions to implement Decree-Law No 157/2008 on further urgent measures to guarantee the stability of the credit system;

text: of 13 November 2008 at the request of the Spanish Ministry for Economic Affairs and Finance on a draft order implementing Royal Decree-Law 7/2008 authorising State guarantees; and

text: of 13 November 2008 at the request of the Finnish Ministry of Finance on a draft government proposal for laws amending the Law on the

text: Government Guarantee Fund and the Law on credit institutions. All ECB opinions are available on the ECB’s website at www.ecb.europa.eu.

text: See the press release of the 2894th Council meeting (13784/08), available on the Council’s website at www.consilium.europa.eu.

text: The Declaration is available on the French Presidency’s website at www.ue2008.fr.

text: See the ‘Communication from the Commission – The application of State aid rules to measures taken in relation to financial institutions in the context of the current global financial crisis’ of 13 October 2008, available on the Commission’s website at www.ec.europa.eu. Paragraph 18 specifies that ‘The eligibility criteria of financial institutions … must be objective, taking due account of their role in the relevant banking system and the overall economy, and nondiscriminatory so as to avoid undue distortive effects on neighbouring markets and the internal market as a whole. In application of the principle of non discrimination on the grounds of nationality, all institutions incorporated in the Member State concerned, including subsidiaries, and with significant activities in that Member State should be covered by the scheme’.

text: Under Section 2A(c) of the draft decision the pricing of State guarantees will be determined in accordance with the procedure established by the ECB. Under Section 3(d) thereof, such pricing also applies to Government securities.

text: See, e.g. paragraph 3.4 of ECB Opinion

text: , paragraph 3.1 of ECB Opinion

text: and paragraph 3.4 of ECB Opinion

text: Section 9 states, inter alia, that in implementing the draft law beneficiary CIs must abstain from aggressive market strategies, including advertising by invoking their guaranteed status especially against non-beneficiary CIs. They must also abstain from expanding their activities or from pursuing other purposes in manners unduly distorting competition. To this end, beneficiary CIs must ensure that during the implementation the average increase of total assets does not exceed a determined limit. The SC will monitor compliance with such obligations on the basis of reports provided for in Section 8.

text: In this context, Section 8 of the draft decision stipulates, inter alia, that beneficiary CIs must regularly inform the BoG on the precise use of the funds received. The BoG Governor then informs the SC accordingly. On the basis of quarterly reports from beneficiary CIs, the BoG prepares a biannual report on the use of funds, outlining the implementation of the business plans of each beneficiary CI as well as any restructuring plans. Such report will be submitted to the SC and the Commission of the European Communities.

title: Opinion of the European Central Bank of 27 November 2008 at the request of the Greek Ministry of Economy and Finance on a draft law on enhancing liquidity of the economy to address the impact of the international financial crisis and on a draft decision on its implementation (CON/2008/79)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 27 November 2008 at the request of the Greek Ministry of Economy and Finance on a draft law on enhancing liquidity of the economy to address the impact of the international financial crisis and on a draft decision on its implementation (

text: ) Introduction and legal basis

text: On 18 November 2008 the European Central Bank (ECB) received a request from the Greek Ministry of Economy and Finance for an opinion on a draft law on enhancing liquidity of the economy to address the impact of the international financial crisis (hereinafter the ‘draft law’) and on a draft decision of the Minister of Economy and Finance implementing the draft law (hereinafter the ‘draft decision’). The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty establishing the European Community and the third and sixth indents of

text: Article 2(1) of Council Decision 98/415/EC of 29 June 1998

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft law and the draft decision relate to the Bank of Greece (BoG) and to 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.

text: 1. Purpose of the draft law and the draft decision

text: 1.1 Objective and nature According to its explanatory memorandum, the draft law is aimed at strengthening the national economy against the implications of the international financial crisis by enhancing liquidity. In particular, the provision of additional capital should enable credit institutions to grant credit to households and businesses and contribute to reducing the pressure on lending interest rates. Finally, the draft law aims at safeguarding the proper implementation of the financial support measures (hereinafter the ‘measures’) by establishing a Supervisory Council (SC) and provides for sanctions in cases of non-compliance with the terms of use of such measures as laid down in the draft law. The draft decision implements the draft law, taking into account, inter alia, the capital adequacy

text: and solvency of credit institutions, which are necessary factors to ensure financial stability ; in particular it lists the conditions for using the measures, such as the commission to be paid by beneficiary CIs and the rating requirements for eligible collateral. 1.2 Main features The measures comprise the following: (i) State participation in the capital of credit institutions authorised by the BoG (hereinafter the ‘beneficiary CIs’) through the acquisition of preference shares with a value of up to EUR 5 billion to be issued by 1 February 2009 and subscribed for by the Greek State by 31 December 2009 ; (ii) provision of State guarantees with a value of up to EUR 15 billion to beneficiary CIs for loans to be granted to them by 31 December 2009 with a maturity of three months to three years against payment of commission and/or provision of adequate collateral ; and (iii) issuance by 31 December 2009 of Government securities with a value of up to EUR 8 billion and a maturity of up to three years, to be lent to beneficiary CIs for enhancing liquidity against payment of commission and provision of adequate collateral . In principle, the specific terms of implementation of the above measures will be determined by a decision of the Minister for Economy and Finance (hereinafter the ‘MEF’) on a proposal by the Governor of the Bank of Greece (hereinafter the ‘BoG Governor’). Moreover, under Article 4 of the draft law, funds provided by the State for the purposes of implementing Articles

text: and

text: may, by an MEF Decision on a proposal by the BoG Governor, be allocated within a total cap on State guarantees and securities of EUR 23 billion, depending on the take-up and the overall needs that might arise. In addition, under

text: Article 5

text: , beneficiary CIs are obliged to use the proceeds of the liquidation of securities received under

text: Article 3

text: to grant mortgage loans and loans to small and medium-sized enterprises (SMEs) on competitive terms, while the guarantee provided under

text: Article 2

text: may apply to lending to businesses of vital importance for the growth of Greece.

text: Article 6

text: provides for a simplified procedure for collateralising loans or credit granted to credit institutions using as collateral in favour of the State or the BoG claims of such credit institutions against third parties. Finally,

text: Article 7

text: provides for the establishment of the SC to monitor implementation of the measures , as well as for sanctions.

text: 2. General observations

text: 2.1 The Government submitted the draft law to the Greek Parliament on 23 October 2008 and a further

text: amendment to the draft law was submitted on 6 November 2008. The Ministry of Economy and

text: Finance consulted the ECB on 18 November 2008, requesting that the consultation be treated as a

text: matter of urgency, and indicated that it was likely that Parliament would enact the draft law by

text: 21 November 2008. The draft law provides for retroactive entry into force from the date of its

text: submission to Parliament. The ECB understands that the legislative procedure is at an advanced

text: stage and notes that a consultation should take place at a point which affords the ECB sufficient

text: time to examine the draft legislative provisions and also enables the relevant national authorities to

text: take the ECB’s opinion into consideration before the provisions are adopted. It even follows from

text: of the draft legislative provision pending submission of the ECB’s opinion, given that the adopting

text: national authority should have the opportunity to deliberate the ECB’s opinion in a meaningful way

text: before taking its decision on the substance . The ECB also wishes to draw the consulting

text: authority’s attention to the recent ECB opinions issued at the request of other Member States, in

text: which the ECB has already commented on draft legislation sharing some of the features of the draft

text: law . Moreover, the ECB notes that harmonisation regarding the end of such schemes across euro

text: area and EU Member States is also crucial. The ECB should be involved in such concertation and coordination and would welcome the explicit provision for this in subsequent legislation. 2.2 As already mentioned in recent ECB opinions on draft national laws in other Member States relating to emergency measures arising out of the current financial turmoil, it is important for national authorities to coordinate their responses to the current financial situation with their EU partners. Given the similarities of the causes and consequences of the financial crisis across Member States and the potential interdependencies of policy responses, the ECB notes that coordination is already taking place at the international and European level to preserve confidence and financial stability. More specifically, the ECB refers to the conclusions adopted at the Ecofin Council meeting on 7 October 2008, which highlighted common principles to guide the action of Member States as follows: (i) interventions should be timely and the support should in principle be temporary; (ii) the interests of taxpayers should be protected; (iii) existing shareholders should bear the due consequences of the intervention; (iv) the government should be in a position to bring about a change of management; (v) management should not retain undue benefits; (vi) governments may have, inter alia, the power to intervene in remuneration; (vii) the legitimate interest of competitors must be protected, in particular through the State aid rules; and (viii) negative spill-over effects should be avoided . Against this background, the ECB is pleased to note that the draft law and draft decision closely follow these conclusions. 2.3 On 12 October 2008, the Heads of State of the euro area issued a ‘Declaration on a concerted European action plan of the euro area countries’ (hereinafter the ‘Declaration’) , in which they confirmed their commitment to act together in a decisive and comprehensive way to restore confidence and the proper functioning of the financial system, with the aim of restoring appropriate and efficient financing conditions for the economy. They agreed on common principles to be followed by the EU and euro area governments, central banks and supervisors to avoid national measures adversely affecting the functioning of the single market and the other Member States. Such coordinated approach includes initiatives aimed at all of the following: (i) ensuring appropriate liquidity; (ii) facilitating the funding of banks through various means; (iii) providing additional capital resources to financial institutions; (iv) recapitalisation of distressed banks. The European Council also endorsed these principles for all Member States on 16 October 2008. Against this background, the ECB highlights that all initiatives put in place by national governments to restore confidence in the financial markets should be aimed at implementing such common principles, in the spirit of close cooperation with other Member States and EU institutions.

text: 3. Specific comments

text: 3.1 Eligibility for support The draft law states that beneficiary CIs are eligible for the measures. The ECB understands that subsidiaries of foreign credit institutions are included in the scope of beneficiary CIs, in line with the Commission’s guidance on compliance by the financial sector support schemes with State aid rules , as also referred to in the preamble of the draft decision, in particular with the eligibility criteria that all institutions incorporated in the Member State concerned, including subsidiaries of foreign credit institutions, with significant activities in that Member State, should be covered by the support scheme concerned. In relation to this, the ECB notes that for reasons of legal certainty and clarity, terminological consistency should be ensured in the draft decision and the draft law when referring to such beneficiary CIs. 3.2 Conditions for support and relationship with the single monetary policy of the euro area and

text: financial stability

text: The ECB notes that, in line with the Declaration, Member States must act in a coordinated manner to avoid significant differences in national implementation from having a counter-productive effect and creating distortions in global banking markets. The Declaration acknowledges the need to work in cooperation with the ECB to ensure consistency with the Eurosystem’s management of liquidity and compatibility with its operational framework. Similarly, harmonisation regarding the expiry of such financial support schemes across the euro area would also be necessary. Against this background, the ECB recalls that uncoordinated decisions among Member States should be avoided as they may lead to a fragmentation of the euro area money market. In this respect, the ECB makes the following observations, which are important from a monetary policy perspective, as regards the measures. First, the ECB notes that Article 1 of the draft law provides for State participation in the capital of beneficiary CIs through the acquisition of preference shares. In this respect, in line with previous opinions, the ECB recalls that harmonisation and coordination of government measures intended to alleviate tensions in the financial markets is of crucial importance. The recapitalisation measures considered in Member States are aimed at strengthening the capital position of fundamentally sound financial institutions in order to improve the functioning and stability of the banking system and to ensure the proper financing of the economy. In particular, a consistent approach should be used when defining the conditions for recapitalisations including the pricing of the instruments to provide Tier 1 capital to financial institutions, in order to support the implementation of the

text: Declaration of 12 October 2008. Against this background, the ECB notes that in general the conditions for capital support should aim at protecting the interests of taxpayers and respecting the level playing field among institutions. Moreover, the ECB highlights that the pricing conditions for capital support should be risk-based and market-oriented, determined by taking into consideration the specific risk of both the specific instrument chosen for injecting capital and the institution concerned. Specific features of the instruments for capital injections (such as preferred shares and other hybrid instruments) should be appropriately chosen so that, while encouraging an early end to the State’s capital support of banks, they should not result in an excessive increase in the cost of capital. Finally, the temporary nature of the State’s intervention should be ensured by providing financial institutions with incentives to redeem such instruments as soon as possible. Second, the ECB notes that under Article 2 of the draft law, the MEF may issue a State guarantee for loans to be concluded by beneficiary CIs by 31 December 2009 with a maturity of up to three years. The ECB also notes that, under Article 2(1) of the draft law, as implemented by Section 2A of the draft decision, the deadline for such guarantees will expire on 31 December 2012 at the latest. The ECB recalls that such arrangements for the granting of government guarantees on bank debt should, in their practical implementation, aim at: (i) addressing the funding problems of liquidity-constrained solvent banks by improving the functioning of the market for bank debt of longer term maturity; (ii) preserving the level-playing field among financial institutions and avoiding market distortions and (iii) ensuring consistency with the management of liquidity by the Bank of Greece. In this context, the ECB understands that the above provision seeks to implement Article 8 of the Declaration which states, inter alia, that the euro area governments would make available a Government guarantee of new medium term (up to five years) bank senior debt issuance and meets the principles stated in the Declaration indicating the temporary feature of such schemes. Third, the ECB notes that the draft decision, in line with paragraph 3.4 of

text: , recognises the ECB’s contribution to the harmonisation and coordination across the EU of the exercise of determining the price of State guarantees. In particular, the ECB recalls that it is important to ensure that the price of the State guarantee is risk-based and market-oriented and determined on the basis of the costs of a corresponding guarantee in the market. However, it has to be highlighted that the abovementioned contribution by the ECB is not formally incorporated in any ECB legal act. Fourth, the ECB welcomes the provision of Section 9 of the draft decision which aims to ensure that the beneficiary CIs do not profit from undue use of their guaranteed status to engage in a heightened level of activities which could distort the market and facilitate abnormal balance sheet

text: growth . In this regard, the ECB reiterates the importance of establishing appropriate safeguards such as limits on the marketing of financial products or on expansion of activities on the basis of State guarantees. Fifth, as stated in previous opinions, the ECB considers that extending State guarantees to interbank deposits should be avoided, as it could entail a substantial distortion in the various national segments of the euro area money market by potentially increasing short-term debt issuance activity across Member States and therefore impairing the implementation of the single monetary policy. Therefore, the ECB welcomes Section 2A (a) of the draft decision, which states that interbank deposits may not be covered by State guarantees. 3.3 Role of the central bank The ECB notes the participation of the BoG in the measures, as provided for in the draft law and further specified and supplemented in the draft decision. In particular,

text: Articles 1

text: to 4 of the draft law require a proposal of the BoG Governor prior to the adoption of ministerial decisions determining the terms of implementation of the draft law. Moreover,

text: Article 7(1)

text: provides for the participation of the BoG Governor in the newly established SC with the task of coordinating the proper and efficient implementation of the draft law and ensuring that the liquidity provided will benefit depositors, borrowers and the Greek economy in general. In this respect the ECB notes that the draft law expressly clarifies that the establishment and operation of the SC will be without prejudice to the supervisory competences of the BoG. In addition,

text: Article 7(2)

text: provides for sanctions to be imposed under

text: Article 55

text: A of the Statute of the Bank of Greece in cases of noncompliance by beneficiary CIs with the terms of use of the scheme, including revocation of the measures by an MEF decision on a proposal by the BoG Governor . The ECB appreciates that the draft law recognises the BoG’s expertise as it will facilitate the BoG’s effective performance of its financial stability role. The ECB understands that such advisory function will be performed without prejudice to the BoG’s independence and in full compliance with the Treaty provisions on the prohibition of monetary financing.

text: This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 27 November 2008. [signed]

text: The President of the ECB

text: Jean-Claude TRICHET


text: OJ L 189, 3.7.1998, p. 42.

text: See Articles 1 and 18 of the draft law. See the explanatory memorandum to the draft law, p. 1.

text: Credit institutions registered in Poland are legally referred to as ‘banks’ (this definition does not cover the Polish version of credit unions, operating pursuant to the Law of 14 December 1995 on cooperative savings and loan associations (Dz. U. of 4 January 1996 No 1, Item 2, as amended)). The term ‘credit institutions’ as used in Polish law only relates to European Economic Area (EEA) credit institutions from outside Poland. Non-EEA credit institutions are referred to under Polish law as ‘foreign banks’ (

text: Article 2

text: Article 4(1)

text: Article 4(3)

text: and

text: Articles 4(17)

text: to (20) of the Law on banking of 29 August 1997 (consolidated text: Dz.U. of 12 June 2002 No 72, Item 665, as amended). 4 An investment fund has a legal personality under Polish law but may only be represented through an investment fund association (which is a special type of joint stock company, normally administrating a number of investment funds with

text: various investment models); see Articles 3(1), 4(1) and 4(2) of the Law on investment funds (Dz.U. of 28 June 2004 No 146, Item 1546, as amended). 5 Article 2 of the draft law. 6 See Article 3(2) of the draft law. 7 Consolidated text: Dz.U. of 1 April 2005 No 1, item 2, as amended. See further description of the conditions specified in Article 42(4) of Law on NBP in paragraph 4.2(ii) of this opinion. 8 See

text: Article 3(1)

text: (1) and Article 4 of the draft law. 9 See

text: Article 3(1)

text: (1) and Article 5 of the draft law. 10 See

text: Article 3(1)

text: (2)and Article 10 of the draft law. 11 See

text: Article 3(1)

text: (3) to (5) and

text: Articles 11

text: to 13 of the draft law. 12 See Article 16(4) of the draft law. 13 See

text: Article 3(3)

text: and (4) of the draft law.

text: See the press release of the 2894th Council meeting (13784/08), available on the Council’s website, www.consilium.europa.eu. 15 See the Declaration of 12 October 2008, available on the French Presidency’s website at www.ue2008.fr. 16 Cf., for example, paragraph 2.4 of ECB Opinion

text: of 3 October 2008 at the request of the Irish Minister for Finance on a draft Credit Institutions (Financial Support) Bill 2008; paragraph 2.2 of ECB Opinion

text: of 8 October 2008 at the request of the Belgian Ministry of Finance on a preliminary draft law on measures promoting financial stability and in particular establishing a State guarantee for the provision of credit in the context of financial stability. 17 See, for example, ECB Opinion

text: of 15 October 2008 at the request of the Irish Minister for Finance on a draft Credit Institutions (Financial Support) Scheme 2008; ECB Opinion

text: of 17 October 2008 at the request of the Belgian Ministry of Finance on a draft royal decree adopted under

text: Article 117

text: bis of the Law of 2 August 2002 on the supervision of the financial sector and on financial services; ECB Opinion

text: of 17 October 2008 at the

text: request of the Spanish State Secretary for Economic Affairs on a Royal Decree-Law creating a Fund for the acquisition of financial assets and on a Royal Decree-Law adopting urgent financial and economic measures in relation to the concerted European action plan of the euro area countries; ECB Opinion

text: of 17 October 2008 at the request of the Danish Ministry of Economic and Business Affairs on a proposed Law on financial stability; ECB Opinion

text: of 20 October 2008 at the request of the Austrian Ministry of Finance on draft legal measures to ensure the stability of the Austrian financial market; ECB Opinion

text: of 21 October 2008 at the request of the Banque de France on a draft amending finance law for the financing of the economy, ECB Opinion

text: of 21 October 2008 at the request of the German Ministry of Finance on a Law on the implementation of a package of measures to stabilise the financial market and an order on its implementation and ECB Opinion

text: of 29 October 2008 at the request of the Swedish Ministry of Finance on a draft ordinance on State guarantees for banks, etc. All ECB opinions are available on the ECB website at www.ecb.europa.eu. 18 All ECB opinions are available on the ECB’s website at: www.ecb.europa.eu. 19 Cf., for example, paragraph 3.2 of Opinion

text: . 20 Cf., for example, paragraph 2.1.2 of Opinion

text: . 21 Cf., for example, paragraph 3.2 of Opinion

text: and paragraph 2.3 of Opinion

text: See Article 18 of the draft law and comment to this Article in the explanatory memorandum to the draft law. 23 See, for example, paragraphs 3.4-3.5 of Opinion

text: . 24 See, for example, paragraph 2.1.3 of Opinion

text: . 25 See, however,

text: Article 16(1)

text: and the introductory part of the explanatory memorandum to the draft law which both suggest that a request for provision of the support measures is in all cases submitted by the applicant institution.

text: See, for example, paragraph 3.5 of Opinion

text: . 27 See Articles 8(2) and 16(4) of the draft law. 28 See, for example, paragraph 3.3 of Opinion

text: . 29 See the ‘Communication from the Commission – The application of State aid rules to measures taken in relation to financial institutions in the context of the current global financial crisis’ of 13 October 2008, available on the Commission’s website at www.ec.europa.eu (hereinafter the ‘Commission’s guidance’). 30 See paragraph 18 of the Commission’s guidance, specifying that ‘The eligibility criteria of financial institutions … must be objective, taking due account of their role in the relevant banking system and the overall economy, and nondiscriminatory so as to avoid undue distortive effects on neighbouring markets and the internal market as a whole. In application of the principle of non discrimination on the grounds of nationality, all institutions incorporated in the Member State concerned, including subsidiaries, and with significant activities in that Member State should be covered by the scheme’.

text: See, however, a restriction in footnote 25 of this opinion. 32 See paragraph 3.2 of Opinion

text: . 33 Now

text: Article 101

text: and Article 103(1) of the Treaty, respectively, OJ L 332, 31.12.1993, p. 1. 34 See NBP Management Board Resolution No 44/2008 of 13 October 2008 (Dz. Urz. NBP of 15 October 2008 No 16 Item 19) amending the NBP Management Board Resolution resolution No 4/2008 of 1 February 2008 introducing ‘Rules of refinancing with the lombard credit granted by Narodowy Bank Polski’ (Dz. Urz. NBP of 12 February 2008 No 3 Item 3, hereinafter the ‘Lombard credit rules’). Paragraph 2 of the amending resolution introduces a new paragraph 2a to Lombard credit rules, envisaging a possibility of provision ‘in justified cases’ of the lombard facility against types of collateral other than bonds and bills issued by the State Treasury or NBP. The lombard credit is normally to be repaid on the operational day following the day of issuance of the lombard credit, but NBP may agree on a longer repayment period (see paragraph 7(1) to (2) of Lombard credit rules). 35 See the ECB Financial Stability Review, December 2006, p. 171 and the ECB’s Annual Report 1999, p. 98. It is also the ECB’s view that ‘national legislation foreseeing the financing by NCBs [national central banks] of credit institutions other than in connection with central banking tasks (such as monetary policy, payment systems or temporary liquidity

text: support operations), in particular to support insolvent credit and/or other financial institutions, is incompatible with the monetary financing prohibition’ (see the ECB’s May 2006 Convergence Report, p. 68; the December 2006 Convergence Report, p. 30; the May 2007 Convergence Report, p. 22 and the May 2008 Convergence Report, p. 24, which are available on the ECB’s website at www.ecb.europa.eu). 36 See paragraph 4.1 of Opinion

text: . 37 See Paragraph 4.3 of Opinion

text: . 38 See

text: Article 17(3)

text: (2) of the Law on NBP stipulating that NBP’s Management Board performs such functions as are not restricted for other NBP governing bodies. 39 See paragraph 4.11 of the ECB Opinion

text: of 10 September 2008 at the request of the Banque centrale du Luxembourg on amendments to the draft law improving the legislative framework for Luxembourg as a financial centre and amending the Law of 23 December 1998 on monetary status and on the Banque centrale du Luxembourg; see paragraph 3.3 of Opinion

text: . 40 See paragraph 2.2 of the ECB Opinion

text: of 1 September 2008 at the request of the Polish Minister for Finance on a draft law on the Financial Stability Committee. 41 Article 6(2) of the draft law foresees that collateral provided by the debtor and realised by NBP is to be deducted from the scope of the State guarantee.

text: See the ECB’s Convergence Report of December 2006, p. 228 and the ECB’s Convergence Report of May 2008, p. 244. 43 See the ECB’s Convergence Report of May 2008, p. 22.

publisher: Europeiska centralbanken

sprak: en

title: Opinion of the European Central Bank of 28 November 2008 at the request of the Polish Minister for Finance on a draft law on the provision of State Treasury support to financial institutions (CON/2008/80)

serie: con

text: OPINION OF THE EUROPEAN CENTRAL BANK of 28 November 2008 at the request of the Polish Minister for Finance on a draft law on the provision of State Treasury support to financial institutions (

text: ) Introduction and legal basis

type: rubrik

text: On 10 November 2008 the European Central Bank (ECB) received a request from the Polish Minister for Finance for an opinion on a draft law on the provision of State Treasury support to financial institutions (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty establishing the European Community and the third and sixth indents of

text: Article 2(1) of Council Decision 98/415/EC of 29 June 1998

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft law relates to a national central bank (Narodowy Bank Polski, (NBP)) and contains 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.

type: stycke

text: 1. Purpose of the draft law

text: 1.1 The draft law aims at re-establishing appropriate liquidity conditions in the financial market by enabling the Minister for Finance to use, until 31 December 2009, a number of measures with the aim of providing State Treasury support to financial institutions (hereinafter, the ‘support measures’). The draft law specifies five categories of financial institutions established in Poland eligible to benefit from the support measures: banks , investment funds, investment fund 4 5 associations , brokerage houses and insurance companies .

text: 1.2 The draft law provides for the following types of support measures, of which the first two are available to banks only : (i) a State guarantee for the repayment of the refinancing credit extended to a bank by NBP, under the conditions set out in Article 42(4) of the Law on Narodowy Bank Polski of 29 August 1997 (hereinafter the ‘Law on NBP’) . Such a State guarantee may cover up to 50% of the amount of the NBP’s refinancing credit remaining to be paid. It is to be granted at the request of NBP’s President, by means of an agreement between the Finance Minister and the beneficiary bank ; (ii) a State guarantee for the repayment of the credit facility or loan provided within a line of credit extended by a bank to another bank, in which case the State guarantee is granted at the request of the banks concerned by means of an agreement between the Finance Minister and the beneficiary bank ; (iii) loans of Treasury securities to financial institutions, at the request of the financial institution concerned ; and (iv) preferential sales of Treasury securities to financial institutions, involving deferred payment, payment in instalments or a sale directed to a specified institution, at the request of the financial institution concerned . All support measures are granted by the Minister for Finance, following consultation with the Financial Supervision Commission and the NBP’s President . The Minister for Finance may require the beneficiary institution to provide collateral covering the obligation to repay the full amount of the support, including interest .

text: 2. General observations

text: 2.1 The ECB recalls that it is important for national authorities to coordinate their responses to the current financial situation with their EU partners. Given the similarities of the causes and consequences of the financial crisis across Member States and the potential interdependencies of policy responses, the ECB notes that coordination is already taking place at the European and

text: international level to restore confidence and preserve financial stability. More specifically, the ECB refers to: (i) the conclusions adopted at the Ecofin meeting on 7 October 2008, which highlighted common principles to guide the action of Member States as follows: (i) interventions should be timely and the support should in principle be temporary; (ii) the interests of taxpayers should be protected; (iii) existing shareholders should bear the due consequences of the intervention; (iv) the government should be in a position to bring about a change of management; (v) management should not retain undue benefits; (vi) governments may have, inter alia, the power to intervene in remuneration; and (vii) legitimate interest of competitors must be protected, in particular through the State aid rules, and negative spill-over effects should be avoided ; (ii) the ‘Declaration on a concerted European action plan of the euro area countries’, adopted on 12 October 2008 by the Heads of States of the euro area, as subsequently endorsed by the European Council on 16 October 2008 for all Member States (hereinafter ‘the Paris Declaration’) . In the Paris Declaration, the Member States confirmed their commitment to act together in a decisive and comprehensive way in order to restore confidence and the proper functioning of the financial system, with the aim of restoring appropriate and efficient financing conditions for the economy. They agreed on common principles to be followed by the EU governments, central banks and supervisors to avoid national measures adversely affecting the functioning of the single market and the other Member States. The Paris Declaration further states that Member States have to act in a coordinated manner to avoid significant differences in national implementation having a counter-productive effect, creating distortions in global banking markets. In this context, the need to work in cooperation with the ECB was also emphasised. Against this background, the ECB has repeatedly highlighted that all the initiatives put in place by national governments to restore confidence in financial markets should be aimed at implementing such common principles, in a spirit of close cooperation with other Member States and EU institutions . 2.2 The ECB wishes to draw the consulting authority’s attention to the recent ECB opinions issued at the request of other Member States, whereby the ECB has commented on legislative proposals sharing some of the features of the Polish scheme . It is the ECB’s intention to facilitate

text: coordination of the various national efforts addressing the current financial situation, inter alia, through the timely adoption and publication of ECB opinions on such draft national legislation .

text: 3. Specific observations

text: 3.1 Eligibility for support Article 2 of the draft law provides that support measures will be available to financial institutions established in Poland and falling within one of the covered categories, which, inter alia, implies that Polish subsidiaries of financial institutions established in other Member States are covered by the draft law. The ECB welcomes the above provision, as it avoids the preferential treatment of specific financial institutions and a possible distortion of the level playing field . 3.2 Scope and remuneration of State guarantees As regards the support measures in the form of State guarantees under

text: Articles 4

text: to 8 of the draft law, the ECB considers that the proposed arrangements in their practical implementation should aim at: (i) addressing the funding problems of liquidity-constrained solvent banks by improving the functioning of the market for bank debt of longer term maturity; (ii) preserving the level playing field among financial institutions and avoiding market distortions; and (iii) ensuring consistency with NBP’s liquidity management . The ECB makes the following specific comments in this regard: (i) The ECB considers that further clarification is needed in the draft law as regards the type of liabilities that the State guarantees may cover. In particular, the ECB notes that the draft law does not explicitly exclude interbank deposits from among the obligations that may be secured with a State guarantee. In this respect, the ECB recalls that State guarantees to cover interbank deposits should be avoided as they have the potential to interfere with the conduct of the central bank’s liquidity-providing operations, and thus on the transmission of NBP’s monetary policy decisions . The ECB considers that State guarantees to be provided under the draft law may have an economic character of guarantees for the repayment of the interbank deposits if the guarantee is provided for the repayment of an unsecured loan drawn

text: by the borrower bank. This may be the case, in particular, for guarantees provided (i) under Article 4(1) of the draft law together with

text: Article 42(4)

text: (1) of the Law on NBP for the repayment of NBP’s refinancing credit in the form of an unsecured line of credit; and (ii) under Article 5(1) of the draft law for the repayment of unsecured interbank loans arising from the lines of credit. The ECB recommends that provision of State guarantees which have the economic characteristics of guarantees for deposits be avoided. (ii) The ECB also notes that the Paris Declaration states that the Member State governments would make available a State guarantee with regard to new medium term (up to 5 years) bank senior debt issuance. The ECB understands that the draft law empowers the Minister for Finance to provide State guarantees on the basis of the agreements to be entered into until the end of 2009, while the maximum time limit for guaranteed obligations remains undefined . The ECB recommends that the draft law be amended to ensure full compliance with the Paris Declaration’s criteria in this respect . (iii) Article 8 of the draft law provides for a fee that may be charged on a beneficiary bank in connection with the provision of the State guarantee, the level of which is to be set in the relevant agreement. In this respect, the ECB points out that the fee charged in respect of the provision of the State guarantee should be risk-based and determined on the basis of the costs of a corresponding guarantee under normal market conditions. For the sake of transparency, a further more precise indication should be given on the method to be used to calculate the fees. The ECB recalls in this respect that it is of crucial importance to ensure harmonisation of the price for such guarantees within the EU, to ensure a level playing field . Moreover, the ECB understands that the fees under Article 8(1) of the draft law are to be imposed on the beneficiaries of the support measures, and that no such fee will be charged to NBP, even though it is the party which formally requests the State guarantee to be provided in respect of the repayment of the NBP’s own refinancing credit . Similarly, the ECB understands that NBP will not be requested to establish collateral in connection with the provision of a State guarantee under Article 3(3) of the draft law. For the sake of clarity and legal certainty, the ECB recommends that the draft law should expressly refer to the beneficiary institution as the party which is obliged to pay the fee under Article 8(1) of the draft law, and which may be required to provide collateral under Article 3(3) of the draft law.

text: 3.3 Conditions of support According to the provisions of the Paris Declaration, and as noted in past ECB opinions , the support provided under the draft law should be designed in order to avoid any distortion in the level playing field and possible abuse at the expense of non-beneficiaries. The ECB notes that the draft law provides that the specific conditions for granting the support in relation to beneficiary institutions will be decided by the Minister for Finance and set out in an agreement to be entered into with such institutions (potentially on the basis of the pre-defined framework agreement) . The explanatory memorandum to the draft law clarifies that such contractual conditions may include rules regarding: (i) the manner of application of the received support, whereby it is envisaged, in particular, that the beneficiary institution will be obliged to only use the funds obtained for covering funding needs directly related to its ongoing business; and (ii) the beneficiary institution’s necessary financial discipline, whereby, in particular, limitations are envisaged as regards executive remuneration and dividend payouts. The ECB recommends inclusion in the draft law of the main principles according to which contractual conditions for the use of support measures will be set, in accordance with the abovementioned Paris Declaration criteria. In the same vein, the ECB would welcome the inclusion in the draft law of more specific conditions which would have to be satisfied before the Minister for Finance could partially waive the repayment of support under Article 14 of the draft law. 3.4 As a general remark, in line with its previous opinions , the ECB reiterates the importance of ensuring that the regulatory practice under the proposed arrangements will be conducted in full compliance with the relevant Community law provisions, including EU single market principles and financial services legislation, as well as competition and State aid rules. In the latter respect, the ECB draws the consulting authority’s attention to the Commission’s recently adopted guidance on compliance by the financial sector support schemes with EU State aid rules , which includes in the specific context of the provision of State guarantees, detailed rules on the setting of eligibility criteria for the beneficiary institutions .

text: 4. Role of NBP and the monetary financing prohibition

text: 4.1 NBP’s role under the draft law is as follows: (i) pursuant to Article 4(2) of the draft law, NBP’s President makes a formal request to the Minister for Finance for a State guarantee covering the repayment of an NBP’s refinancing credit ; and (ii) pursuant to Article 16(4) of the draft law, NBP is consulted, along with the Financial Supervision Commission (FSC), on the Minister for Finance’s decision to use supporting measures in relation to a given institution. The ECB notes that the precise scope of advice to be provided by the FSC and by NBP is not specified and recommends that more specific provisions are included in the draft law in this respect, in particular as regards the body assessing the compliance of the beneficiary institution with the conditions linked to the support measures provided. As a general point, the ECB expects that all the abovementioned functions to be performed by NBP will be conducted in a manner fully compatible with NBP’s institutional and financial independence, as a safeguard for the proper performance of its tasks under the Treaty and the Statute of the European System of Central Banks and of the European Central Bank. It is therefore expected that the involvement of NBP will not go beyond an advisory and procedural role and, in particular, that it will fully comply with the monetary financing prohibition laid down in Article 101(1) of the Treaty , interpreted in line with

text: Council Regulation (EC) No 3603/93 of 13 December 1993

text: specifying definitions for the application of the prohibitions referred to in Articles

text: and

text: b(1) of the Treaty . 4.2 In this context, specifically as regards the support measure provided for under Article 4 of the draft law, i.e. State guarantees for the repayment of NBP’s refinancing credit extended under Article 42(4) of the Law on NBP, the ECB notes that NBP’s refinancing credit may be extended under this provision: (i) as a line of credit open for the specified amount, or (ii) as a ‘lombard facility’, i.e. against pledges of securities, up to an amount corresponding to a specified proportion of the face value of such securities; or (iii) in other forms, as specified by the NBP Management Board. The ECB further notes that a refinancing credit in the form of a lombard facility may be used by NBP in the function of providing emergency liquidity assistance (ELA) . The ECB recalls that ELA as a central bank task consists of liquidity assistance provided by central banks in exceptional circumstances and on a case-by-case basis to temporarily illiquid but solvent institutions . It is also noted that, under

text: Article 237

text: (d) of the Treaty, the ECB is entrusted with the

text: task of monitoring the compliance of all ESCB central banks with the prohibition on monetary financing . 4.3 In the above context, the ECB understands that Article 4(1) of the draft law introduces an explicit legal basis for the provision of State guarantees securing the repayment of NBP’s refinancing credit, including in cases where such credit is provided as ELA. As stated by the ECB in another opinion , the following criteria need to be met to ensure that the extension by the ESCB central banks of ELA secured by a State guarantee comply with the monetary financing prohibition. First, the central bank needs to independently exercise full discretion regarding the decision whether to extend ELA in exceptional circumstances. The ECB understands that such decision would be the sole responsibility of NBP’s Management Board . The ECB is of the view that the same degree of independence should be exercised by NBP in this respect as in the performance of its ESCB-related tasks. Explicit provisions to this effect could be considered, by analogy with other draft national provisions directly addressing the extension of ELA by ESCB central banks . Second, it should be ensured that the credit provided by the NBP is as short term as possible. The ECB would welcome any clarification in this regard, at least in the explanatory memorandum to the draft law. Third, there must be systemic stability aspects at stake. In the present case, the ECB understands that the granting of the above credit would be part of the NBP’s contribution to the stability of the financial system. The ECB reiterates its earlier recommendation that NBP’s financial stability function should be expressly recognised in the Law on NBP . Fourth, there must be no doubts as to the legal validity and enforceability of the State guarantee under Polish law. In this respect, the ECB welcomes the fact that the establishment of the State guarantee is enshrined in the draft law and expects that set-off mechanism foreseen by Article 6(2) of the draft law will not impede effective enforcement of the NBP’s claims . Fifth, there must be no doubts as to the economic adequacy of the State guarantee, which should cover both principal and interest on the loans, thus fully preserving NBP’s financial independence. Any lack of clarity in the draft law, e.g. as regards the party obliged to pay fees, needs to be eliminated. Further, where the State guarantee would constitute the sole form of collateral for the ELA operation, it is essential that the State

text: guarantee covers 100% of the amount of the credit, and not only up to 50% of the amount remaining for repayment, as stated in the draft law. 4.4 Finally, for the sake of completeness, the ECB recalls its stance as expressed in the ECB’s Convergence Report with respect to Article 42(3) of the Law on NBP, which is outside the scope of the present draft law and which allows NBP’s refinancing credit to be granted for the purposes of implementing bank rehabilitation proceedings. The ECB noted in this regard that ‘safeguards … aiming at ensuring timely repayment of the credit do not fully exclude an interpretation of legal provisions that would allow an extension of refinancing credit to a bank undergoing rehabilitation proceedings which then becomes insolvent. More explicit safeguards are needed to avoid incompatibility with the monetary financing prohibition under Article 101 of the Treaty’. In the present opinion, the ECB reiterates that compliance with Article 101 of the Treaty is a necessary element of the regulation of the refinancing credit. The obligation of ensuring such compliance is binding on the Polish authorities as of the date of Poland’s EU accession, i.e. 1 May 2004 .

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

text: Done at Frankfurt am Main, 28 November 2008.

text: [signed]

text: The President of the ECB

text: Jean-Claude TRICHET

type: vagledning

utgivare: ecb


text: OJ L 189, 3.7.1998, p. 42.

text: See Section 1 of Title IV of the Guide to consultation of the European Central Bank by national authorities regarding draft legislative provisions, available on the ECB’s website at www.ecb.europa.eu.

text: According to these principles, (a) interventions should be timely and the support should in principle be temporary; (b) the interests of taxpayers should be protected; (c) existing shareholders should bear the due consequences of the intervention; (d) the Government should be in a position to bring about a change of management; (e) management should not retain undue benefits; (f) governments may have, inter alia, the power to intervene in remuneration; (g) legitimate interest of competitors must be protected, in particular through the State aid rules; and (h) negative spillover effects should be avoided.

text: Available on the website of the French Presidency at www.ue2008.fr. 5 See, in particular, ECB Opinion

text: of 17 October 2008 at the request of the Spanish State Secretary for Economic Affairs on a Royal Decree-Law creating a Fund for the acquisition of financial assets and on a Royal Decreelaw adopting urgent and financial and economic measures in relation to the concerted European action plan of the euro area countries. See also ECB Opinion

text: of 27 October 2008 at the request of the Spanish State Secretary for Economic Affairs on a draft Order implementing Royal Decree-Law 6/2008 creating the Fund for the acquisition of financial assets and on a draft Basic Agreement of the Fund’s Executive Council. All ECB opinions are available on the ECB’s website at www.ecb.europa.eu. 6 See ‘Communication from the Commission – The application of State aid rules to measures taken in relation to financial institutions in the context of the current global financial crisis’ (OJ C 270, 25.10.2008, p. 8). 7 Magyar Közlöny, 1996.12.12.

text: On these aspects see, in particular, ECB Opinion

text: of 3 October 2008 at the request of the Irish Minister for Finance on a draft Credit Institutions (Financial Support) Bill 2008. See also ECB Opinion

text: of 15 October 2008 at the request of the Irish Minister for Finance on a draft Credit Institutions (Financial Support) Scheme 2008. See also ECB Opinion

text: and ECB Opinion

text: of 20 October 2008 at the request of the Austrian Ministry of Finance on draft legal measures to ensure the stability of the Austrian financial market. 9 See paragraph 18 of the Commission’s guidance, specifying that ‘The eligibility criteria of financial institutions … must be objective, taking due account of their role in the relevant banking system and the overall economy, and nondiscriminatory so as to avoid undue distortive effects on neighbouring markets and the internal market as a whole. In application of the principle of non discrimination on the grounds of nationality, all institutions incorporated in the Member State concerned, including subsidiaries, and with significant activities in that Member State should be covered by the scheme.’ 10 See, e.g. paragraph 2.1.2 of ECB Opinion

text: of 29 October 2008 at the request of the Swedish Ministry of Finance on a draft ordinance for State guarantees for banks etc. 11 See inter alia paragraph 3.3(a) of this Opinion.

text: See, e.g. paragraph 3.2 of ECB Opinion

text: of 17 October 2008 at the request of the Belgian Ministry of Finance on a draft royal decree adopted under

text: Article 117

text: bis of the Law of 2 August 2002 on the supervision of the financial sector and on financial services. 13 See, e.g. paragraphs 3.4 and 3.5 of ECB Opinion

text: . 14 See, e.g. paragraph 2.1.3 of ECB Opinion

text: Magyar Közlöny, 2007.11.12. 16 In particular the function under Article 4 of the draft law. See paragraph 1.2 of this Opinion. 17 See paragraph 3.2 of ECB Opinion

text: . 18 OJ L 332, 31.12.1993, p. 1. 19 OJ L 177, 30.6.2006, p. 1.

title: Opinion of the European Central Bank of 1 December 2008 at the request of the Hungarian Ministry of Finance on a draft law on strengthening the financial intermediary systemof 1 December 2008 at the request of the Hungarian Ministry of Finance on a draft law on strengthening the financial intermediary system (CON/2008/81)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 1 December 2008 at the request of the Hungarian Ministry of Finance on a draft law on strengthening the financial intermediary system (

text: ) Introduction and legal basis

text: On 17 November 2008 the European Central Bank (ECB) received a request from the Hungarian Ministry of Finance for an opinion on a draft law on the Law on strengthening the financial intermediary system (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty establishing the European Community and on the sixth indent of

text: Article 2(1) of Council Decision 98/415/EC of 29 June 1998

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft law relates to 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.

text: 1. Purpose of the draft law

text: 1.1 The draft law is intended to limit the effects of the global financial crisis in Hungary and maintain its financial system’s stability. Subsequent to the International Monetary Fund (IMF) loan granted to Hungary, and in view of the financial intermediary system’s role in its economy’s operations, the Parliament intends to adopt the draft law to preserve this system’s stability, maintain investor confidence and balance the interests of the owners of individual institutions within the system and the interests of the public. 1.2 Under the draft law, the Magyar Nemzeti Bank (MNB) and the Hungarian Financial Supervisory Authority (HFSA) will continuously assess the regulated financial institutions and will inform the Minister responsible for the regulation of the money, capital and insurance markets thereof on request. The Hungarian State will also deposit HUF 600 billion equivalent foreign currency from the IMF loan between 2008 and 2010 on a dedicated MNB account. The Minister responsible for general government will manage the funds via the MNB according to the funds’ management rules

text: to be laid down in a separate agreement by the Minister responsible for general government and the MNB’s Governor. 1.3 Furthermore, the Hungarian State will be authorised to guarantee credit institutions’ debts vis-à-vis their creditors subject to the cumulative fulfilment of the following conditions: (a) the Chair of the HFSA’s Supervisory Council and the MNB’s Governor jointly propose the guarantee; (b) the debt is based on a loan agreement or debt security; (c) the credit institution’s debt maturity is between three months and five years; (d) the credit institution’s debt arises between the entry into force of the draft law and 31 December 2009; (e) the debt is denominated in euro, Swiss francs or forint. The aggregated amount of the State guarantee may not exceed HUF 1 500 billion. 1.4 On a joint proposal by the Chair of the HFSA’s Supervisory Council and the MNB’s Governor, the Hungarian State may increase a credit institution’s capital at the request or with the consent of the credit institution, or ex officio without the credit institution’s consent, in exchange for preference shares in the credit institution. 1.5 The temporary provisions on measures introduced by the draft law will enter into force on the day after their publication and will apply until 31 December 2009.

text: 2. General observations

text: 2.1 The ECB would like to point out that, in cases of particular urgency which do not allow for a normal consultation period, the consulting authority may indicate such urgency in the consultation request and ask for a shorter deadline for the ECB’s opinion to be adopted. This does not prejudice the national authorities’ duty under Article 105(4) of the Treaty to appropriately consult the ECB on national draft legislative provisions falling within its fields of competence. It follows from

text: Article 3(4) of Decision 98/415/EC

text: that Member States are obliged to suspend the adoption process for a draft legislative provision pending receipt of the ECB’s opinion. The adopting national authority should have the opportunity to deliberate the ECB’s opinion meaningfully prior to taking its decision on the substance. If a time limit has been set for submission of the ECB opinion and this time limit has expired, the national authority may restart the adoption process . 2.2 The ECB has issued several recent opinions on State measures addressing the global financial crisis, which all emphasise the importance of a common approach aimed at restoring confidence in financial markets. Similarly, the ECB notes that the conclusions adopted at the Ecofin meeting on 7 October 2008 highlighted common principles to guide State actions . Moreover, the ECB notes that on 12 October 2008 the Heads of State of the euro area issued a ‘Declaration on a concerted

text: European action plan of the euro area countries’ (hereinafter the ‘Declaration’), in which they confirmed their commitment to act together in a decisive and comprehensive way to restore confidence in and the proper functioning of the financial system, and appropriate and efficient financing conditions for the economy. They agreed on common principles to be followed by the European Union and euro area governments, central banks and supervisors, to avoid national measures adversely affecting the functioning of the single market and the other Member States. This coordinated approach includes initiatives aimed at ensuring appropriate liquidity, facilitating the funding of banks by various means, providing additional capital resources to financial institutions and recapitalising distressed banks. The European Council also endorsed these principles for all Member States on 16 October 2008. As pointed out in recent ECB opinions , it is of the utmost importance that the operations conducted by national authorities do not interfere in any way with the single monetary policy and/or with the Eurosystem’s refinancing operations. 2.3 The ECB also underlines the importance of ensuring that the proposed arrangements comply with the relevant Community law provisions, in particular as regards competition, including in the area of cross-border bank mergers and acquisitions, as well as financial services legislation and the single market principles. In addition, they need to comply with the criteria set out in the recently adopted Commission’s guidance on compliance by financial sector support schemes with State aid rules (hereinafter the ‘Commission’s guidance’). Hence, the State’s role as shareholder as a consequence of recapitalisation under the draft law must be limited in time. 2.4 The ECB understands that Article 24 of the draft law authorises the Hungarian Government to adopt decrees to regulate the procedure for activating a State guarantee under the draft law. The ECB expects to be consulted on any new draft legislative provisions if they materially influence the stability of financial markets.

text: 3. Specific observations

text: Eligibility for support

text: 3.1 Pursuant to Articles 1 and 2 of the draft law, all banks and specialised credit institutions as defined in Law CXII of 1996 on credit institutions having their registered office in Hungary are entitled to benefit from the measures under the draft law. The ECB understands, therefore, that subsidiaries of foreign banks are also included, but branches of foreign banks are not. The ECB welcomes the

text: above provisions, as they avoid preferential treatment of specified credit institutions, and distortion of the level playing field as regards the treatment of domestic financial institutions and subsidiaries of foreign institutions . The ECB notes that, in the specific context of provision of State guarantees, the Commission’s guidance includes detailed rules on the eligibility criteria for the beneficiary institutions .

text: Conditions for support and interaction with monetary policy

text: 3.2 The ECB notes that, in line with the Declaration, Member States must act in a coordinated manner to avoid significant differences in national implementation from having a counter-productive effect and creating distortions in global banking markets. Similarly, support measures by EU Member States should be temporary in nature and their expiry across the EU should be harmonised. In this respect, the ECB makes the following observations. 3.3 First, as regards the support measures in the form of State guarantees under Articles 6 and 7 of the draft law, the ECB considers that the implementation of the proposed arrangements should aim at: (a) addressing the funding problems of liquidity-constrained solvent banks by improving the functioning of the market for bank debt of longer term maturity; (b) preserving the level-playing field among financial institutions and avoiding market distortions; and (c) ensuring consistency with the management of liquidity by the MNB . 3.4 Second, according to Article 7 of the draft law, the Parliament authorises the Minister responsible for general government to provide a guarantee in the name of the Hungarian State to increase a credit institution’s financial resources, subject to the fulfilment of the conditions listed in paragraph 1.3 of this Opinion. The ECB finds that the eligibility criteria are unclear concerning the State guarantees for credit institutions that increase their financial resources under

text: Article 7

text: and need further consideration by the legislator . 3.5 Third, the ECB considers that further clarification is needed in the draft law of the type of liabilities that the State guarantees may cover. In particular, it is not clear whether the guarantees provided by the Hungarian State cover interbank deposits. In this respect, the ECB notes that State guarantees to cover interbank deposits should be avoided as they have the potential to interfere with the conduct of a central bank’s liquidity-providing operations, and thus with the transmission of monetary policy decisions. In particular, the ECB considers that State guarantees to be provided under the

text: draft law may be economic in nature as guarantees for the repayment of the interbank deposits if the guarantee is provided for the repayment of an unsecured loan drawn by the borrower bank. The ECB thus recommends avoiding the provision of State guarantees which are economic in nature as guarantees for deposits . 3.6 Fourth, the ECB also notes that the Declaration states that the Member State governments would make available a State guarantee of new medium-term, i.e. up to five years, bank senior debt issuance. The ECB understands that the draft law empowers the Minister for Finance to provide State guarantees on the basis of the agreements to be entered into until the end of 2009, while the maximum time limit for guaranteed obligations remains undefined. The ECB recommends amending the draft law to ensure full compliance with the Declaration’s criteria in this respect . 3.7 Fifth, Article 7(7) of the draft law provides that a beneficiary bank may be charged a fee in connection with the provision of the State guarantee, the level of which is to be set in the relevant agreement ‘taking into account the relevant recommendations and communications issued by the European Commission’. In this respect, the ECB notes that it is important to ensure that the price of the State guarantee is risk-based and market-oriented and determined on the basis of the costs of a corresponding guarantee in the market. For the sake of transparency, a further more precise indication should be given on the method to be used to calculate the fee. The ECB also notes in this respect that it is of crucial importance to ensure harmonisation of the price for such guarantees within the EU, as a level playing field is essential . 3.8 Sixth, as regards the provision of capital to the credit institutions under

text: Article 8

text: , the ECB makes the following observations. On the one hand, the eligibility criteria are unclear and should be clarified in the draft law. Furthermore, in line with its previous opinions, the ECB notes that harmonisation and coordination of government measures intended to alleviate tensions in the financial markets are of crucial importance. The recapitalisation measures considered in Member States are aimed at strengthening the capital position of fundamentally sound financial institutions to improve the functioning and stability of the banking system and ensure the proper financing of the economy. In particular, the conditions for recapitalisations, including the pricing of the instruments to provide Tier 1 capital to financial institutions, should be defined consistently to support the implementation of the Declaration. Against this background, the ECB notes that in general the conditions for capital support should aim at protecting the interest of taxpayers and respecting the level playing field for institutions. On the other hand, the ECB highlights that the pricing conditions for capital support should be risk-based and market-oriented, determined by taking into consideration the specific risk of both the specific instrument chosen for injecting capital and the institution concerned. Specific features of the instruments for capital injections, such as preferred shares and other hybrid instruments, should be appropriately chosen so that, while

text: encouraging an early end to the State’s capital support for banks, they should not result in an excessive increase in the cost of capital. Finally, the temporary nature of the State’s intervention should be ensured by providing financial institutions with incentives to redeem such instruments as early as possible after a certain period of time.

text: Role of the central bank

text: 3.9 The ECB understands that the MNB in its supervisory role will under Article 3 of the draft law assess the regulated institutions under the Law of 2007 CXXXV on the Hungarian Financial Supervisory Authority . The ECB appreciates that the draft law recognises the MNB’s expertise in strengthening the financial intermediary system. 3.10 The ECB expects that the functions to be performed by the MNB under the draft law will be conducted in a manner fully compatible with its institutional and financial independence, as a safeguard for the proper performance of its tasks under the Treaty and the Statute of the European System of Central Banks and of the European Central Bank. It is therefore expected that the MNB’s involvement will not go beyond an advisory and procedural role and, in particular, that it will fully comply with the prohibition of monetary financing laid down in the Article 101(1) of the Treaty , interpreted in line with

text: and

text: b(1) of the Treaty . 3.11 Finally, the ECB notes that the amendment to Law CXII of 1996 proposed under Article 28 of the draft law provides that sharing of information on individual credit institutions by the HFSA or the MNB with the Minister responsible for general government and the Minister responsible for the regulation of money, capital and insurance markets will not constitute a breach of business secrets if (a) the data is provided for the purpose of analysing trends in the national economy and planning the central budget; or (b) the stability of the financial intermediary system is potentially endangered. The ECB notes that limits imposed by Community law on sharing information on individual credit institutions are currently subject to discussion in the context of the Commission’s proposed amendments to Directive

text: of the European Parliament and of the Council of 14 July 2006 relating to the taking up and pursuit of the business of credit institutions , according to which authorities may disclose information to governments in emergency situations. The draft law will need to fully comply with Community law.

text: This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 1 December 2008. [signed]

text: The President of the ECB

text: Jean-Claude TRICHET


text: Decision ECB/2001/16 of 6 December 2001 on the allocation of monetary income of the national central banks of participating Member Status from the financial year 2002 (OJ L 337, 20.12.2001, p. 55).

text: ECB Opinions

text: of 11 August 2005,

text: of 25 April 2002 and CON/99/16 of 28 October 1999. Available on the ECB’s website at www.ecb.europa.eu.

text: See ECB Opinion

text: of 21 February 2008 at the request of the German Ministry of Finance on a draft law amending the Law on the Deutsche Bundesbank; also ECB Opinion

text: of 21 February 2008 at the request of the Italian Ministry of Economic Affairs and Finance on some provisions of the Law on the State annual and pluriannual budget (2008 Budget law).

text: In paragraph 6(ii) of CON/99/16 the ECB stated that the draft ‘would better satisfy this concern by providing for a formal approval by the Governing Council of Banco de España of the profits and loss account which serves as a basis for the calculation of the advance pay outs, and the pay out be conditioned to an assessment by that body that expected economic developments for the final quarter of the year would not give rise to such a risk.’

title: Opinion of the European Central Bank of 2 December 2008 at the request of the Spanish State Secretary for Economic Affairs on a draft royal decree on the arrangements for paying the Banco de España’s profits to the Treasury (CON/2008/82)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 2 December 2008 at the request of the Spanish State Secretary for Economic Affairs on a draft royal decree on the arrangements for paying the Banco de España’s profits to the Treasury (

text: ) Introduction and legal basis

text: On 5 November 2008 the European Central Bank (ECB) received a request from the Spanish State Secretary for Economic Affairs for an opinion on a draft Royal decree on the arrangements for paying the Banco de España’s profits to the Treasury (hereinafter the ‘draft decree’). The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty establishing the European Community and the third indent of

text: Article 2(1) of Council Decision 98/415/EC of 29 June 1998

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft decree relates to the Banco de España. 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.

text: 1. Purpose of the draft decree

text: The draft degree is intended to improve the operation and legal certainty of the current payment scheme by deferring the first payment of the Banco de España’s profits to December and giving the scheme unlimited validity now that the ECB’s transitional period regarding the provisions on monetary income distribution is over.

text: 2. General observations

text: Spain has consulted the ECB on the arrangements for paying the Banco de España’s profits to the Treasury on three previous occasions . The technical modifications proposed in the draft decree do not affect the substance of the current scheme. The payment schedule for profits accrued to the Banco de España, recorded in its accounts and paid to the Treasury is proposed as follows:

text: – on the first working day of December of each year, 70% of the profits accrued and recorded until 30 September of the same financial year, while the foreseen development of the results until yearend is also taken into consideration; – on the first working day in March in the next year, 90% of the profits accrued and recorded until 31 December of the preceding financial year, less the instalment paid in December; – the remaining profits following approval by the Council of Ministers of the Banco de España’s annual accounts for the financial year. The Council of Ministers, on a proposal from the Banco de España, may also authorise the exclusion of certain profits from the interim distribution rules.

text: 3. Specific observations

text: 3.1 Deferral to December of the first payment of profits to the Treasury The ECB welcomes the proposed deferral, from November to December, of the first payment of the Banco de España’s profits to the Treasury. It will bring the estimation of year-end results closer to the end of the year. 3.2 Financial independence The distribution of provisional profits before the end of the year entails the need to carefully consider the Banco de España’s role in the decision-making process for profit distribution. The concept of financial independence should be assessed from the perspective of whether any third party is able to exercise either direct or indirect influence not only over the tasks of a national central bank (NCB) but also over its ability, understood both operationally in terms of manpower , and financially in terms of appropriate financial resources, to fulfil its mandate. The NCBs must also, at all times, have sufficient financial means to carry out their other functions, i.e. to perform their national tasks, to meet their international obligations and properly cover their administrative and operational expenses. It should be noted that Articles 28.1 and 30.4 of the Statute of the European System of Central Banks and of the European Central Bank (hereinafter the ‘ESCB Statute) provide for further calls on the NCBs to make further contributions to the capital of the ECB and to make further transfers of foreign reserves. The principle of financial independence requires that compliance with these provisions leaves an NCB’s ability to perform its functions unimpaired. With regard to profit allocation, an NCB’s statutes may prescribe how profits are to be allocated. In the absence of such provisions, the decision on allocation of profits should be taken by the NCB’s decision-making bodies on professional grounds, and should not be subject to the discretion of third parties unless there is an express safeguard clause stating that this is without prejudice to the financial means necessary for carrying out the NCB’s tasks related to the European System of Central Banks (ESCB). In this regard, the ECB notes that under Article 1 of the draft decree, and also under Royal Decree 1198/2005, the Banco de España adopts the prepayment

text: agreement and the estimation of year-end results and proposes which part of its profits should be excluded from payment to the Treasury. The ECB understands that these rules grant the Banco de España the right to create provisions, thereby enabling it to build up financial reserves that should help to guarantee the availability of appropriate independent financial means to meet its obligations. Moreover, the ECB understands that the application of such rules, and the level of the provision, has ensured such availability of independent financial means, and the ECB considers it important that it continues to do so. Furthermore, regarding Article 1(2) of the draft decree and the Banco de España’s proposal to exclude some profits from provisional payment, the ECB considers that the authorisation of such exclusion by the Council of Ministers should be limited and should avoid any exercise of discretion in this context. 3.3 Monetary financing Given the primacy of Community law, it is important to note that the application of the ESCB Statute may not be conditional on the provisions of national law. In particular, the draft decree must comply with the monetary financing prohibition laid down in Article 101(1) of the Treaty and

text: Council Regulation (EC) No 3603/93 of 13 December 1993

text: specifying definitions for the application of the prohibitions referred to in Articles

text: and

text: b (1) of the Treaty . This Regulation prohibits overdraft facilities or any other type of credit facility with the ECB or the NCBs of Member States in favour of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States, and the purchase directly from these public sector entities by the ECB or NCBs of debt instruments. In order to comply with the monetary financing prohibition, it is of crucial importance that the distribution of profits by instalments does not imply advances on future or provisional profits but is rather the result only of profits that are fully realised, accounted for and audited, which in turn requires due calculation of profits and losses. In this context, it appears necessary to have formal approval of the profit and loss account for the considered period before the distribution of profits. Although a ceiling of 70 % of profits for the first payment provides some safeguard, it could theoretically not be sufficient if, for instance, heavy losses at year-end exceeded 30 % of the profits realised in the first nine months of the financial year . In this regard, the risk of insufficient coverage of losses at year-end is reduced by deferring the first payment from November to December. In this context, the ECB understands that the Governing Council of the Banco de España will assess the amount to be deducted from the first payment on the basis of information known in December related to the profits for the greater part of the year (11 months out of 12). The Governing Council of the Banco de España should apply this arrangement prudently to ensure that

text: it does not result in any advance profit distribution to the Treasury, since that would constitute credit to the public sector, and thus be contrary to the monetary financing prohibition. This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 2 December 2008. [signed]

text: The President of the ECB

text: Jean-Claude TRICHET


text: Magyar Közlöny.2001. VII. 5.

text: ECB Opinion

text: of 24 May 2007 at the request of the Hungarian Ministry of Finance on a draft law amending the Law on the Magyar Nemzeti Bank.

text: Recommendation ECB/2006/13 of 6 October 2006 on the adoption of certain measures to protect euro banknotes more effectively against counterfeiting(OJ C 257, 25.10.2006, p. 16). 7 Magyar Közlöny 2008. VI. 18. The wording of the oath is the following: ‘I, ….(name of the designated public officer), hereby make an oath to be faithful to my home country, to the Republic of Hungary and to its people, I will comply and ensure compliance with the Constitution, together with other laws, I will keep any secrets disclosed to me, I will fulfil my duties arising from my position as a … (name of the position) in order to promote the development of the Republic of Hungary and the application of the Constitution’.

text: Magyar Közlöny.1993. V. 12. 9 Paragraph 2.8 of ECB Opinion

text: of 16 November 2006 at the request of the Polish Minister of Finance on a draft law amending the Law on trading in financial instruments; see paragraph 3.2 of ECB Opinion

text: of 25 April 2006 on the Dutch draft law concerning financial sector supervision and paragraphs 4 to 14 of ECB Opinion

text: of 20 January 2000 at the request of the Luxembourg Ministry for the Treasury and the Budget on a draft legislative proposal implementing Directive

text: [title shortened]; see CPSS, ‘Central bank oversight of payment and settlement systems’, May 2005, paragraph 1.1; publication available on the BIS website at www.bis.org. 10 See paragraph 5 of ECB Opinion

text: of 7 August 2003 at the request of the Banca d’Italia on a draft regulation on payment systems, payment infrastructures and payment instruments. 11 See paragraph 14 of ECB Opinion

text: of 15 July 2005 at the request of the Ministry of Finance of the Czech Republic on a draft law on the integration of financial market supervisors; see also paragraph 4.2 of ECB Opinion

text: of 9 March 2006 at the request of the Polish Minister of Finance on a draft law on the supervision of financial institutions. 12 See paragraph 15 of ECB Opinion

text: See e.g. joint CPSS-IOSCO publications ‘Recommendations for securities settlement systems’, November 2001 and ‘Recommendations for Central Counterparties’, November 2004; publications available on the BIS website at www.bis.org. 14 See press release available on the ECB’s website at www.ecb.europa.eu. 15 See: Council Conclusions on clearing and settlement, 2872nd Economic and Financial Affairs Council meeting, Luxembourg, 3 June 2008.

title: Opinion of the European Central Bank of 2 December 2008 at the request of the Hungarian Ministry of Finance on a draft law amending the Law on the Magyar Nemzeti Bank (CON/2008/83)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 2 December 2008 at the request of the Hungarian Ministry of Finance on a draft law amending the Law on the Magyar Nemzeti Bank (

text: ) Introduction and legal basis

text: On 23 October 2008 the European Central Bank (ECB) received a request from the Hungarian Ministry of Finance for an opinion on a draft law (hereinafter the ‘draft law’) amending Law LVIII of 2001 on the Magyar Nemzeti Bank (hereinafter the ‘Law on the MNB’). The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty establishing the European Community and the second, third, fourth, and fifth indents of

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft law relates to banknotes and coins, the Magyar Nemzeti Bank (MNB), data collection for the central bank information system and to payment and settlement systems. 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.

text: 1. Purpose of the draft law

text: The draft law has the following main objectives: (a) to align the MNB’s legal framework with the Treaty provisions on central bank independence, (b) to regulate the date of taking up of office by Monetary Council Members and their oath, (c) to change the current property acquisition restrictions, (d) to provide detailed rules on conflicts of interest applicable to MNB officials and employees, (e) to authorise: (i) the MNB’s Governor to regulate certain issues concerning central depository activities and central counterparty activities; (ii) the MNB to collect statistical data in anonymous form from other bodies belonging to the official statistical reporting service; (iii) the MNB to involve third parties, i.e. the Post Office and credit institutions, in fulfilling its obligations related to exchanging mutilated or withdrawn banknotes and coins for legal tender; (iv) the forwarding of any

text: counterfeit Hungarian and foreign currency to the designated body through the financial intermediary system and the postal service.

text: 2. General observations

text: 2.1 The ECB repeats its previous comments regarding the frequent amendments to the Law on the MNB. One consideration in the context of central bank independence is the need for a central bank legal framework that provides a stable and long-term basis for the central bank’s functioning. With regard to the MNB, the ECB notes that the Law on the MNB has been amended on several occasions in recent years, often substantially changing the MNB’s legal framework, and finds that the introduction of different legal concepts within such a relatively short time has adversely affected the MNB’s organisational and governance stability . 2.2 The ECB finds it regrettable that the draft law still does not address all the issues highlighted in the ECB’s Convergence Report of May 2008.

text: 3. Specific observations

text: Issues regarding the prohibition on monetary financing

text: 3.1 The ECB welcomes Article 4 of the draft law, which inserts an express reference to Article 101 of the Treaty into Article 16(1) of the Law on the MNB, along with the reference to

text: and

text: b (1) of the Treaty , as suggested in the ECB’s Convergence Report of May 2008. Concerning

text: Article 14

text: and Article 71(3) of the Law on the MNB, the Convergence Report also suggests inserting an express reference to Article 101 of the Treaty. Articles 1 and 16 of the draft law insert a reference to Article 16(1) of the Law on the MNB which refers to Article 101 of the Treaty. The ECB considers this serial reference merely a question of legislative technique and finds that the result of referring to Article 101 of the Treaty is achieved. 3.2 The ECB notes that while the draft law amends

text: Article 14

text: and Article 71(3) of the Law on the MNB, it does not specify that loans are extended against adequate collateral. The ECB considers that such a specification would be necessary, since it would introduce an additional safeguard which should minimise the possibility of the MNB suffering any loss. 3.3 Article 3 of the draft law, by amending Article 15(1) of the Law on the MNB, extends considerably the list of public sector accounts to be managed by the MNB. It also introduces a new

text: Article 15(2)

text: to the effect that the MNB must pay interest equal to the central bank base rate on the current balance of the single bank account of the Hungarian State Treasury account with the MNB. As addressed in the ECB’s Convergence Report of May 2008, national legislation on the fiscal agent

text: function, which national central banks (NCBs) are enabled to conduct under Article 21.2 of the Statute of the European System of Central Banks and of the European Central Bank (hereinafter the ‘ESCB Statute’), should be compatible with the monetary financing prohibition in Article 101 of the Treaty. Compliance with the monetary financing prohibition is affected where national legislation enables the remuneration of deposits or current account balances above, rather than at or below, market rates. In the present case, if the central bank base rate is above market rates, the remuneration margin is above market rates and constitutes a de facto intra-year credit, contrary to the objective of the prohibition on monetary financing, and might undermine the prohibition’s objectives. The ECB suggests replacing in Article 3 of the draft law, amending Article 15(2) of the Law on the MNB, the words ‘equal to the central bank base rate’ with ‘below or at market rates’.

text: Banknotes and coins

text: 3.4 According to Article 8 of the draft law, amending Article 31(9) of the Law on the MNB, the MNB may not pay compensation for the value of banknotes or coins which have been destroyed. The ECB considers that if the destroyed banknotes or coins are legal tender, they should be redeemed, even for a fee, unless there is a suspicion that the destruction is intentional or results from a criminal act. 3.5 Referring to Article 9 of the draft law, amending

text: Article 31

text: /A(2) to (4) of the Law on the MNB, the ECB notes that the expert examination should not be prevented by the use or retention of counterfeit banknotes as evidence in criminal proceedings, except when such evidence is impossible, taking into account the quantity and type of seized counterfeits . 3.6 Article 9 of the draft law amending

text: Article 31

text: /A(2) to (4) of the Law on the MNB lists the service providers obliged to ensure that euro banknotes and coins that they have received and intend to return to circulation are checked for authenticity. The ECB recommends also taking into consideration future amendments to

text: Council Regulation (EC) No 1338/2001 of 28 June 2001

text: laying down measures necessary for the protection of the euro against counterfeiting .

text: Central bank independence - the Governor’s oath

text: 3.7 According to Article 10 of the draft law amending Article 49(7) of the Law on the MNB, Monetary Council members must make an oath or a solemn promise and sign a document before the Hungarian President with the words required by Law XXVII of 2008 on the oath and solemn promise of certain public officials . Since the Monetary Council members are involved in the performance of ESCB-related tasks, the wording of the oath to be sworn by them needs to be adapted to comply with Article 14.3 of the ESCB Statute.

text: Statistics

text: 3.8 The ECB welcomes Articles 6 and 19 of the draft law amending Article 28 of the Law on the MNB and Law XLVI of 1993 on statistics . The ECB finds that the proposed amendments are in line with Community legislation.

text: Recognition of MNB’s oversight functions

text: 3.9 The ECB welcomes the intention of the draft law to specify that the MNB’s oversight activity is one of its core functions in respect of payment systems, securities clearing and settlement systems and central counterparties. The ECB considers that an important element of the draft law is the express specification of the MNB’s oversight powers which lays down a good basis for defining the legal framework of a central bank’s oversight function. The draft law also provides for an effective oversight tool by authorising the MNB’s Governor to regulate certain issues with regard to securities clearing and settlement infrastructures, including central counterparties. 3.10 As noted in previous ECB opinions, an oversight function is inherent in the central bank task of promoting a sound market infrastructure, in order to safeguard the effectiveness of monetary policy and the overall stability of the financial system . It should be recognised in this context that payment systems and security settlement systems (SSS) are interlinked given the use of the mechanism of ‘delivery versus payment’ under which settlements of securities and transfers of funds take place simultaneously. There is therefore a strong argument for integrating the oversight of payment and securities settlement systems and for the NCB to perform this function. Settlement of both legs of such transactions should be subject to similar safeguards to avoid asymmetries with systemic implications. The role of NCBs in SSS oversight is evident given SSS’ crucial role in the functioning of the financial markets and the need for them to be safe and efficient. Oversight of payment and clearing systems is one of the core competencies attributed to the Eurosystem, with its legal basis specified in Article 105(2) of the Treaty and

text: Article 3.1

text: and Article 22 of the ESCB Statute . In particular, the Eurosystem NCBs perform oversight of payment systems in line with the common oversight policy defined by the ECB’s Governing Council, which will also apply to 11 12 the MNB once Hungary adopts the euro . As noted in previous ECB opinions , the central bank oversight role is also reflected: (i) at international level, in the joint work on SSS concluded by the Committee on Payment and Settlement Systems (CPSS) and the International Organization of

text: Securities Commissions (IOSCO) ; and (ii) at Community level, in the joint work of the ESCB and the Committee of European Securities Regulators (CESR) in establishing common recommendations for European Union SSS , the mandate for which has recently been reaffirmed by the Council .

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

text: Done at Frankfurt am Main, 2 December 2008.

text: [signed]

text: The President of the ECB

text: Jean-Claude TRICHET