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

text: OJ L 319, 5.12.2007, p. 1.

text: OJ L 166, 11.6.1998, p. 45.

text: OJ L 275, 27.10.2000, p. 39. See also the proposal for a Directive of the European Parliament and of the Council on the taking up, pursuit and prudential supervision of the business of electronic money institutions, amending Directives

text: and

text: and repealing Directive

text: (COM(2008) 627 final).

text: Articles 107

text: to 110 of the draft law. 7 All ECB opinions are available on the ECB’s website at www.ecb.europa.eu/ecb/legal/opinions/html/index.en.html. In Opinion

text: , the ECB stated that the division of competence between the CSSF and the BCL would directly infringe the payment system oversight competence of the ECB and would create a situation of conflict between the BCL and the CSSF in relation to the oversight function. The ECB also stated that this would not allow for an adequate distinction to be made between the function of prudential supervision, on the one hand, and those of payment systems oversight, on the other hand. See also paragraph 4.8 of Opinion

text: and paragraph 4.4 of Opinion

text: . 8 See paragraph 4.3 of Opinion

text: . 9 See the ‘Eurosystem Oversight Policy Framework’ of February 2009, and in particular its Section 3, available on the ECB’s website at www.ecb.europa.eu. 10 In Article 27(3) of the Organic law of the BCL, the reference to

text: Article 2(6)

text: should be to

text: Article 2(5)

text: See paragraph 3.1 of Opinion

text: . 12 Explanatory memorandum to the draft law, p. 88. 13 See paragraph 3.2. 14 See paragraphs 4.2 and 4.3. 15 Good Practices for the selection and mandate of External Auditors according to Article 27.1 of the Statute, as approved by the Governing Council of the ECB on 23 October 2008, which is available on the ECB’s website at www.ecb.europa.eu. 16 See paragraph 3.3.

title: Opinion of the European Central Bank of 14 May 2009 on broadening the Banque Centrale du Luxembourg’s oversight role by a draft law on payment services, electronic money institutions and settlement finality in payment and securities settlement systems (CON/2009/46)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 14 May 2009 on broadening the Banque Centrale du Luxembourg’s oversight role by a draft law on payment services, electronic money institutions and settlement finality in payment and securities settlement systems (

text: ) Introduction and legal basis

text: On 9 April 2009 the European Central Bank (ECB) received a request from the Banque Central du Luxembourg (BCL) for an opinion on a draft law on payment services, electronic money institutions and on settlement finality in payment and securities settlement systems (hereinafter the ‘draft law’), which also amends the Law of 23 December 1998 on monetary status and on the Banque Centrale du Luxembourg (hereinafter the ‘Organic Law of the BCL’). 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 and fifth indents of

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft law contains provisions on means of payment, the BCL and 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 provisions

text: 1.1 The main purpose of the draft law is to implement in national law Directive

text: of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market amending Directives

text: and

text: and repealing Directive

text: . In addition: (a) Article 58(3) of the draft law requires the BCL to notify the Conseil de la concurrence (the Competition Council) when it detects any infringement of competition rules related to access to payment systems; (b)

text: Articles 107

text: to 110 of the draft law broaden the scope of the BCL’s oversight role in respect of payment instruments and payment and settlement systems;

text: (c)

text: Article 124(1)

text: and (4) of the draft law emphasises the BCL’s responsibility for promoting the smooth operation of payment systems under Article 105(2) of the Treaty; and (d)

text: Article 124(3)

text: and (5) of the draft law relates to the appointment of an independent auditor for the BCL and removes the reciprocity requirement with respect to the exchange of confidential information between the BCL, the Commission de surveillance du secteur financier (CSSF, the Financial Sector Supervisory Commission), the Commissariat aux Assurances (the Insurance Commission) and the Service central de la statistique et des études économiques (STATEC, the National Statistical Institute). 1.2 This opinion only addresses the provisions of the draft law relating to the BCL and payment and settlement systems that go beyond the strict implementation of Community directives. While acknowledging the importance of Directive

text: for the establishment of the Single European Payments Area (SEPA), implementation of this Directive in national law is not addressed in this opinion. Similarly, the implementation of Directive

text: of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems and of Directive

text: of the European Parliament and of the Council of 18 September 2000 on the taking up, pursuit of and prudential supervision of the business of electronic money institutions are not considered in this opinion .

text: 2. General observations

text: The ECB welcomes the draft law which will comprehensively govern payment services, electronic money, and payment and settlement systems in Luxembourg. Also, implementation of Directive

text: will fulfil the regulatory preconditions for the introduction of SEPA.

text: 3. Specific observations

text: 3.1 Notification by the BCL to the Conseil de la Concurrence Regarding the requirement for the BCL to inform the Conseil de la Concurrence of any infringement of competition rules related to access to payment systems , it should be made clear that the BCL is not responsible for the enforcement of competition policy, which remains exclusively within the competence of the Conseil de la Concurrence. 3.2 The BCL’s role with respect to payment instruments and payment and settlement systems The BCL’s role with respect to payment instruments and to payment and settlement systems is broadened in the two following respects.

text: First, the CSSF is currently the authority responsible for the prudential supervision of payment and securities systems. This responsibility is without prejudice to the tasks and competences of the European System of Central Banks pursuant to the Treaty and the Statute of the European System of Central Banks and of the European Central Bank (hereinafter the ‘Statute of the ESCB’). As a result, all systems in which the BCL participates are considered to be designated as ‘systems’ from the moment the BCL gives notice of such systems to the European Commission. Under the draft law, the BCL is given the exclusive power to designate systems as payment and settlement systems and the Ministry of Finance is responsible for their notification to the Commission . Second, under Article 124 of the draft law, the BCL is competent to ‘ensure the efficiency and safety of payment systems and securities settlement systems, as well as the safety of payment instruments’ and ‘the means of coordination and cooperation employed for the performance of these tasks [is] subject to agreement between the BCL and the CSSF, respecting the legal competences of the parties’. In addition, under the draft law, the BCL may require payment systems, securities settlement systems and issuers of payment instruments to provide any information relating to the operation of these systems or relating to payment instruments that would be necessary in order to assess their efficiency and safety. 3.2.1 The ECB welcomes these amendments since (a) they clarify the division of competencies between the CSSF and the BCL as far as payment instruments, payment systems and securities settlement systems are concerned, in line with Article 105(2) of the Treaty and Article 3.1 of the Statute of the ESCB, and (b) they broaden the BLC’s oversight role to cover all payment and settlement systems, regardless of their designation under Directive

text: . The draft law takes into account the ECB’s recommendations in Opinion

text: , Opinion

text: and Opinion

text: and by doing so, further facilitates the BCL’s effective performance of its financial stability role, which is supported by its authority to supervise the liquidity management of market operators . 3.2.2 For the sake of clarity, an express reference to the concept of ‘oversight’, which is recognised as a separate function under the Maastricht Treaty could be made in Article 2(5) of the Organic law of the BCL . In addition, since the scope of the BCL’s oversight role is broadened, it is necessary to ensure that the BCL is provided with sufficient human and financial resources, both in terms of

text: quantity and quality, to carry out its new tasks without affecting its capacity to carry out its other Eurosystem-related tasks . 3.2.3 According to the explanatory memorandum to the draft law , the agreements to be entered into between the BCL and the CSSF under Article 2(5) of the Organic Law of the BCL concern the financing of the BCL’s oversight activities, as the BCL, unlike the CSSF, is not able to levy taxes on the financial institutions subject to its oversight. As stated in Opinion

text: , the BCL’s overall independence would be jeopardised if it could not autonomously avail itself of sufficient financial resources to fulfil its mandate. While the ECB notes that, in the context of its oversight role over payment systems, securities settlement systems and payment instruments, the BCL may request information and undertake site visits to collect such information, the ECB regrets that, despite the recommendations in Opinion

text: , the BCL does not yet have the power to impose sanctions. 3.3 Appointment of the BCL’s external auditor Under Article 124(3) of the draft law, an external auditor is appointed for five financial years. This provision follows the principles adopted by the ECB’s Governing Council . 3.4 The exchange of information between the BCL, the CSSF, STATEC and the Commissariat aux

text: Assurances

text: Article 124(5)

text: removes the reciprocity requirement with respect to the exchange of information between the BCL, the CSSF, STATEC and the Commissariat aux Assurances. In Article 124(5) of the draft law, the phrase ‘subject to reciprocity’ is deleted. The explanatory memorandum explains that deletion of this condition is necessary in order to enable regular exchanges of information between the competent authorities under normal circumstances, and most importantly, in a crisis situation. In the current environment, it is crucial that the relevant authorities are able to exchange information on any difficulties faced by financial institutions (including payment and securities settlement systems) that may endanger their financial soundness and ability to discharge their obligations in the normal course of business. The ECB welcomes this change, which indirectly follows up on the recommendation expressed in Opinion

text: as regards the harmonisation of the rules governing the exchange of confidential information between the BCL, on the one hand, and STATEC, on the other hand.

text: This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 14 May 2009. [signed]

text: The President of the ECB

text: Jean-Claude TRICHET


text: Article 3(5) of the draft law. 5 ‘Statute’ refers to the Statute of the European System of Central Banks and of the European Central Bank (hereinafter the ‘Statute of the ESCB’). 6 ECB Convergence Report of May 2008, p. 22. 7 See paragraph 2.2 of Opinion

text: and paragraph 2.2 of Opinion

text: . All ECB opinions are available on the ECB website at www.ecb.europa.eu/ecb/legal/opinions/html/index.en.html. 8 See paragraph 3.2.2 of Opinion

text: . 9 As implemented by

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 (OJ L 332, 31.12.1993, p. 1.).

publisher: Europeiska centralbanken

sprak: en

title: Opinion of the European Central Bank of 18 May 2009 on measures on public sector remuneration with regard to central bank independence (CON/2009/47)

serie: con

text: OPINION OF THE EUROPEAN CENTRAL BANK of 18 May 2009 on measures on public sector remuneration with regard to central bank independence (

text: ) Introduction and legal basis

type: rubrik

text: On 8 May 2009 the European Central Bank (ECB) received a request from Latvijas Banka for an opinion on a draft law on a uniform remuneration system for government and local government officials (employees) (hereinafter the ‘draft law’) and its possible application to Latvijas Banka. Although, according to its current wording, the draft law does not apply to Latvijas Banka, the consulting authority is aware that the Latvian Government is considering applying the draft law to Latvijas Banka and that it is highly possible that amendments will be made to the draft law during the legislative process to include Latvijas Banka within its scope. 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 law relates to Latvijas Banka. 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: The purpose of the draft law is to establish uniform conditions for determining the remuneration of public and local government officials and employees. The draft law sets out principles for establishing monthly wages and salaries, additional payments, bonuses and cash awards, allowances, compensation and leave. In all other respects the existing provisions of legal acts governing employment will continue to apply. The remuneration of members of Parliament and of local government authorities, and the remuneration of officials approved and appointed by Parliament, will be established by linking it to the average remuneration of employees in Latvia . The remuneration of officials of other public institutions will be set according to a scale determined by the Latvian Government .

text: Under the draft law remuneration may be further reviewed as part of the process of drawing up or amending the state budget .

text: 2. General observations

text: 2.1 The ECB recognises the very difficult economic circumstances, both in Latvia and internationally, and the current efforts being made by the Latvian Government to stabilise public finances. 2.2 As noted in the ECB Convergence Report of May 2008 under the heading ‘Autonomy in staff matters’, ‘Member States may not impair an NCB’s ability to employ and retain the qualified staff necessary for the NCB to perform independently the tasks conferred on it by the Treaty and the Statute . In addition, an NCB may not be put into a position where it has limited or no control over its staff, or where the government of a Member State is in a position to influence its policy on staff matters’ . This point has been stressed by the ECB in its recent opinions on draft Irish and German legal acts on matters concerning national central bank staff . In its opinion on draft Italian legislation establishing a threshold for the overall remuneration of the national central bank staff, the ECB also pointed out ‘that the ECB defines autonomously its staff’s conditions of employment and that this autonomy forms part of the ECB’s independence as guaranteed by Article 108 of the Treaty and Article 36 of the Statute [of the ESCB]’ .

text: 3. Specific observations

text: Under the Law on Latvijas Banka, the remuneration of the Governor of Latvijas Banka, members of the Council of Latvijas Banka and the Board, as well as Latvijas Banka’s employees is determined by the Council of Latvijas Banka. The Council of Latvijas Banka also approves the staff numbers and positions. In order to protect Latvijas Banka’s autonomy in staff matters, which is a particular aspect of the principle of central bank independence under Article 108 of the Treaty, the Latvian authorities are under an obligation to ensure that any determination of the remuneration of the employees, members of the Council and of the Board, and the Governor of Latvijas Banka is decided in cooperation with the Council of Latvijas Banka, taking into account its specific central bank tasks and the need to ensure compliance with the prohibition of monetary financing in Article 101 of the Treaty . To this end, such cooperation should take due account of the views of Latvijas Banka.

text: This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 18 May 2009. [signed]

text: The President of the ECB

text: Jean-Claude TRICHET

type: vagledning

utgivare: ecb


title: Opinion of the European Central Bank of 27 May 2009 on strengthening Banca Naţională a României’s remedial powers in relation to credit institutions in distress (CON/2009/48)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 27 May 2009 on strengthening Banca Naţională a României’s remedial powers in relation to credit institutions in distress (

text: ) Introduction and legal basis

text: On 19 May 2009 the European Central Bank (ECB) received a request from Banca Naţională a României (BNR) for an opinion on a draft law approving Government Emergency Ordinance No 25/2009 amending Government Emergency Ordinance No 99/2006 on credit institutions and capital adequacy (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 the sixth indents of

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

text: 1.1 The draft law aims to strengthen BNR’s remedial powers by expressly allowing it, after assessing the financial condition of a credit institution in distress, to request significant shareholders to financially support the credit institution, and/or to prohibit or limit profit distributions by the credit institution until its financial condition has been restored. Under the draft law, BNR is empowered: (a) to require significant shareholders of a credit institution in distress to provide necessary financial support to it either: (i) by increasing its share capital; or (ii) by providing subordinated loans that can be converted into ordinary share capital, also at BNR’s request; (b) to prohibit or limit distribution of profits until the credit institution’s financial condition has been restored; and

text: 1 OJ L 189, 3.7.1998, p. 42. (c) to decide that voting rights for shareholders who do not comply with the request to provide additional financial support to the credit institution will be suspended. 1.2 Under the Romanian constitutional procedure, the draft law is adopted for the purpose of approving Government Emergency Ordinance No 25/2009 (GEO No 25/2009), which amended and supplemented Government Emergency Ordinance No 99/2006 on credit institutions and capital adequacy (GEO No 99/2006). GEO No 99/2006 is the main piece of legislation regulating the activity of credit institutions and financial investment companies in Romania, as well as their prudential supervision and the supervision of payment systems and settlement systems for financial instruments. The draft law forms part of the legislative measures to be adopted by Romania, as agreed during recent negotiations between the Romanian Government, on the one hand, and the International Monetary Fund, the World Bank and the European Union, on the other.

text: 2. General observations

text: 2.1 The ECB has issued a number of opinions at the request of the competent authorities of the Member States on national measures adopted in response to the global financial crisis . The ECB invites the Romanian authorities to take into account the relevant observations made in its recent opinions on similar draft legislative provisions in other Member States. 2.2 The ECB also draws attention to the guidance provided by the Ecofin Council to the Member States in the conclusions of its Meeting of 7 October 2008 , as well as the Declaration issued by the Heads of State of the euro area on 12 October 2008 (hereinafter the ‘Declaration’) . In particular, the ECB emphasises that any initiatives put in place by the competent national authorities to restore confidence in the financial markets should be coordinated and should aim to implement the common principles in question, in a spirit of close cooperation with other Member States and the Community institutions . The principles contained in the Declaration, as well as the conclusions raised by the Ecofin Council, were endorsed by the European Council of 15 and 16 October 2008 . Moreover, measures taken by competent national authorities in relation to financial institutions in the context of the current global financial crisis have been the object of further coordination at EU

text: 2 All ECB opinions are available on the ECB’s website at www.ecb.europa.eu.

text: 3 See ‘Immediate Responses to Financial Turmoil’, Ecofin Council Conclusions of 7 October 2008, available on the former French Presidency’s website at www.ue2008.fr. The Ecofin Council recommended that: (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) legitimate interests of competitors must be protected, in particular through the State aid rules; and (viii) negative spill-over effects should be avoided.

text: 4 The text of the Declaration is available on the former French Presidency’s website at www.ue2008.fr. The Member States agreed to: (i) ensure appropriate liquidity conditions for financial institutions; (ii) facilitate the funding of banks; (iii) provide financial institutions with additional capital resources to continue to ensure the proper financing of the economy; (iv) allow for an efficient recapitalisation of distressed banks; (v) ensure sufficient flexibility in the implementation of accounting rules; and (vi) enhance cooperation procedures among European countries.

text: 5 See ECB Opinion

text: 6 See the Presidency Conclusions of Brussels European Council of 15 to 16 October 2008, paragraph 3. level . In particular, the ECB wishes to draw the consulting authority’s attention to the European Council Declaration that Member States’ actions ‘will be designed in order to avoid any distortion in the level playing field’, which is a crucial element for the integration of European financial markets. As a general remark in this context, the ECB, in line with its previous opinions , notes the importance of putting a transparent and predictable framework in place by defining the terms and conditions for financial institutions to have recourse to it. 2.3 The ECB was not consulted on GEO No 25/2009. Although there is no requirement to consult the ECB on the transposition of Community directives into national law, provided that the transposing provisions have no impact on matters falling within the ECB’s fields of competence other than the transposition of the directives, the ECB has on a limited number of occasions encouraged national authorities to consult it on draft legislative provisions transposing Community directives of particular interest to the European System of Central Banks. 2.4 With these general observations in mind, and against the background of the guidance previously given in its opinions and by the EU institutions and other institutions in this regard, the ECB has the following specific observations on the draft law.

text: 3. Specific observations

text: Extension of regulatory and supervisory powers of BNR

text: 3.1 The ECB understands that the draft law will complete the current Romanian legal framework concerning credit institutions and will allow BNR to take timely action to prevent a credit institution’s financial condition from deteriorating and so contributing to financial stability. The relevant provisions of the draft law will accordingly enforce BNR’s obligation to prevent the capital of a credit institution from falling below the required threshold and will introduce a private sector resolution option as the first choice for dealing with a credit institution in distress, before other measures such as State aid are considered necessary. 3.2 While the ECB appreciates that the draft law recognises BNR’s expertise in this context, the ECB restates its view that the functions to be performed by BNR to aid the stabilisation measures to be carried out must be conducted in a manner that is fully compatible with BNR’s institutional and financial independence and that safeguards the proper performance of its existing tasks under the

text: 7 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); Communication from the Commission — The recapitalisation of financial institutions in the current financial crisis: limitation of aid to the minimum necessary and safeguards against undue distortions of competition (OJ C 10, 15.1.2009, p. 2); Recommendations of the Governing Council of the European Central Bank on government guarantees for bank debt and Recommendations of the Governing Council of the European Central Bank on the pricing of recapitalisations, both latter documents available on the ECB’s website at www.ecb.europa.eu.

text: 8 See paragraph 3.1.2 of ECB Opinion

text: . Treaty and the Statute of the European System of Central Banks and of the European Central Bank . According to the explanatory memorandum to the draft law, a key objective of the amendments will be to strengthen BNR’s remedial powers with new provisions as stated in paragraph 1.1, above. In this context and in line with its previous opinions , the ECB reminds the Romanian authorities that the functions performed by BNR must fully comply with the provisions of Article 101 of the Treaty and of

text: specifying definitions for the application of the prohibitions referred to in Article 101 of the Treaty . 3.3 As regards the extension of BNR’s regulatory and supervisory powers, the ECB notes the changes to the Romanian legislative framework for financial institutions and underlines that ‘Member States may not put their national central banks in a position where they have insufficient financial resources to carry out their ESCB or Eurosystem-related tasks, as applicable’ . Moreover, the ECB expects that when BNR’s tasks are extended, care will be taken to ensure that it has sufficient financial and personnel resources both in terms of quantity and quality to carry out all its tasks, and, in particular, that its capacity to carry out ESCB-related tasks will not be affected . Measures concerning the share capital of credit institutions and shareholders’ voting rights 3.4. As already noted in paragraph 1.1 above, the draft law gives BNR certain additional remedial supervisory powers, in particular to require significant shareholders to sustain a credit institution in distress by increasing its share capital or by providing it with loans that are eligible to be included in its own funds . Pursuant to Article 230(3) of GEO No 99/2006, as inserted by Article I, point 3, of the draft law, BNR may decide to suspend the exercise of shareholders’ voting rights if they fail to comply with the abovementioned measures. Finally, Article 230(3) of GEO No 99/2006 also provides for the applicability of

text: Article 230(2)

text: thereof, which refers, in turn, to

text: Article 232

text: . As stated in the explanatory memorandum to the draft law and pursuant to the latter provisions, those shareholders who fail to comply with a request to provide additional financial support to the credit institution, and whose voting rights have therefore been suspended, will not be allowed to purchase new shares in that credit institution and will be required to sell their participation within three months. In case of failure to comply, BNR will order the credit institution to cancel the shares involved and to issue and sell new shares bearing the same number. The money raised from the sale will be made available to the original shareholder, after deduction of costs related to the sale.

text: 9 See paragraph 3.7 of ECB Opinion

text: 10 See, e.g., paragraph 3.2 of ECB Opinion

text: 11 OJ L 332, 31.12.1993, p. 1.

text: 12 See e.g. the ECB’s Convergence Report 2007, p. 19, available on www.ecb.europa.eu.

text: 13 See paragraph 3.2 of ECB Opinion

text: . 3.5 The ECB expects that the above provisions will comply with all applicable domestic company, civil, property and constitutional laws and also international public and human rights law. The ECB also expects that the provisions will be implemented in compliance with the Community company law framework . The abovementioned measures should also be proportionate to the situation addressed. In all cases, suspension of the exercise of voting rights, compulsory sale and compulsory cancellation of shares, which are severe measures with far-reaching effects on market participants, should remain a tool of last resort for use in clearly defined and emergency circumstances only, when less severe measures would be inadequate . 3.6 To improve legal certainty, which is especially important in such situations, the ECB considers that BNR’s new powers should be further defined and clarified, specifying the actual conditions under which each power will be used objectively and transparently. In this context, the ECB would like to point out that the conditions triggering the application of BNR’s new powers are not yet clearly defined, since the draft law only states that the relevant measures can be adopted ‘if a depreciating trend in relation to prudential and financial performance indicators is detected’. The ECB also notes that BNR’s power to suspend shareholders’ voting rights and to order the sale and the cancellation of their shares if the shareholders fail to comply with a request to sustain the credit institution financially by increasing its share capital, provide loans or prohibit and restrict profit distributions, appears not to be subject to clear and predictable limits and conditions. To summarise, therefore, the ECB stresses that the draft law, or the necessary implementing provisions, should specifically provide for the actual conditions under which the new measures will be used. This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 27 May 2009. [signed] The President of the ECB Jean-Claude TRICHET

text: 15 See, in particular, the Second

text: Council Directive 77/91/EEC of 13 December 1976

text: on coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of the Treaty, in respect of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view to making such safeguards equivalent (OJ L 26, 31.1.1977, p. 1).

text: 16 See, by analogy, paragraph 3.2.2 of ECB Opinion

text: , referring to expropriation measures.


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

text: The Law No 483/2001 Coll. on banks (including amendments to certain laws), as amended. 3 The Law No 513/1991 Coll. (the Commercial Code), as amended; the Law No 530/1990 Coll. on bonds, as amended; the Law No 483/2001 Coll. on banks (including amendments to certain laws), as amended; the Law No 566/2001 Coll. on securities and investment services (including amendments to certain laws), as amended; the Law No 386/2002 Coll. on state debt and state guarantees (including amendments to certain laws), as amended; the Law No 747/2004 Coll. on financial market supervision (including amendments to certain laws), as amended; the Law No 7/2005 Coll. on bankruptcy and restructuring (including amendments to certain laws), as amended; and the Law No 8/2008 Coll. on insurance (including amendments to certain laws), as amended. 4 All ECB opinions are available on the ECB’s website at www.ecb.europa.eu. 5 See ‘Immediate Responses to Financial Turmoil’, Ecofin Council Conclusions of 7 October 2008, available on the former French Presidency’s website at www.ue2008.fr. The Ecofin Council recommended that: (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) legitimate interests of competitors must be protected, in particular through the State aid rules; and (viii) negative spill-over effects should be avoided.

text: The text of the Declaration is available on the former French Presidency’s website at www.ue2008.fr. The Member States agreed to: (i) ensure appropriate liquidity conditions for financial institutions; (ii) facilitate the funding of banks; (iii) provide financial institutions with additional capital resources to continue to ensure the proper financing of the economy; (iv) allow for an efficient recapitalisation of distressed banks; (v) ensure sufficient flexibility in the implementation of accounting rules; and (vi) enhance cooperation procedures among European countries. 7 See ECB Opinion

text: . 8 See Brussels European Council of 15 to 16 October 2008, paragraph 3 of the Presidency Conclusions. 9 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); Communication from the Commission — The recapitalisation of financial institutions in the current financial crisis: limitation of aid to the minimum necessary and safeguards against undue distortions of competition (OJ C 10, 15.1.2009, p. 2); Recommendations of the Governing Council of the European Central Bank on government guarantees for bank debt and Recommendations of the Governing Council of the European Central Bank on the pricing of recapitalisations, both latter documents available on the ECB’s website at www.ecb.europa.eu. 10 See paragraph 3.1.2 of ECB Opinion

text: . 11 In this regard the ECB notes that Article 4(5) of the draft law contains a direct reference to the Communication from the Commission — Community guidelines on State aid for rescuing and restructuring firms in difficulty (OJ C 244, 1.10.2004, p. 2) and the obligation of the Slovak Ministry of Finance to report regularly to the European Commission on the review of the justification of the State aid scheme established by the draft law pursuant to

text: Article 8(6)

text: thereof. 12 See the ECB Financial Stability Review, December 2006, pp. 171-172 and the ECB’s Annual Report 1999, p. 98.

text: The Law No 566/1992 Coll. on Národná banka Slovenska. 14 OJ L 332, 31.12.1993, p. 1. 15 See paragraphs 4.9 to 4.11 of ECB Opinion

text: . See also ECB Opinion

text: . 16 It is the ECB’s view that ‘national legislation foreseeing the financing by [national central banks] of credit institutions other than in connection with central banking tasks (such as monetary policy, payment systems or temporary liquidity 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; the May 2008 Convergence Report, p. 24. 17 The ECB notes that this could be achieved by inserting a footnote in the second subparagraph of

text: Article 2(1)

text: (b) of the draft law referring to Article 24 of the Law on NBS.

text: See paragraph 3.7 of ECB Opinion

text: . 19 On these aspects see, in particular, the following ECB Opinions:

text: and

text: . 20 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: The reference is to the Recommendations of the Governing Council of the European Central Bank on the government guarantees for bank debt of 20 November 2008, available on the ECB’s website at www.ecb.europa.eu. 22 The reference is to the Recommendations of the Governing Council of the European Central Bank on the pricing of recapitalisations of 20 November 2008, available on the ECB’s website at www.ecb.europa.eu. 23 See paragraph 3.4 of ECB Opinion

text: Recommendations of the Governing Council of the European Central Bank on the pricing of recapitalisations, issued on 20 November 2008 and available on the ECB’s website at www.ecb.europa.eu. 25 See paragraph 3.5 of ECB Opinion

text: or paragraph 3.2 of ECB Opinion

title: Opinion of the European Central Bank of 27 May 2009 on measures to mitigate financial turmoil (CON/2009/49)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 27 May 2009 on measures to mitigate financial turmoil (

text: ) Introduction and legal basis

text: On 12 May 2009 the European Central Bank (ECB) received a request from the Slovak Ministry of Finance for an opinion on a draft law on measures to mitigate the effects of the global financial crisis on the banking sector and on amendments to certain laws (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 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 main purpose of the draft law is to establish a legal framework laying down the conditions under which aid may be granted to banks to remedy serious shortcomings in the functioning of the economy by mitigating the impact of the global financial crisis on the banking sector and strengthening the conditions for maintaining the stability of the whole financial system. The draft law also provides for the procedure to be followed by national authorities, in particular by the Slovak Ministry of Finance and Národná banka Slovenska (NBS), when granting such stabilisation aid and for checking compliance with the conditions under which it is granted. 1.2 Article 5(5) of the draft law lays down an enabling provision pursuant to which the details of prices and other conditions for State support (e.g. a fee amount or methods for returning the stabilisation aid) will be provided for in the form of an implementing measure to be adopted by the Slovak Ministry of Finance in agreement with NBS.

text: 1.3 Stabilisation aid may be granted to banks with their registered office in Slovakia that perform their activities on the basis of a banking licence, including subsidiaries of foreign banks, by virtue of the draft law and the Law on banks . It may take the form of a capital contribution from the State’s financial assets managed by the Slovak Ministry of Finance to the bank’s registered capital but must not exceed 50% of the bank’s own funds requirements. Alternatively it may take the form of a special guarantee: (a) for bonds issued by the bank, where the maturity period of the nominal value is not less than three months and not more than three years; and/or (b) for a loan with a maturity of up to one year provided to the bank by another bank, NBS or another entity. 1.4 While the final approval of stabilisation aid falls within the competence of the Slovak Government, the Slovak Ministry of Finance is responsible for its implementation. Given NBS’s importance and its role as the single supervisory authority, implementation of stabilisation aid is subject to NBS’s prior consent by means of delivery of its opinion to the Slovak Ministry of Finance. Stabilisation aid may be granted on more than one occasion and concurrently. Before stabilisation aid may be granted, the parties must conclude a stabilisation aid agreement. Such agreements must be concluded by 31 December 2010 at the latest. 1.5 The draft law also amends eight other laws . This opinion concentrates on legislative provisions that relate directly to the Slovak national rescue scheme, and does not fully assess the other amendments contained in the draft law.

text: 2. General observations

text: 2.1 The ECB has issued a number of opinions at the request of the competent authorities of the Member States on national measures adopted in response to the global financial crisis . The ECB therefore invites the Slovak Ministry of Finance to take into account the relevant observations made in its recent opinions on similar draft legislative provisions in other Member States. 2.2 The ECB also draws attention to the guidance provided by the Ecofin Council to the Member States in the conclusions of its Meeting of 7 October 2008 as well as the Declaration issued by the

text: Heads of State of the euro area on 12 October 2008 (hereinafter the ‘Declaration’) . In particular, the ECB emphasises that any initiatives put in place by the competent national authorities to restore confidence in the financial markets should be coordinated and should aim to implement the common principles in question, in a spirit of close cooperation with other Member States and the Community institutions . The principles contained in the Declaration as well as the conclusions raised by the Ecofin Council were endorsed by the European Council of 15 and 16 October 2008 . Moreover, measures taken by competent national authorities in relation to financial institutions in the context of the current global financial crisis have been object of further coordination at European Union level . As a general remark in this context, the ECB, in line with its previous opinions , notes the importance of putting a transparent and predictable framework in place by defining the terms and conditions for financial institutions to have recourse to it and the parameters of and limitations to the exercise by the authorities of their powers when deciding whether to apply such aid measures . 2.3 With these general observations in mind, and against the background of the guidance previously given by the ECB and the Community institutions in this regard, the ECB has the following observations on the draft law.

text: 3. Specific observations

text: Provision of emergency liquidity assistance by NBS

text: 3.1 The provision of emergency liquidity assistance is a central bank function, which consists in giving support in exceptional circumstances and on a case-by-case basis to temporarily illiquid but solvent credit institutions. One of the specific tools available to central banks in a crisis situation is the provision of emergency liquidity assistance (ELA) to individual banks .

text: 3.2 The extension of ELA falls within NBS’s task of contributing to the stability of the financial system, as set out in Article 24 of the Law on NBS . Under the second subparagraph of

text: Article 2(1)

text: (b) of the draft law, the State will provide a special guarantee for a loan with a maturity of up to one year provided to a bank. Since the NBS, as expressly stated in the explanatory notes to the draft law, is potentially one of the entities entitled to provide such a short-term loan, it is of crucial importance to ensure –that, under Slovak law, the provision of the loan complies with the rules on the provision of ELA. In particular, the decision whether to provide ELA against a State guarantee must remain at NBS’s discretion and must strictly respect the following criteria in order to comply with the prohibition on monetary financing laid down in Article 101(1) of the Treaty, read in conjunction with

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

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

text: Articles 104

text: [now 101] and 104b(1) [now 103(1)] of the Treaty . First, as expressed in previous ECB opinions addressing the provision of ELA by a Eurosystem central bank , the ECB is of the view that the draft law should unequivocally guarantee NBS’s independence to decide on the provision of ELA. Second, it should be ensured that the credit provided by NBS is as short-term as possible. Third, there must be systemic stability aspects at stake for ELA to be granted. Fourth, there must be no doubts as to the legal validity and enforceability of the State guarantee. 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, thereby fully preserving NBS’s financial independence. 3.3 Against this background, the ECB is of the view that the position in respect of ELA should be clarified, at least in the explanatory memorandum to the draft law. In particular, the current wording of the second subparagraph of

text: Article 2(1)

text: (b) of the draft law is unclear, especially if read in conjunction with the explanatory notes, which, as stated above, explain that NBS is potentially one of several entities entitled to grant a loan to a bank. In this context, the maturity of the ELA should remain at the central bank’s discretion. Similarly, NBS may not be involved in State operations which are incompatible with the Treaty provision , and the draft law should be more precise in this regard in order to clarify the link to the provisions of the Law on NBS relating to ELA .

text: Prohibition on monetary financing and NBS

text: 3.4 The ECB understands that, under the draft law, NBS will be directly involved in granting stabilisation aid. In particular, NBS will be responsible for assessing the need for and appropriateness of applying State measures to a credit institution, indicating whether the credit

text: institution concerned fulfils the conditions set by the State under the law. In line with previous ECB opinions, it is noted that NBS’s involvement in the procedures provided for in the draft law will not go beyond the proper performance of its existing tasks and that it will comply fully with the prohibition on monetary financing laid down in Article 101(1) of the Treaty.

text: NBS’s advisory role

text: 3.5 As regards NBS’s advisory role pursuant to the draft law, the ECB understands that it will be limited to providing advice through consultation on stabilisation aid. While the ECB appreciates that provisions of the draft law recognise NBS’s expertise in this field, the ECB restates that functions to be performed by NBS in the context of granting stabilisation aid should be conducted in a manner fully compatible with NBS’s institutional and financial independence in order to safeguard the proper performance of its existing tasks under the Treaty and the Statute of the European System of Central Banks and of the European Central Bank .

text: Selection of beneficiary credit institutions

text: 3.6 Pursuant to

text: Article 1(1)

text: (a) of the draft law, all credit institutions as defined by the Law on banks with their registered office in Slovakia are entitled to benefit from the measures under the draft law. The ECB understands, therefore, that the term ‘bank’ applies to any bank with its registered office in Slovakia that has been licensed by NBS to provide banking services, including subsidiaries of foreign banks but excluding branches of foreign banks. The ECB welcomes the above provisions, as they avoid preferring specific credit institutions and distorting the level playing-field as regards the treatment of Slovak 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 beneficiary institutions . Interaction of the draft law with the single monetary policy of the euro area 3.7 In line with the Declaration, Member States have to act in a coordinated manner to avoid significant differences in national implementation having a counter-productive effect and creating distortions in global banking markets. The euro area Heads of State also acknowledged the need to cooperate with the ECB to ensure consistency in liquidity management by the Eurosystem and compatibility with the Eurosystem’s operational framework. Against this background, the ECB notes that uncoordinated decisions among Member States should be avoided as they may lead to a fragmentation of the euro area money market. The ECB therefore reiterates the points made in its previous opinions. In particular, the ECB reminds the consulting authority of the specific

text: recommendations made by the Governing Council in relation to government guarantees for bank 21 22 debt and in relation to recapitalisations . In this context, the ECB has the following remarks. 3.8 Pursuant to Article 5(5) of the draft law the ‘details regarding the determination of, changes to, and method of paying the amount of the fee, and details regarding the method of returning stabilisation aid, shall be laid down in a generally binding legal regulation to be issued by the Ministry of Finance on agreement with Národná banka Slovenska’. The ECB would like to emphasise how important it is for the pricing of stabilisation aid and other measures under the draft law to be harmonised with measures within both the euro area and the EU so as to create the essential conditions for a level playing-field. In particular, it is important to ensure that the price of stabilisation aid is risk-based and market-oriented in that it is determined on the basis of the costs of a corresponding guarantee in the market. 3.9 Pursuant to Article 10 of the draft law, the stabilisation aid agreement, which has to be concluded before any form of stabilisation aid may be granted, must be concluded by 31 December 2010 at the latest. As stated in

text: Article 2(1)

text: (b) of the draft law, stabilisation aid in the form of a special State guarantee for a bond issue or for a short-term loan may be granted for up to three years and up to one year respectively (i.e. until 2013 at the latest). Pursuant to the second subparagraph of

text: Article 2(1)

text: (b) of the draft law, a special State guarantee may be provided for short-term loans with maturity of up to one year. As further explained in the explanatory notes to the draft law, such loans can be provided by one bank to another meaning that interbank deposits are potentially covered by the draft law. In this respect, the ECB has the following observations. First, the ECB notes that State guarantees may be issued to cover all types of liabilities of domestic financial institutions and national guarantee schemes. The ECB therefore understands that the draft law does not exclude from its material scope of application, expressly or by implication, interbank deposits, subordinated or collateralised liabilities (such as covered bonds). The ECB reiterates that State guarantees should not cover interbank deposits, in particular, as this 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. This would impair the implementation of the single monetary policy, which is an exclusive competence of the Eurosystem under Article 105(2) of the Treaty. It could also affect the transmission of monetary policy decisions . Second, the ECB understands that, by extension, State guarantees may be issued in respect of loans taken out by banks. In this respect, the ECB reminds the consulting authority that such arrangements for the granting of government guarantees on bank debt should, when practically implemented, 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

text: level-playing field among financial institutions and avoiding market distortions; and (iii) ensuring consistency with the management of Eurosystem liquidity. In line with its recommendations, the ECB restates its view that euro area governments should make available a Government guarantee of new medium term (up to five years) bank senior debt issuance which must be limited in time. In the same vein, government guarantees on short-term bank debt with maturity of three to 12 months may be provided in order to revitalise the short-term bank debt market. Third, the ECB also reminds the Slovak authorities that it is important to ensure that the beneficiary financial institutions may not profit from undue use of their guaranteed status to engage in a heightened level of activities which distort the market and facilitate abnormal balance sheet 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. 3.10 As regards stabilisation aid in the form of recapitalisation as provided for in

text: Article 2(1)

text: (a) of the draft law, the ECB notes that recapitalisation measures in the 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, there should be a consistent approach to defining the conditions for recapitalisations and the pricing of the instruments intended to provide Tier 1 capital to financial institutions. The ECB underlines the importance of appropriate pricing for recapitalisations with a view to enhancing the stability of the financial system, facilitating a return to normal market conditions and ensuring the proper financing of the economy. Against this background, recommendations of the Governing Council of the ECB on the pricing of recapitalisations have been published. The ECB highlights that the pricing conditions for capital support should be riskbased 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 preference shares) 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. In line with the Declaration, the ECB also emphasises that harmonisation regarding the expiry of national financial support schemes throughout the EU, and in particular within the euro area, is of crucial importance, including in relation to State capital investments in financial institutions. Against this background, it is emphasised that the draft law does not currently provide for an exit strategy. In this context, the ECB notes that the Declaration clearly draws attention to the need for any national support scheme to be temporary in nature, even if it may be extended or renewed. The ECB therefore recommends that specific provisions on the time limits in relation to the stabilisation aid measures under the draft law should be adopted .

text: This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 27 May 2009. [signed]

text: The President of the ECB

text: Jean-Claude TRICHET


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

text: See Opinions

text: and

text: . All ECB opinions are available on the ECB website at www.ecb.europa.eu/ecb/legal/opinions/html/index.en.html.

text: See, in particular, the proposal for a directive of the European Parliament and of the Council amending Directives

text: and

text: as regards banks affiliated to central institutions, certain own funds items, large exposures, supervisory arrangements, and crisis management. On this topic, see also Opinion

text: . 4 See hereto in particular paragraph 2.1 of Opinion

text: and paragraph 2.2 of Opinion

text: . 5 Directive

text: of the European Parliament and of the Council of 4 April 2001 on the reorganisation and winding up of credit institutions (OJ L 125, 5.5.2001, p. 15).

text: See the Press Release available at http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ecofin/ 96375.pdf. 7 See the Commission services’ feasibility report on ‘asset transferability’ within cross border banking groups published on 14 November 2008, available at http://ec.europa.eu/internal_market/bank/docs/windingup/rep141108_en.pdf. 8 See Opinion

title: Opinion of the European Central Bank of 2 June 2009 on new measures strengthening financial supervision (CON/2009/50)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 2 June 2009 on new measures strengthening financial supervision (

text: ) Introduction and legal basis

text: On 9 April 2009 the European Central Bank (ECB) received a request from the German Federal Ministry of Finance for an opinion on a draft law on strengthening the supervision of the financial market and insurance sector (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 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: According to the explanatory memorandum accompanying the draft law, the Federal Government intends to reform the existing financial market supervision instruments, which proved insufficient during the financial crisis, and to carry out changes to improve the effectiveness of supervision. In particular, the crisis revealed that the institutions concerned had not taken sufficient precautions with regard to the adequacy of their equity capital and to establishing a liquidity buffer. According to the same explanatory memorandum, in order not to anticipate proposed regulation at Community level, the proposals are limited to targeted amendments to German legislation, namely the Law on banking and the Law on insurance supervision. Under the amended § 10(1b) of the Law on banking, the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) will be able to require higher own funds if otherwise the sustained adequacy of an institution’s capital ratio can no longer be guaranteed or if the institution’s risk-bearing ability is no longer certain. Further, BaFin will have the right to increase the own funds ratio if an institution does not have an orderly business organisation and no improvement can

text: be secured by other means (see the amended § 10 and § 45b(1) of the Law on banking). This will enable the possible cyclical development of an institution’s own funds ratio to be taken into account (build-up of a buffer for the institution in a favourable economic environment and erosion of the buffer in an unfavourable economic environment). Pursuant to the amended § 11(2) of the Law on banking, BaFin will be able to require a higher liquidity ratio if, in the absence of such a measure, the sustained adequacy of an institution or group’s liquidity provision cannot be guaranteed. Moreover, the leverage ratio (i.e. the relationship between own funds and balance sheet assets that are not risk weighted) will, under the draft law, have to be reported annually and any material change immediately (see the new §§ 24(1)(a) No 5 and 24(1) No 16 of the Law on banking). Under the draft law, measures such as prohibitions on credit and profit distribution will be possible if there is a threat of failure to meet the supervisory ratios. Currently, such measures are only possible in the case of actual failure, preventing supervisors from stepping in at an early stage if there are indications of a dangerous situation. Moreover, BaFin will be able to forbid not only profit distributions, but also any payments on equity instruments, even if they are based on liabilities that do not count as part of own capital and have to be serviced regardless of whether there are available profits. Furthermore, under the amended § 46(1) of the Law on banking, BaFin may prohibit or restrict certain payments to companies belonging to a group if these transactions prejudice the institution in question. According to the explanatory memorandum, this should prevent, for example, liquidity being withdrawn in a crisis from a German subsidiary by its foreign parent or foreign associated companies. The argument is that BaFin should be given the right to order such a prohibition on payments in the event of a crisis since other states are also operating ring-fencing in the current crisis. Finally, further measures under the draft law include a requirement to declare concentrations of risks within groups of institutions and financial holding companies as well as in insurance groups (currently only financial conglomerates have been regulated accordingly), and the obligation for members of the administrative and supervisory boards of an institution to be reliable and technically able to understand the transactions conducted by the institution.

text: 2. General observations

text: 2.1 The ECB welcomes the aim underlying the draft law of reinforcing the supervisory tools available to BaFin. The ECB notes that, following on from other German initiatives to restore short-term confidence in the markets on which the ECB has already been consulted , the draft law is aimed at benefiting from the experience of the financial turmoil and at putting in place measures to improve BaFin’s supervisory powers on a long-term basis.

text: 2.2 In this respect, the ECB welcomes the fact that the explanatory memorandum expressly limits the regulatory scope of the draft law in order to avoid anticipating proposed Community legal measures . 2.3 Moreover, the ECB would like to draw the consulting authority’s attention to the need, besides adopting measures such as the draft law, to strengthen coordination of policy measures in response to the crisis . 2.4 With these general observations in mind, and against the background of the guidance previously given in its opinions and by the EU institutions and other institutions in this regard, the ECB has the following specific observations on the draft law.

text: 3. Specific observations

text: Own funds and liquidity requirements

text: 3.1 The draft law contains some provisions on own funds and liquidity requirements (amending §§ 10 24, 45 and 45b of the Law on banking). In this respect, the ECB notes that these provisions seem to be in line with the concepts underlying ongoing initiatives at European and international level.

text: Prohibition or restriction on transfers of funds

text: 3.2 The ECB understands that the new § 46(1), third sentence, of the Law on banking introduced by the draft law will enable BaFin to prohibit or restrict certain payments to companies belonging to a group of companies if these transactions prejudice the institution in question. Further, BaFin may specify that payments are only permissible subject to certain requirements. The explanatory memorandum expressly states that the provision should ‘in particular counteract the risk that badly needed liquidity is withdrawn from a German subsidiary institution by a foreign group company which needs capital or liquidity’. 3.3 In this respect, the ECB emphasises that work is on going at EU level, alongside the review of the Credit Institutions Reorganisation and Winding-Up Directive , aiming at reducing obstacles to the transfer of assets. More specifically, the Ecofin Council of 9 October 2007 requested the Commission of the European Communities ‘to perform a feasibility study on reducing barriers for cross-border asset transferability while introducing appropriate safeguards within banking, insolvency and company law, taking into account that the reallocation of assets in a crisis affects the ability of stakeholders in different legal entities to pursue claims. The overall objective is to reinforce the primacy of private solutions, avoid counter-productive ring-fencing of assets, and

text: facilitate a smooth management of a crisis .’ Following the request by the Ecofin Council, the Commission released a feasibility report on 14 November 2008, concluding that: ‘There might be merit in limiting intra-group transfers to limit contagion risks. On the other hand, it is suggested to develop a clear legal framework to allow asset transferability, and to avoid that authorities resort to 7 8 ring-fencing, in the absence of other alternatives .’ In this context, as in previous opinions , the ECB notes that prohibiting or restricting the transfer of funds or other transactions of banks could impair the possibility for banking groups to manage their liquidity. The ECB also recommends that the draft law should fully respect central banks’ tasks and should require BaFin to coordinate its actions with the home supervisory authorities of the banking groups concerned as well as with the central banks concerned. Moreover, if such measures concern branches of Member State banks, then Community law obligations, requiring in particular the provision of information to the Commission and the Member States concerned, should be duly complied with.

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

text: Done at Frankfurt am Main, 2 June 2009.

text: [signed]

text: The President of the ECB

text: Jean-Claude TRICHET


text: OJ L 189, 3.7.1998, p. 42. 2 OJ L 68, 13.3.2009, p. 3.

text: See paragraph 2.1 of ECB Opinion

text: of 18 November 2008 at the request of the Council of the European Union on a proposal for a Directive of the European Parliament and of the Council amending Directive

text: on deposit-guarantee schemes as regards the coverage level and the payout delay (OJ C 314, 9.12.2008, p. 1). 4 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 (OJ L 332, 31.12.1993, p. 1). 6 See, for example, the ECB’s Convergence Report of December 2006, p. 30. 7 See Article I point 7 of the draft emergency ordinance. 8 See Article I point 13 of the draft emergency ordinance.

text: See, by analogy, paragraph 6 of ECB Opinion

text: regarding a State guarantee set as a ‘complement to and in addition to’ an existing deposit-guarantee scheme. 10 See paragraphs 3.5 and 3.6 of ECB Opinion

text: . 11 See, for example, paragraph 2.2. of ECB Opinion

text: . 13 See Opinion

title: Opinion of the European Central Bank of 5 June 2009 on measures to increase the effectiveness of the deposit-guarantee scheme (CON/2009/51)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 5 June 2009 on measures to increase the effectiveness of the deposit-guarantee scheme (

text: ) Introduction and legal basis

text: On 25 May 2009 the European Central Bank (ECB) received a request from Banca Naţională a României (BNR) for an opinion on a draft emergency ordinance amending and supplementing Government Ordinance No 39/1996 regarding the setting up and the operation of the Deposit Guarantee Fund in the banking system (hereinafter the ‘draft emergency ordinance’). 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 the sixth indents of

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

text: The draft emergency ordinance aims to implement into Romanian legislation Directive

text: of the European Parliament and of the Council of 11 March 2009 amending Directive

text: on depositguarantee schemes as regards the coverage level and the payout delay and also to adopt the measures necessary to ensure a higher level of effectiveness of the Romanian deposit-guarantee scheme. This opinion is not a comprehensive assessment of the provisions of the draft emergency ordinance implementing Directive

text: . Instead, it only focuses on those provisions of the draft emergency ordinance that go beyond implementation of Directive

text: . The draft emergency ordinance amends Government Ordinance No 39/1996 regarding the setting up and the operation of the Deposit Guarantee Fund in the banking system (hereinafter ‘GO No 39/1996’). The Deposit Guarantee Fund (hereinafter the ‘Fund’), as Romania’s officially recognised deposit-guarantee scheme, guarantees deposits and the payment of compensation to depositors in accordance with the

text: conditions and limits laid down by GO No 39/1996. The draft emergency ordinance will make certain changes to the way that the Fund operates. In particular, it will: (i) increase the maximum coverage ceiling from the equivalent in Romanian lei of EUR 20 000 to the equivalent in Romanian lei of EUR 50 000; (ii) reduce the payout delay, following expiry of a transitional period, to 20 working days; (iii) introduce the obligation for credit institutions to inform depositors adequately if a deposit is not guaranteed by the Fund; (iv) introduce a specific mechanism for BNR as the competent authority to declare that deposits are unavailable; (v) introduce the obligation for the Fund’s members to keep permanently complete and accurate records of all information necessary to determine the value of the compensation due to each covered depositor; and (vi) strengthen the Fund’s capacity to pay compensation on time.

text: 2. General observations

text: 2.1 The ECB takes this opportunity to reiterate that, when implementing Directive

text: or otherwise amending the legal framework for operation of national deposit-guarantee schemes, Member States should act in a coordinated manner to avoid significant differences in national legal frameworks having a counterproductive effect and creating distortions in global banking markets . 2.2 The ECB also emphasises that the funding arrangements for national deposit-guarantee schemes must, inter alia, comply with the monetary financing prohibition laid down in the Treaty, and in particular with the prohibition on national central banks providing overdraft facilities or any other type of credit facility within the meaning of Article 101 of the Treaty , as specifically considered in 5 6 past ECB opinions concerning draft national legislation and in the ECB’s Convergence Reports .

text: 3. Specific observations

text: 3.1 Under the draft emergency ordinance the Fund may be financed by means of borrowings from the Romanian Government . In specific circumstances and where the Fund’s financial resources are insufficient to pay compensation, the Government, through the Ministry of Finance, will lend the necessary amount to the Fund . The draft emergency ordinance also states that the loan repayment

text: conditions will be set by Government decision. In this context, the ECB notes that such conditions should be in accordance with a coordinated framework within the European Union . 3.2 The ECB considers that the draft emergency ordinance should establish a framework that is consistent with the need to enable payouts in the prescribed time period. In this respect, the ECB refers to

text: Article 10(1) of Directive 94/19/EC

text: , which requires that ‘[d]eposit-guarantee schemes shall be in a position to pay duly verified claims by depositors in respect of unavailable deposits’. This means that it is primarily the responsibility of the national deposit-guarantee scheme to ensure that guaranteed deposits are made available to entitled depositors in an orderly and timely manner, 10 11 whatever the payment system chosen . In line with its recent opinions , the ECB reminds the consulting authority that reducing delays in payouts of guaranteed deposits can strengthen depositor confidence, which plays a key role in the effectiveness of deposit protection schemes . At the same time, it is essential that a pragmatic approach is taken to introducing the necessary reduction in payout delays, thereby preserving the credibility of deposit-guarantee schemes . Finally, attention should be drawn to the importance of establishing efficient operational processes for verifying claims and reimbursing depositors, as well as ensuring that sufficient sources of funding are available. 3.3 The ECB further notes that the draft emergency ordinance provides for a specific mechanism for declaring deposits unavailable and entrusts BNR with the assessment of such a measure. This represents an extension of BNR’s regulatory and supervisory powers. In this context the ECB restates its general position that ‘Member States may not put their national central banks in a position where they have insufficient financial resources to carry out their European System of Central Banks (ESCB) or Eurosystem-related tasks, as applicable’.

text: Done at Frankfurt am Main, 5 June 2009. [signed]

text: The President of the ECB

text: Jean-Claude TRICHET


title: Opinion of the European Central Bank of 18 June 2009 on the circulation of banknotes and coins (CON/2009/52)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 18 June 2009 on the circulation of banknotes and coins (

text: ) Introduction and legal basis

text: On 27 March 2009 the European Central Bank (ECB) received a request from Česká národní banka (CNB) for an opinion on a draft law on the circulation of banknotes and coins and on the amendment of Law No 6/1993 Coll. on Česká národní banka (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 first and second 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 currency matters and means of payment. 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 regulates legal relationships in the area of the circulation of banknotes and coins and their protection against counterfeiting and also implements certain directly applicable regulations of the European Communities. While the main focus of the draft law is to regulate the circulation of national banknotes and coins, some of its provisions apply irrespective of the currency involved . It lays down rules relating, inter alia, to the acceptance, exchange, processing, recycling and reproduction of banknotes and coins. CNB’s powers are explicitly stipulated , including in relation to the registration and supervision of entities involved in the processing of national tender. The draft law also provides for sanctions on credit institutions and other entities for breaches of obligations imposed by the draft law or by a directly applicable Council regulation. CNB is empowered to regulate certain issues by means of decrees, which will be of a technical nature. It is envisaged that once it has been adopted, and subject to certain amendments, the draft law will continue to apply after the Czech Republic adopts the euro.

text: 1 OJ L 189, 3.7.1998, p. 42.

text: 2 See, for example, Articles 7, 16 and 19 of the draft law.

text: 3 Under Article 3(6) of the draft law, CNB will perform functions of the national counterfeit centre, the national analysis centre (NAC) and the coin national analysis centre (CNAC). Functions identical to those of the NAC and CNAC have historically been carried out by CNB based on its responsibilities in the area of banknotes and coins despite the absence of specific legislative provisions to this end.

text: 2. General observations

text: 2.1 While the Czech Republic is a Member State with a derogation within the meaning of Article 122 of the Treaty and the ECB requirements regarding the organisation of cash cycles in Member States that have adopted the euro currently do not apply to CNB, these requirements will become applicable to CNB once the Czech Republic adopts the euro and CNB becomes a fully integrated member of the Eurosystem. 2.2 Under Article 106 of the Treaty, the Governing Council of the ECB has the exclusive right to authorise the issue of banknotes within the Community, whereas the coins are issued by the Member States subject to the ECB’s approval of the volume. Consequently, the Eurosystem’s regulatory competence only concerns banknotes. Hence, with a view to national central banks (NCBs) joining the Eurosystem, the ECB consistently supports a clear separation between national rules relating to banknotes and rules relating to coins . The ECB considers that the draft law would benefit from introducing such consistent internal separation. Should this not be feasible at the level of the draft law, the consulting authority should consider providing for such internal separation in the decrees to be issued by CNB pursuant to Article 21 of the draft law. This would facilitate the legal convergence of the Czech legislative framework, which is necessary for the Czech Republic to participate fully in economic and monetary union. 2.3 As a general comment, some of the draft law’s provisions contain terminology and/or provide for concepts, such as ‘anonymous and non-anonymous equipment’ in Articles

text: and

text: , which differ from those established within the Eurosystem. For reasons of clarity and legal certainty, particularly in view of the Czech Republic’s future adoption of the euro, the ECB would invite the consulting authority to consider aligning such terminology and concepts with the approaches applied in the Eurosystem . Furthermore the concept of ‘tender damaged in a non-standard way’ in

text: Article 6(2)

text: is not used by the Eurosystem. It should be noted in this context that unfit banknotes (e.g. those with holes or those that have been written on) and banknotes that have been stained by anti-theft devices are addressed together, which may lead to confusion.

text: 3. Specific observations

text: 3.1 Scope of application of the obligation to withdraw suspicious banknotes and coins Article 7(1) of the draft law specifies entities obliged to seize suspicious banknotes and coins. These include CNB, credit institutions performing cash operations, processors of national tender , other legal entities, money exchangers and natural persons engaged in operating non-anonymous equipment. The ECB understands that Article 7 of the draft law also applies to euro banknotes and

text: 4 See, for example, Opinions

text: and

text: . All Opinions are available on the ECB’s website at www.ecb.europa.eu.

text: 5 See also paragraph 3.1 below.

text: 6 Pursuant to

text: Article 2(1)

text: (g) of the draft law, a processor of national tender means a legal entity that processes national tender for other parties, registered by CNB. coins . In this context, the ECB points out that

text: Article 6(1) of Council Regulation (EC) No 1338/2001

text: laying down measures necessary for the protection of the euro against counterfeiting imposes an obligation on a number of entities to withdraw euro banknotes and coins from circulation where there is a sufficient reason to believe that they are counterfeit. By virtue of

text: Regulation (EC) No 1339/2001

text: , these rules also apply in Member States that have not yet adopted the euro, but are modified by

text: Article 6

text: (1a) of

text: Council Regulation (EC) No 1338/2001

text: . These entities include credit institutions, other payment service providers, and any other institutions engaged in the processing and distribution to the public of banknotes and coins, including: (i) establishments whose activity consists in exchanging banknotes and coins of different currencies, such as bureaux de change; (ii) transporters of funds; and (iii) other economic agents such as traders and casinos engaged on a secondary basis in the processing and distribution to the public of banknotes via automated teller machines. The ECB notes that insofar as Article 7(1) of the draft law also applies to euro banknotes and coins, it would be advisable for legal certainty reasons to fully align its wording with that of

text: Article 6(1)

text: and (1a) of

text: Regulation (EC) No 1338/2001

text: . 3.2 Hidden charge for the acceptance of cash The ECB notes that under Article 9(4) of the draft law, ‘CNB and credit institutions performing cash operations are entitled to require that a payer, when paying in cash or when depositing national tender onto an account, presents national tender sorted by nominal value or, depending on the quantity, packaged in the way stipulated by decree’ and that they are ‘entitled to charge a fee stipulated in advance if the payer presents national tender unsorted or unpackaged in the way stipulated by decree’. The ECB understands the notion of legal tender to include the elements of mandatory acceptance at full value for the discharge of monetary debts. This is also laid down in Article 4 of the draft law, which stipulates that ‘Česká národní banka and credit institutions performing cash operation shall accept national tender without restriction’. To the extent, however, the payer referred to in the above provision is required to pay a fee for enjoying the right of discharging his obligations in cash (especially if such payer is a consumer without the means to sort or package banknotes or coins), there is a hidden charge for the use of legal tender, which prejudices the use of cash vis-à-vis other payment instruments. In the context of cash services not necessarily involving discharge of monetary debts, attention is additionally drawn to the common Eurosystem fee policy for the cash transactions of professional clients at NCB counters implemented from 1 March 2002, which defines different levels of services:

text: 7 According to the explanatory memorandum to the draft law, the definition of ‘suspicious tender’ includes, in addition to Czech banknotes and coins, banknotes and coins in other currencies, including the euro.

text: 8 OJ L 181, 4.7.2001, p. 6.

text: Regulation (EC) No 1338/2001

text: was recently amended by

text: Council Regulation (EC) No 44/2009

text: (OJ L 17, 22.1.2009, p. 1).

text: 9 OJ L 181, 4.7.2001, p. 11.

text: Regulation (EC) No 1339/2001

text: was recently amended by

text: Regulation (EC) No 45/2009

text: (OJ L 17, 22.1.2009, p. 4).

text: 10 ECB Annual Report 2002, p. 134. Available on the ECB’s website at www.ecb.europa.eu. • free-of-charge: these are the basic services provided by all NCBs, taking into account their unique role in providing the economy with cash; and • fee-based: these are additional services that NCBs may provide. A fee must be paid for these optional services, taking into account the fact that they may also be provided by commercial third parties. In view of the future adoption by the Czech Republic of the euro, it is advisable to ensure that Czech legislation is compatible with the main principle of basic, free-of-charge cash services. 3.3 The NAC’s obligation to transmit new types of suspected counterfeit banknotes under

text: Article 4(2) of Regulation (EC) No 1338/2001

text: The ECB understands that functions of the NAC will be carried out by CNB (Article 3(6) of the draft law). In this context, the ECB would like to point out that

text: Article 4(3) of Council Regulation (EC) No 1338/2001

text: and

text: Article 1 of Regulation (EC) No 1339/2001

text: authorise the NAC to transmit as necessary to the ECB for examination or testing at least part of a batch of suspected counterfeit banknotes or coins being used or retained as evidence in criminal proceedings . 3.4 Specific references to relevant Eurosystem rules 3.4.1 Article 16 of the draft law provides that reproductions of national and foreign banknotes and coins or items similar to them may only be made under the conditions stipulated by decree or a directly applicable regulation of the European Communities. In this regard, CNB is invited to consider including a reference in the draft law or, as the case may be, in the implementing decree to be issued pursuant to

text: Article 21

text: (f) of the draft law to Decision ECB/2003/4 of 20 March 2003 on the denominations, specifications, reproduction, exchange and withdrawal of euro banknotes . The ECB notes that there is such a reference in the currently applicable CNB Decree No 553/2006 Coll. of 30 November 2006 on the terms and conditions under which it is possible to reproduce banknotes, coins, cheques, securities and payment cards and to produce objects imitating them . 3.4.2 Under Article 9(1) of the draft law, CNB, credit institutions performing cash operations and processors of national tender are required to process national tender accepted from circulation in accordance with the standards for the processing of national tender stipulated by decree before they recycle it. According to the explanatory memorandum to the draft law, it is envisaged that the above processing standards will be stipulated in a way similar to the standards laid down by the ECB in the ‘Framework for the detection of counterfeits and fitness sorting by credit institutions and other professional cash handlers’ (hereinafter the ‘Banknote Recycling Framework’) . The ECB invites the consulting authority to consider including a reference to the Banknote Recycling

text: 11 See also 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).

text: 12 OJ L 78, 25.3.2003, p. 16. The ECB understands from the explanatory memorandum to the draft law that conditions for reproducing euro banknotes laid down in Decision ECB/2003/4 will be implemented through a CNB decree issued under

text: Article 21

text: (f) of the draft law.

text: 13 Available on CNB’s website at www.cnb.cz.

text: 14 See

text: Article 21

text: (e) of the draft law.

text: 15 Document available on the ECB’s website. Framework in the draft law or, as the case may be, in the implementing decree to be issued pursuant to

text: Article 21

text: (e) of the draft law. This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 18 June 2009. [signed] The President of the ECB Jean-Claude TRICHET


text: See ECB Opinion

text: . All ECB opinions are available on the ECB’s website at www.ecb.europa.eu.

text: See e.g. Opinion

text: . 6 See Opinion

title: Opinion of the European Central Bank of 24 June 2009 on the distribution of Latvijas Banka’s profits (CON/2009/53)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 24 June 2009 on the distribution of Latvijas Banka’s profits (

text: ) Introduction and legal basis

text: On 12 June 2009 the European Central Bank (ECB) received a request from Latvijas Banka for an opinion on a draft law amending the Law on Latvijas Banka as regards the distribution of Latvijas Banka’s profits (hereinafter the ‘draft law’). Latvijas Banka has requested the ECB’s opinion before the submission of the draft law to the Latvian Parliament. 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 law relates to Latvijas Banka. 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 main objective of the draft law is to amend Article 18 (2) of the Law on Latvijas Banka increasing the payment for the use of State capital from 15% to 50% of Latvijas Banka’s profits for the reporting year.

text: 2. General observations

text: 2.1 Member States are obliged to safeguard the institutional and financial independence of their national central banks (NCBs), thus ensuring the proper performance of their tasks under the Treaty and the Statute of the European System of Central Banks and of the European Central Bank (hereinafter the ‘Statute of the ESCB’). In particular, the compatibility of the Law on Latvijas Banka with the requirements of Article 108 of the Treaty and the provisions of Article 7 of the Statute of the ESCB concerning central bank independence is of utmost importance, as

text: Latvijas Banka’s primary objective of price stability is best served by a fully independent institution with a precisely defined mandate . 2.2 With regard to financial independence, a Member State may not put its NCB in a position where it has insufficient financial resources to carry out its ESCB or Eurosystem-related tasks. The NCB must also, at all times, have sufficient financial means to carry out its other functions, i.e. to perform its national tasks, to meet its international obligations and properly cover its administrative and operational expenses . 2.3 The ECB recognises the current financial situation in Latvia as well as the need to rebuild Latvia’s macroeconomic stability and enhance its credibility. However, it notes that the use of central bank financial resources may be counterproductive from the credibility point of view if confidence in the financial stability and independence of the NCB is undermined. 2.4 In addition to the issue of financial independence, national rules on the distribution of NCBs’ profits 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) [now Articles

text: and

text: 5 103(1)] of the Treaty . As referred to in previous ECB opinions , to comply with the monetary financing prohibition, it is of crucial importance that the distribution of profits, by instalments or in full, 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.

text: 3. Specific comments

text: 3.1 According to the current wording of Article 18 of the Law on Latvijas Banka, Latvijas Banka transfers to a State general budget account indicated by the State Treasury: (i) part of its profits for the reporting year, which is calculated by applying the tax rate established by the Law on corporate income tax (currently 15%); and (ii) payment for the use of State capital forming 15% of the profits for the reporting year. Under the draft law the payment for the use of State capital will be increased to 50% of the profits for the reporting year. 3.2 With regard to profit allocation rules, an NCB’s Statute may prescribe how profits are to be allocated. However, even though amendments to such rules are possible, it is important to shield the rules related to the distribution of profits from third-party interests and to ensure a legal framework that provides a stable and long-term basis for the central bank’s functioning . Furthermore, according to the principle of financial independence, as stressed by the ECB in its

text: convergence reports as regards financial provisions or buffers, an NCB must be free to create independently financial provisions to safeguard the real value of its capital and assets . In this regard, it is recalled that the economic purpose of central bank capital and reserves is to ensure that the central bank will always and in all circumstances have at its disposal the necessary financial resources to conduct monetary policy. However, the ECB notes that, according to Article 19 of the Law on Latvijas Banka, Latvijas Banka will use the reserve capital to cover possible losses. The need to ensure a long-term perspective as regards the distribution of profits should be borne in mind. Indeed, it is of utmost importance to allow sufficient provisions of reserves during years of profits to allow Latvijas Banka to face possible losses without weakening its financial means to implement its monetary policy. The ECB further notes that in principle it is not optimal for the central bank to create reserves only after transferring a large portion of its profits to the Treasury. Should Latvijas Banka run into a situation of negative equity in the future (i.e. losses exceeding currently accumulated reserves), it would be hard to rebuild it out of the stream of future ‘net’ earnings under such an arrangement. Although Latvijas Banka still had positive capital and reserves at the end of 2008, prudence is required to ensure stable and sufficient financial resources in the long term. 3.3 Moreover, the ECB notes that the current calculation of the total rate of Latvijas Banka’s profit distribution involves, apart from the fixed part set by the draft law at 50% of the reported profits, also the additional part linked to the tax rate established by the Law on corporate income tax. Potential amendments to the Law on corporate income tax would result in changes to Latvijas Banka’s total contribution to the State budget. While in principle both calculation methods are admissible, the ECB considers that for the sake of legal certainty, and to achieve a better safeguard of Latvijas Banka’s financial independence, the maximum contribution of Latvijas Banka to the State budget should rather be determined by a single fixed rate of Latvijas Banka’s annual profits, set in the Law on Latvijas Banka. Alternatively, if the current twofold calculation of the total rate of Latvijas Banka’s profit distribution is maintained, the ECB recommends that, in view of Latvijas Banka’s obligations under the Treaty and the Statute of the ESCB, any changes to its financial obligations towards the State should be decided in cooperation with the Council of Latvijas Banka, taking into account its specific central bank tasks.

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

text: Done at Frankfurt am Main, 24 June 2009. [signed]

text: The President of the ECB

text: Jean-Claude TRICHET