THE EUROPEAN Central Bank (ECB) wants the Government to change legislation that gives the Minister for Finance broad powers to intervene in the banking sector.
The ECB, one of the three institutions backing the €85 billion bailout agreed with the Government last month, has criticised the Credit Institutions (Stabilisation) Bill, which is designed to give the Government the powers it needs to tackle the two-year-old banking crisis.
The ECB has published a legal opinion which states that it fears the law as it stands could usurp its rights over collateral given as security for liquidity it has provided to Irish banks, which owe it €136 billion.
The ECB would not comment beyond the legal opinion yesterday. However, sources close to the institution, which is the central bank for the euro zone, including the Republic, expect the Government to take notice of what it is saying.
The sources pointed out that the ECB expects the Government to deal with its concerns, which effectively means modifying the legislation in such a way as to take these issues into account.
The Bill is under fire on two fronts. President Mary McAleese will consult with the Council of State on its Irish constitutional implications today. She has until Thursday to decide whether or not to refer it to the Supreme Court to test whether or not it complies with the Constitution.
The ECB’s opinion, signed by its president, Jean-Claude Trichet, singles out section 61 of the Bill, which it criticises for being legally uncertain, and argues that it could have an impact on the rights of the Central Bank, the ECB and other central banks in the euro zone.
The section deals with the impact that orders made by the Minister for Finance under the legislation could have on obligations of the Irish banks to other financial institutions or parties.
The document warns that this section should not limit the ability of the ECB or the Irish Central Bank to “enforce their rights including, without limitation, the enforcement of security over any eligible collateral posted by any relevant institutions”.
It adds that the law needs to clarify this and points out that an earlier draft of the Bill, which the ECB was given on December 11th, specifically states that the legislation will not affect the ECB’s rights or those of the Irish Central Bank.
The Department of Finance said yesterday there was no question that the Minister would expose the ECB or the Irish, or any central bank, to any financial risk when exercising his powers under the legislation.
President McAleese has not specified what her concerns are in relation to the legislation. She has the power to refer any Bill to the Supreme Court if she believes that part or all of the legislation in question may be contrary to the Constitution.
Once she has consulted with the council of state, the president has absolute discretion over whether or not to refer the legislation to the Supreme Court, which will then hold a formal hearing to test the law’s constitutionality.
Yesterday, the Labour Party said there were strong grounds for referring the Bill to the Supreme Court, as it appeared to give the Minister for Finance the power to override existing legislation when he is exercising his powers under its terms.
The State’s efforts to recapitalise five banks, AIB, EBS, Bank of Ireland, Anglo Irish and Irish Nationwide necessitated the €85 billion bailout by the ECB, International Monetary Fund and European Union, which was announced last month.
The bailout includes €10 billion in immediate funding for the five banks and a further €25 billion contingency fund, which many sources say could be eaten up in an impending personal credit crisis which is threatening the Irish banks.
