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Central Bank Independence Monetary financing Privileged access to financing

Central Bank Independence Monetary financing Privileged access to financing. 17 May 2011. Independence of the Central Bank. Functional Institutional Personal Financial Independence testing against the acquis Not compatible Compatible. Functional Independence.

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Central Bank Independence Monetary financing Privileged access to financing

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  1. Central Bank IndependenceMonetary financingPrivileged access to financing 17 May 2011

  2. Independence of the Central Bank • Functional • Institutional • Personal • Financial • Independence testing against the acquis • Not compatible • Compatible

  3. Functional Independence • Clearly defined primary objective of price stability CBI act, art. 3 + art. 4 • NCB is provided with the necessary means and instruments for achieving the primary objective of price stability independently of any other authority CBI act, art. 24 – MPC • NCB accountable for its decisions CBI act, art. 22– Direction of CBI rests with Minister of Economic Affairs and the Supervisory Board (which is elected by Parliament). Decisions regarding Monetary policy control mechanisms taken by MPC. In other respects CBI direction in the hands of Governor. Has to be read in conjunction with art. 23

  4. Institutional Independence • Prohibition on giving instructions CBI act, art. 3, art. 18, art. 22, incompatible • Prohibition on approving, suspending, annulling or deferring decisions – CBI Act, para 1, Art. 3 and para 2 Art. 18, incompatible • Prohibition on censoring decisions on legal grounds – There is no provision on right for bodies to censor, on legal grounds, decisions relating to the performance of ESCB-related tasks

  5. Institutional Independence, cont. • Prohibition on participation in decision-making bodies of an NCB with a right to vote. There is no provision on participation by representatives of third parties in an CBI´s decision-making body with a right to vote on matters concerning the performance by the CBI´s of ESCB-related tasks but CBI Act, art. 28. item b., d., e. and f., may be incompatible • Prohibition on ex ante consultation relating to an NCB´s decision; There is no explicit statutory obligation for CBI to consult third parties ex ante, that results in interference with the independence of the members of the CBI´s decision-making bodies; that does not respect the special status of Governors in their capacity as members of the ECB´s General Council; and that does not observe the confidentiality requirements resulting from the Statute. • Discharge provided for the duties of members of the NCB´s decision-making bodies – there does not exist any provision in CBA Act regarding the discharge provided by third parties (e.g. government) regarding the duties of members of the CBI´s decision-making bodies (e.g. in relation to accounts)The Government Employees Act no 70/1996 has to be read in conjunction with CBI Act.

  6. Individual (personal) Independence • Minimum term of office for Governors – CBI Act, Para 1, Art. 23 – Governor and Deputy Governor appointed for a 5 year term. • Grounds for dismissal of Governors – No provision exists in CBI Act but the Act has to be read in conjunction with The Government Employees Act no. 70/1996 (GEA) • Security of tenure and grounds for dismissal of members of NCBs´decision-making bodies, other than Governors, who are involved in the performance of ESCB related tasks. – Security of tenure – CBA Act, para 2, Art. 24 and Art. 23 regarding the Governor and Deputy Governor. CBI Act has to be read in conjunction with GEA regarding grounds for dismissal. There is a question whether SB should be included as a decision making body. • Right of judicial review – No provision exists in CBI Act on right of judicial review regarding decisions to dismiss members of the CBI´s decision-making bodies – but CBI act has to be read in conjunction with GEA • Safeguards against conflicts of interest – CBI Act, art. 25, but the Act may be incompatible in respect of the SB.

  7. Financial Independence • Determination of budget – However CBI Act, Art. 28, item l. requires that SB endorse CBI operating budget. • The Accounting rules –CBI Act is silent on clear accounting rules • Distribution of profits, NCBs´capital and financial provisions – CBI Act, art. 34. Absence of a clear legal definition of Central Bank profit. • Financial liability for supervisory authorities – not relevant since the financial supervisory authority is not placed within the CBI. • Autonomy in staff matters – There does not exist any legal provision that may impair CBI´s ability to employ and retain the qualified staff necessary for the CBI to perform independently the tasks conferred on it by the Treaty and the Statute. • Ownership and property rights – Third parties have no rights to intervene or to issue instructions to the CBI in relation to property held by the CBI

  8. Prohibition of Monetary Financing • Commissions opinion – Feb 2010: • “However, national legislation providing for financing of credit institutions by the central bank other than in connection with its tasks (such as monetary policy, payment systems or temporary liquidity support operations), in particular to support insolvent credit and/or other financial institutions, is not in line with the prohibition on monetary financing, unless it is established that the central bank is acting only as a fiscal agent of the state. The Central Bank legislation will need to clearly integrate those conditions.” • CBI is of the opinion that CBI Act. art. 7 of the Act is sufficient in this respect. According to Para 2 of art. 7 CBI may only provide credit to credit institutions in liquidity difficulties. And in an explanatory note with art. 7 in the bill that became the Central Bank Act, it is stated clearly that the Central Bank must not provide credit to insolvent credit institutions. In other words the Central Bank Act does not permit the Central Bank to provide credit to insolvent credit institutions.

  9. Privileged access • Commissions opinion – Feb 2010: • “All acts that provide specific incentives for or requirements imposed on the financial sector to acquire and hold liabilities of the public sector need to be aligned with the acquis. In particular, the Act on mandatory pension insurance and the activities of pension funds and the Regulation on deposit guarantees and investor compensation scheme contain provisions which effectively give the public sector privileged access to financial institutions.” • Pension Act (PA) contains detailed rules on required investment policy of the pensions. According to those rules the board of a pension fund shall formulate its investment policy and invest the assets of the fund according to the best terms at each time, as regards return and risk on the basis of the stipulated investment rules. PA art. 36 enumerate assets that Pension Funds may invest, but it is questionable whether it provides incentive or imposes requirement on Pensions Funds to specifically acquire and hold liabilities of the public sector. • Regulation on deposit guarantees, art. 16: “The Fund´s capital shall be invested so as to maximize the Fund´s ability to carry out its tasks. At a minimum, one-fourth of the Fund´s capital shall be invested in securities carrying a Treasury guarantee.”

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