ECB concerned over independence of Central Bank in new regime

Tue, Apr 13, 2010, 01:00

THE EUROPEAN Central Bank (ECB) has expressed concerns about the independence of the Central Bank under structures outlined in a draft Central Bank Reform Bill.

Some of the ECB’s concerns have already been addressed in the published text of the Bill, or can be as it progresses through the Oireachtas, the Minister for Finance, Brian Lenihan, said yesterday in response to the opinion.

In an opinion on draft heads of the Bill dated April 7th, the president of the ECB, Jean-Claude Trichet, said it was “not sufficiently clear” whether the restructured central bank would be “a fully independent institution entrusted with European System of Central Banks (ESCB)-related tasks as well as with other tasks that should not interfere with the ESCB’s objectives and tasks”.

“The ECB has concerns as regards the new design of the Irish central bank which should be clarified once the proposed Bill has been published. As stated in the ECB’s convergence reports, the central bank must be a fully independent institution with a precisely defined mandate. In particular, the central bank, its decision-making bodies and their members must be independent and must not seek or take instructions from the Government as far as the ESCB-related tasks and objectives are concerned.”

The opinion raised concerns about the role of the Minister for Finance in the make-up of the Central Bank Commission in the new proposed regime.

“The legislative framework must provide for autonomous decision-making of the commission’s members in fulfilment of the supervisory mandate. Moreover, the nomination of persons implementing the policies of the commission (head of financial regulation and head of central banking) should be within the autonomous judgment of the commission.”

The draft heads have the two positions being filled “with the consent of the Minister”.

The opinion says the Bill should stipulate that the holder of the position of head of central banking, (the current director general, Tony Grimes, is to take up the role), should see out his term of office in the new role, in the way the draft heads stipulate that the head of financial regulation, (Matthew Elderfield), would see out his term of office in that new role.

Such stipulations are sought so as to bolster the independence of the people holding the positions.

It was not possible to establish last night the extent to which specific suggested amendments have already been implemented in the published Bill.

Mr Lenihan said he welcomed the publication of the ECB opinion on the Government’s plan to reform the Central Bank and the Financial Services Regulatory Authority of Ireland. The Bill provides for the creation of a single, fully integrated Central Bank.

“I am keen to work closely with the ECB to ensure the best possible reform of the structures of the Central Bank of Ireland.”