Opinion of the European Central Bank of 26 November 2021 on the modification of Swiss franc loan agreements (CON/2021/36)

OPINION OF THE EUROPEAN CENTRAL BANK of 26 November 2021 on the modification of Swiss franc loan agreements (CON/2021/36) Introduction and legal basis

On 15 April 2021 the European Central Bank (ECB) received a request from the National Assembly of the Republic of Slovenia for an opinion on a draft law on relations between lenders and borrowers concerning credit agreements in Swiss francs (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the third and sixth indents of Article 2(1) of Council Decision 98/415/EC , as the draft law relates to Banka Slovenije, rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets, and the ECB’s tasks concerning the prudential supervision of credit institutions pursuant to Article 127(6) of the Treaty. 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.

1. Purpose of the draft law

1.1 The purpose of the draft law is to restructure consumer loans denominated in Swiss francs (hereinafter ‘CHF’) or containing a currency clause in CHF that were concluded between 28 June 2004 and 31 December 2010 (hereinafter ‘Swiss franc loans’). 1.2 According to the explanatory memorandum accompanying the draft law, the draft law aims to place borrowers of Swiss franc loans in a position to limit their exchange rate risk and to enable them to repay their loans under conditions that, according to the explanatory memorandum, they could reasonably expect when acting in good faith when concluding loan agreements . The draft law further aims to protect consumers, prevent unfair business practices by credit institutions and prevent a debt crisis . 1.3 To achieve these aims, the draft law requires lenders to introduce an exchange-rate cap clause in relation to all agreements for Swiss franc loans concluded between 28 June 2004 and 31 December 2010. Such an exchange rate cap will be activated when the change in the exchange rate causes: (1) the actual credit balance to differ by more than 5% from the credit

balance calculated based on the exchange rate applicable at the date of drawdown; or (2) the actual instalment to differ by more than 5% from the instalment calculated based on the exchange rate applicable at the date of drawdown. When the exchange rate cap is activated, the instalments and other payments based on the loan agreement are calculated taking into account the currency exchange rate at which the exchange rate cap is activated. 1.4 The draft law requires lenders – defined as credit institutions that concluded Swiss franc loans with borrowers during the period 28 June 2004 to 31 December 2010 – to prepare the following documentation within 60 days after the draft law takes effect: (1) a draft agreement on the settlement of mutual claims in the form of an annex to a valid loan agreement or in the form of a separate agreement if the loan agreement has already been terminated or has expired; (2) a new repayment plan that reflects the exchange rate cap; and (3) a recalculation of the remaining debt taking account of the exchange rate cap. In the preparation of the new repayment plan and the recalculation of the remaining debt, the cumulative amount of instalments paid in excess of the amount of the instalments as calculated under the exchange rate cap must be used for the repayment of the remaining unpaid instalments. All the documentation must be prepared without any costs for the borrower and submitted to the borrower within 75 days. If the calculations based on the exchange rate cap show that all the obligations under a loan agreement have already been discharged in full, the lender must return any overpayment to the borrower within 30 days. In case of overpayment where any part of the obligations under a loan agreement were paid by a guarantor, the guarantor must be reimbursed before the borrower. If, however, the obligations under the loan agreement have not yet been discharged in full, the relationship continues under the amended conditions and pursuant to the new repayment plan. 1.5 The draft law also regulates a number of specific situations that may occur after the conclusion of agreements for Swiss franc loans. In particular, if the Swiss franc loan agreement has been terminated by the lender, the following applies: (1) the lender must prepare a new repayment plan and an agreement on the settlement of mutual claims for the period when the loan agreement was valid and effective; (2) if the amounts already paid are insufficient to discharge all the obligations under the loan agreement, the parties may agree that the outstanding debt is to be repaid under the terms of the credit agreement subject to the exchange rate cap; and (3) if the amounts already paid exceed the total amount payable, the excess amount must be repaid to the borrower. 1.6 If the receivables from Swiss franc loans have been assigned to a third party, the following applies: (1) the original lender must prepare a new repayment plan for the period until the assignment and an agreement on the settlement of mutual claims; (2) If the borrower still has any outstanding debt towards the transferee, the original creditor and the transferee may agree to reduce the amount of the borrower’s outstanding debt for the amount of overpayments. The original lender is obliged to inform the borrower and provide him with evidence of debt reduction; (3) If the payments until the transfer exceed the total amount due under the loan agreement taking into account the currency cap, the lender must return overpayments to the borrower within 30 days of receipt of the signed agreement on settlement of mutual claims. In the same deadline,

the lender must also return to the borrower the countersigned agreement on settlement of mutual claims. 1.7 The draft law provides that the general legal protection available to any of the parties is not compromised by the provisions of the draft law. However, the draft law does not entitle the lender to avoid an amendment to loan agreements by proving that the borrowers were appropriately informed of the risks. 1.8 The draft law provides that Banka Slovenije is responsible for (1) overseeing the implementation of the law and (2) conducting misdemeanour procedures. If breaches are identified, Banka Slovenije can impose monetary penalties or even initiate the procedure for withdrawal of the banking licence. The draft law specifies that if a lender fails to eliminate in a timely manner the identified irregularities in more than 10 cases, Banka Slovenije must initiate the process for the withdrawal of the lender’s banking licence.

2. Withdrawal of the banking licence

2.1 The Slovenian Law on banking specifies that the authorisation to provide banking services may be withdrawn, among other reasons, if a credit institution does not act in accordance with the order and does not eliminate the violations or does not implement the measures required by Banka Slovenije and if identified violations cannot be rectified by implementing other supervisory measures . Under the draft law, however, Banka Slovenije is obliged to initiate the process for the withdrawal of the lender’s banking licence if a lender fails to eliminate in a timely manner the identified irregularities in more than 10 cases. Further, the draft law does not provide for a requirement that the identified irregularities cannot by rectified by implementing other supervisory measures. The explanatory memorandum does not identify reasons justifying the stricter approach taken under the draft law compared to the Law on banking. In those circumstances, the ECBinvites the consulting authority to ensure that the measures provided for in the draft law are proportionate and suitable for their purpose . 2.2 Further, in view of the primacy of Union legislation, the ECB also notes that when Banka Slovenije considers that it is necessary to initiate the process for withdrawal of a banking licence, it must have full regard to Articles 4(1)(a) and 14(5) of Council Regulation (EU) No 1024/2013 , which assign to the ECB the exclusive competence, for prudential supervisory purposes, to withdraw the authorisation of both significant and less significant credit institutions. Under Regulation (EU) No 468/2014 of the European Central Bank (ECB/2014/17) , if Banka Slovenije, as the relevant national competent authority in the Single Supervisory Mechanism, considers that a credit institution’s authorisation should be withdrawn in whole or in part in accordance with relevant

Union or national law, it must submit to the ECB a draft decision proposing the withdrawal of the authorisation. In that case, the ECB will take a decision on the proposed withdrawal of authorisation, taking into account the justification for withdrawal put forward by Banka Slovenije and the safeguards under Union law, including the principle of proportionality . Against this background, Banka Slovenije should be in a position to consider in its draft decision submitted to the ECB that the withdrawal of an authorisation is appropriate for attaining the legitimate objectives pursued by the legislation and does not exceed the limits of what is necessary in order to achieve those objectives, also considering any reasonable prospect for alternative measures to remediate the breaches committed.

3. Restructuring of Swiss franc loans

3.1 In 2018 and 2019 the ECB issued two opinions on earlier draft Slovenian laws concerning Swiss franc loans, which were, however, not enacted into law . 3.2 Prior to the global financial crisis, borrowing in foreign currencies by households and non-financial 10 11 corporations was popular in several Member States . As previously noted by the ECB , the lower interest rates applicable to foreign currency loans compared to loans in the domestic currency increased the demand for such loans. According to the explanatory memorandum accompanying the draft law, most of the Swiss franc loans in Slovenia are long-term mortgage loans. 3.3 According to the draft law, the restructuring of Swiss franc loans whether still outstanding, already terminated or sold will be compulsory for credit institutions. The draft law does not provide for any possibility for credit institutions to avoid or challenge the restructuring, even if they can prove that the borrower took the Swiss franc loan on the basis of informed consent. 3.4 Legal aspects concerning retroactivity 3.4.1 As previously noted by the ECB , introducing measures with retroactive effect undermines legal certainty and is not in line with the principle of legitimate expectations and may also interfere with acquired rights. 3.4.2 The existing provisions of the Slovenian Law on consumer credit , which applies from 2 March 2017, enable consumers holding mortgage loans denominated in a foreign currency or containing a foreign currency clause to request conversion into EUR if the change in the exchange rate exceeds 10%. In such a case, the banks are obliged to convert such loans at the exchange rate applicable at the date the consumer makes the request. According to the explanatory

memorandum, the draft law provides for a similar mechanism which is to be applied retroactively. However, the draft law introduces a much lower threshold for restructuring, requiring a change in the exchange rate in excess of 5%. 3.4.3 Article 23(1) of Directive 2014/17/EU of the European Parliament and of the Council , which applies to credit agreements that enter into existence from 21 March 2016 , specifies that Member States must ensure that an appropriate regulatory framework is in place for credit agreements in respect of foreign currency loans to ensure, at a minimum, that (a) the consumer has a right to convert the credit agreement into an alternative currency under specified conditions, or (b) there are other arrangements in place to limit the exchange rate risk to which the consumer is exposed under the credit agreement. Article 23(5) of Directive 2014/17/EU allows Member States to further regulate foreign currency loans provided that such regulation is not applied with retroactive effect. The retroactive effect of the draft law is contrary to the general aim of Article 23(5) of Directive 2014/17/EU , reflecting one of the general principles of Union law, namely the 18 19 principle of legal certainty which supports the limitation of retroactive laws . 3.4.4 It is for the Slovenian authorities to assess whether the retroactive character of the draft law also complies with Slovenian legal and constitutional principles . 3.5 Eligibility criteria The draft law does not prescribe specific criteria for borrowers to be eligible to participate in the restructuring other than specifying that the Swiss franc loan should have been approved between 28 June 2004 and 31 December 2010. This raises some concerns with regard to the purpose of the draft law. In particular, as the ECB has previously noted , the application of certain targeted eligibility criteria, such as, for example, linking the right to restructure to the borrower’s actual income position or the loan-to-value (LTV) ratio, may be appropriate. 3.6 Effects on the banking sector 3.6.1 As previously noted by the ECB , the implementation of the draft law is expected to entail financial costs for the Slovenian banking sector. Credit institutions may be affected to different degrees depending on the extent to which they concluded Swiss franc loans between 28 June 2004 and 31 December 2010. This, in turn, is expected to have a negative impact on the profitability, capitalisation and future lending capacity of the banking sector as a whole .

3.6.2 The exact impact on the banking sector is unknown since the draft law does not include any impact assessment. Further, even if such assessment existed, it would be difficult to predict the possible future impact since this is dependent on the CHF exchange rate. In addition, the timing and scale of loan restructuring envisaged under the draft law could introduce longer-term uncertainty into credit institutions’ business planning. 3.6.3 As previously noted by the ECB , the restructuring will lead to a one-off increase in operational costs for affected credit institutions in Slovenia, in particular due to the restructuring of existing hedges, refinancing measures, and the costs associated with the obligation to recalculate Swiss franc loans and notify each borrower individually thereof . 3.6.4 The ECB already emphasised its additional concern related to the placing of the main burden of the restructuring of Swiss franc loans on the originator credit institutions, envisaged under the draft law, even if the originators have already transferred the loans (e.g. as non-performing loans, ‘NPLs’) to third parties, as is the case with numerous Slovenian credit institutions. Such provisions in the draft law represent an important impediment to the effective resolution of NPLs as the originator credit institutions would not be able to effectively transfer NPLs off their balance sheet. The reasoning behind NPL transfers is, amongst other things, to remove uncertainty with regard to potential future losses associated with the transferred assets. In particular, it is unknown what the impact of such restructuring of loans already transferred would mean for the contractual agreements between the originator credit institutions and third-party purchasers (e.g. whether such retroactive adjustment would invalidate the contracts and/or the exposures would need to be repurchased by the originators). The draft law does not provide certainty with respect to its implementation in relation to assets already transferred. 3.6.5 As previously noted by the ECB , the ECB has been a strong proponent of the development of secondary markets for credit institution assets, particularly NPLs, as reflected in the action plan agreed by the Council of the EU to tackle NPLs in Europe . As part of a comprehensive solution to NPL resolution, the development of secondary markets may contribute to reducing NPLs. Looking ahead, well-functioning secondary markets may also prevent stocks of NPLs building up in the future. Moreover, a well-functioning secondary market may have a positive effect on financial stability to the extent that it could facilitate the transfer of the risks of NPLs off credit institutions' balance sheets. The presence of significant volumes of NPLs on credit institutions' balance sheets reduces their ability to fulfil their function as providers of credit to the real economy and hampers the operational flexibility and overall profitability that are essential to a wellfunctioning banking sector. It is essential that the legal framework applicable to secondary markets enables the efficient transfer of NPLs off the balance sheet of credit institutions, an aspect with regard to which the draft law may introduce uncertainty .

3.6.6 As a consequence of the draft law, Slovenian credit institutions might incur new losses with regard to NPLs already removed from their balance sheets. The ECB has already pointed out on previous occasions that the ability of financial institutions to effectively manage credit risk depends on a reliable, predictable and stable legal framework that adequately balances the interests of both the creditor and the debtor. In this respect, it is important to carefully consider the impact of the draft law in order to ensure legal certainty, and to prevent moral hazard arising in the relationship between creditor and debtor. If credit institutions are deprived of efficient tools to work out NPLs in an effective and timely manner, this could result in unnecessarily high levels of NPLs and private sector debt, which in turn have an adverse impact on financial stability and could undermine future credit supply. 3.6.7 Additionally, as the ECB has already noted , the Slovenian credit institutions that transferred their NPL portfolios to third parties have also handed over all relevant documentation regarding the loans transferred to the new creditors, who were fully aware of the nature of the loans prior to that transaction. The draft law could therefore interfere with the commercial agreements between the credit institutions and the purchasers of loans and cause disproportionate operational costs for credit institutions. Further, the fact that such credit institutions no longer have access to the documentation on loans transferred could make it impossible to carry out the recalculations and prepare the documentation required by the draft law. 3.6.8 The ECB also notes that in the case of a transfer of receivables relating to Swiss franc loans, the draft law requires credit institutions to restructure Swiss franc loans for the period from the drawdown until the transfer. However, the draft law does not envisage a restructuring of the loans for the period following the transfer. 3.6.9 To conclude, the draft law must carefully balance the benefits of creating well-functioning secondary markets for NPLs against the impetus to protect debtors . In addition, the draft law would benefit from a thorough impact assessment, including on both significant and less significant credit institutions. 3.7 Effects on financial stability 3.7.1 The ECB has pointed out on several occasions the risks associated with foreign currency loans . In particular, foreign currency loans have constituted a major risk to financial stability in several Member States , where the share of foreign currency loans is relatively high. The ECB points, in this respect, to the analysis of such risks made by the European Systemic Risk Board in Recommendation ESRB/2011/1.

3.7.2 Data provided by Banka Slovenije show that the stock of Swiss franc loans to households reached a maximum share in October 2008, when they accounted for 34.7% of housing loans and 8.5% of consumer loans. Nevertheless, the overall household portfolios seems to have been of a better quality compared to the rest of the banks’ portfolios, as reflected in a relatively low proportion of NPLs. Since then, the share of total loans denominated in Swiss francs has decreased significantly . At present, loans denominated in Swiss francs do not give rise to any systemic risks or pose threats to financial stability. As previously mentioned, however, the implementation of the draft law is expected to entail financial costs for the Slovenian banking sector and may, therefore, have a negative impact on the profitability and capitalisation of Slovenian credit institutions. In particular, the provision that the lender must return any overpayment to the borrower within 30 days if the total amount due under a loan agreement as amended in accordance with the exchange rate cap has been paid in full may imply substantial pressure on the income of credit institutions. 3.7.3 As the ECB has already highlighted in terms of the long-term effects on financial stability , when introducing measures in relation to the restructuring of foreign currency loans, due consideration should always be given to fair burden sharing among all stakeholders in order to avoid moral hazard in the future . The draft law specifies that, regardless of the magnitude of the exchange rate fluctuation, the borrower always covers the first 5% of the fluctuation. Therefore, the draft law limits the risk exposure for the borrower, but not for the credit institutions, which are otherwise required to cover the risk of exchange rate fluctuations without any limitations. 3.8 Effects on the Slovenian economy As the ECB has previously noted , the restructuring of Swiss franc loans with retroactive effect, as envisaged by the draft law, could have negative effects if it were to lead to a deterioration in both foreign and domestic investor sentiment, and trust in the system, due to a perceived increase in legal uncertainty and country risk.

4. Conferral of new tasks on Banka Slovenije

4.1 New task of Banka Slovenije 4.1.1 The draft law confers the task of supervising the restructuring procedures performed by credit institutions on Banka Slovenije. Further, it designates Banka Slovenije as the competent misdemeanour authority in the event of breaches of the draft law. The draft law does not specify in detail the scope of this new task. The ECB understands that Banka Slovenije would be essentially required to supervise the compliance of credit institutions with the requirements of the draft law in relation to the restructuring of their private contractual relationships with individual customers regarding Swiss franc loans. Banka Slovenije has been designated as the competent

misdemeanour authority in relation to breaches of the draft law, within the scope of the performance of its prudential supervisory tasks over credit institutions , and also has, to a certain extent, an existing consumer protection role . However, Banka Slovenije has no comparable responsibilities with respect to supervision of the compliance by credit institutions with the legal requirements relating to the restructuring of privately negotiated loan contracts with their customers. The draft law therefore confers a new task upon Banka Slovenije. 4.1.2 As the ECB already underlined in relation to the previous draft laws , a proposed conferral of new tasks on a national central bank (NCB) in the European System of Central Banks must be assessed against the prohibition on monetary financing under Article 123 of the Treaty. For the purposes of that prohibition, Article 1(1)(b)(ii) of Council Regulation (EC) No 3603/93 defines ‘other type of credit facility’, inter alia, as ‘any financing of the public sector’s obligations vis-à-vis third parties’. 4.1.3 Ensuring that Member States implement a sound budgetary policy is one of the key objectives of the monetary financing prohibition, which may not be circumvented . Therefore, the task of financing measures, which are normally the responsibility of the Member States, and which are financed from their budgetary sources rather than by the NCBs, must not be entrusted to NCBs. To decide what constitutes financing of the public sector’s obligations vis-à-vis third parties, which can be translated as the provision of central bank financing outside the scope of central bank tasks, it is necessary to carry out, on a case-by-case basis, an assessment of whether the task to be undertaken by an NCB is a central bank task or a government task, i.e. a task within the responsibility of the Member States. In other words, adequate safeguards must be in place to ensure that circumventions of the objective of the monetary financing prohibition of maintaining a sound budgetary policy of Member States do not take place. 4.1.4 As part of its discretion in the exercise of its duty, on the basis of Article 271(d) of the Treaty and Article 35.6 of the Statute of the European System of Central Banks and of the European Central Bank (hereinafter the ‘Statute of the ESCB’), to ensure that NCBs honour the obligations laid down by the Treaty, the Governing Council has endorsed safeguards of that kind in the form of criteria for determining what may be seen as falling within the scope of an obligation of the public sector within the meaning of Article 1(1)(b)(ii) of Regulation (EC) No 3603/93 or, in other words, what constitutes a government task as follows: First, central bank tasks are in particular those tasks that are related to the tasks that have been conferred upon the ECB and the NCBs by the Treaty and the Statute of the ESCB. These tasks are mainly defined in Article 127(2), (5) and (6) and Article 128(1) of the Treaty, as well as Article 22 and Article 25.1 of the Statute of the ESCB.

Second, as Article 14.4 of the Statute of the ESCB allows NCBs to perform ‘other functions’, new tasks, i.e. tasks that are not related to tasks that have been conferred upon the ECB and the NCBs, are not precluded per se. However, new tasks that are undertaken by an NCB and which are atypical of NCB tasks or which are clearly discharged on behalf of, and in the exclusive interest of, the government or of other public sector entities should be considered government tasks. Third, an important criterion for qualifying a new task as atypical of an NCB task or as being clearly discharged on behalf of and in the exclusive interest of the government or other public sector entities is the impact of the task on the institutional, financial and personal independence of that NCB. In particular, the following aspects should be taken into account: (a) whether the performance of the new task creates conflicts of interest with existing central bank tasks which are not adequately addressed and does not necessarily complement those existing central bank tasks. If a conflict of interest arises between existing and new tasks, sufficient safeguards to mitigate that conflict should be in place. The complementarity between a new task and the existing central bank tasks should not be interpreted broadly, so as to lead to the creation of an indefinite chain of ancillary tasks. Such complementarity should be examined in relation to the financing of those tasks; (b) whether without new financial resources the performance of the new task is disproportionate to the NCB’s financial or organisational capacity, and may have a negative impact on the capacity to perform properly the existing central bank tasks; (c) whether the performance of the new task fits into the institutional set-up of the NCB in the light of central bank independence and accountability considerations; (d) whether the performance of the new task harbours substantial financial risks; (e) whether the performance of the new task exposes the members of the NCB decision-making bodies to political risks which are disproportionate and may also have an impact on their personal independence and, in particular, on the guarantee of term of office set out in Article 14.2 of the Statute of the ESCB. 4.1.5 On the basis of the criteria set out above, the following paragraphs assess whether the new task of Banka Slovenije is in line with the prohibition on monetary financing. 4.2 Tasks related to the tasks conferred upon the ECB and the NCBs by the Treaty and the Statute

of the ESCB

4.2.1 As previously noted by the ECB , supervising the compliance of credit institutions with the requirements of the draft law in relation to the restructuring of privately negotiated loan contracts with their consumers is not among the basic central banking tasks listed in Article 127(2) or (5) of the Treaty or otherwise conferred upon the NCBs by the Statute of the ESCB. Nor does the task falls within the scope of the supervisory tasks of Banka Slovenije. Thus, a careful assessment of the conferral of this task on Banka Slovenije is required in order to determine

whether it constitutes a government task, and whether the related funding gives rise to monetary

financing concerns.

4.3 Tasks which are atypical of NCB tasks

4.3.1 As previously noted by the ECB , the new task conferred on Banka Slovenije by the draft law

relates to supervision of the compliance by credit institutions with the requirements under the

draft law relating to the restructuring of privately negotiated loan agreements with their customers.

Banka Slovenije’s new task can be seen, to a certain extent, as being related to the protection of

consumers.

4.3.2 As previously noted by the ECB , it is necessary to analyse whether this new task is atypical of

NCB tasks. While the majority of NCBs do not appear to have been assigned tasks of this nature,

the ECB has identified two Member States where NCBs have been given similar tasks. In

Cyprus and Hungary , the NCBs have been given tasks relating to the supervision of the

compliance by credit institutions with the legal requirements in relation to the restructuring of

private, contractual loan agreements between credit institutions and their customers. In the case

of Hungary, these tasks are substantially similar to the tasks conferred on Banka Slovenije under

the draft law. In addition, the NCBs in Croatia , the Czech Republic , Ireland , Italy and

Slovakia have been given similar supervisory tasks relating more generally to consumer

protection and the transparency of loan arrangements. In this regard, also taking into account the

consumer protection roles which are currently fulfilled by numerous ESCB NCBs in the field of

financial services , the new task does not appear to be completely atypical of NCB tasks.

However, the new task would be considered as atypical if Banka Slovenije’s supervisory role

were to extend to the resolution of disputes between contractual parties, which is a matter that is usually handled by the courts . The ECB understands that this is not the case with the draft law. 4.4 Tasks clearly discharged on behalf of and in the exclusive interest of the government 4.4.1 According to the explanatory memorandum, the objective of the draft law is to implement the constitutional principle of the ‘welfare state’ and to introduce sanctions for breaches of obligations arising under contractual relationships, thereby providing legal protection to a number of consumers who have taken out Swiss franc loans . The draft law is therefore intended to provide protection to consumers of financial services. 4.4.2 Due to the retroactive application of the draft law, it is not clear whether the draft law would effectively guarantee the fulfilment of the objective of protecting consumers of financial services. Thus, the ECB cannot exclude the risk that, in carrying out its supervisory functions, Banka Slovenije would act exclusively in the interest of another public entity. 4.5 Extent to which performance of the new task creates conflicts of interest with existing central bank

tasks

4.5.1 As previously noted by the ECB , it may be considered that the new task at least partially complements other similar existing supervisory and consumer protection tasks of Banka Slovenije. As with other consumer protection tasks, sufficient mitigation measures must be put in place to ensure that in the event of a conflict of interest supervisory considerations prevail. 4.6 Extent to which performance of the new task is disproportionate to the financial or organisational

capacity of Banka Slovenije

4.6.1 As previously noted by the ECB , the principle of financial independence requires that Member States do not put their NCBs in a position where they have insufficient resources to carry out both their ESCB-related tasks and their national tasks, from an operational and financial perspective. Furthermore, when allocating specific new tasks to NCBs, each NCB concerned should have sufficient financial and human resources at its disposal to ensure that the tasks can be carried out without impacting on the NCB’s financial or operational capacity to perform its ESCB tasks. In order to ensure that Banka Slovenije’s capacity to perform its ESCB-related tasks is not impaired, Banka Slovenije must, therefore, be in a position to avail itself of the necessary resources to carry out its duties under the draft law. 4.6.2 At this early stage, it is difficult to predict what additional resources Banka Slovenije will require in order to perform its new supervisory task under the draft law. However, it is likely that Banka Slovenije will have to dedicate additional human, technical and financial resources to implement this new supervisory task. This may impose an additional burden on existing central banking and supervisory tasks performed by Banka Slovenije. Additionally, Banka Slovenije could be exposed to reputational risk in carrying out its supervisory assessment of the appropriateness of the legal costs of the credit institutions concerned.

4.6.3 While supervised entities are required to pay fees to Banka Slovenije in relation to the performance of its supervisory tasks under the Law on consumer credit , the draft law does not provide for Banka Slovenije to be reimbursed for the costs of carrying out this new task. The ECB invites the consulting authority to consider the impact of the draft law on the resources of Banka Slovenije and undertake appropriate measures to ensure that the central banking and supervisory tasks performed by Banka Slovenije will in no way be affected. 4.7 Extent to which performance of the new task fits into the institutional set-up of Banka Slovenije, in the light of central bank independence and accountability considerations 4.7.1 The potential impact of the new task on the institutional, financial and personal independence of Banka Slovenije must be taken into consideration. 4.8 Extent to which the performance of tasks harbours substantial financial risks 4.8.1 The draft law does not contain any specific provisions on liability in relation to the exercise of Banka Slovenije’s powers under the draft law or the failure to exercise such powers. Banka Slovenije’s potential liability in respect of the performance of the new task will thus be subject to the rules on liability for damage caused in the exercise of public authority pursuant to the Law on banking and the general liability regime under Slovenian law. As previously noted by the ECB , the general liability regime would also apply with respect to any potential damage resulting from decisions of Banka Slovenije delivered in supervisory proceedings pursuant to the draft law which are later declared to be invalid in the courts. 4.9 Extent to which the performance of the new task exposes members of the decision-making bodies of Banka Slovenije to disproportionate political risks and impacts on their personal independence 4.9.1 As previously noted by the ECB , due to the sensitivity of the subject matter and the high degree of public attention being given to the restructuring of Swiss franc loans in Slovenia, due consideration should be given to any disproportionate political risk or impact on the personal independence of the members of the decision-making bodies of Banka Slovenije that may arise in the performance of the new task. 4.9.2 In this respect, consideration might be given to the possibility of conferring this task on a separate government agency to which Banka Slovenije could provide technical support in view of its expertise and experience in dealing with the Slovenian banking sector. 4.10 Conclusion The new task of Banka Slovenije of supervising the compliance of credit institutions with the requirements under the draft law in relation to the restructuring of privately negotiated loan agreements between credit institutions and their customers can be regarded as a central bank task. However, as the new task conferred upon Banka Slovenije by the draft law must not adversely affect its capacity to carry out its NCB or ESCB-related tasks, careful consideration should be given to its impact on Banka Slovenije’s operational capacity. In addition, careful

consideration should be given to any disproportionate political risk or impact on the personal independence of the members of the decision-making bodies of Banka Slovenije that may arise in the performance of the new task . This opinion will be published on EUR-Lex. Done at Frankfurt am Main, 26 November 2021. [signed]

The President of the ECB

Christine LAGARDE