Bank of Slovenia lodges application to assess the constitutionality of the Act on Judicial Relief Granted to Holders of Qualified Bank Credit
The Bank of Slovenia has today, 10 January 2020, lodged an application to assess the constitutionality of the Act on Judicial Relief Granted to Holders of Qualified Bank Credit. As we have highlighted on several occasions, the aforementioned law breaches the fundamental principles of the functioning of the central bank, as set out by the constitution and also by EU law. The law is disputable primarily on the grounds of the prohibition of monetary financing, and the financial independence of the central bank, which has also been highlighted on several occasions by international institutions.
At the Bank of Slovenia we welcome the government’s intention to regulate judicial relief for holders of subordinated debt, but the current solution does not provide for it. During the process of drafting the law, we submitted several proposals for how to properly regulate the central bank’s position in judicial proceedings of this type, but unfortunately these were not taken into consideration.
We are therefore stating our arguments below for why the Bank of Slovenia has decided to lodge an application with the Constitutional Court of the Republic of Slovenia to assess the constitutionality of the Act on Judicial Relief Granted to Holders of Qualified Bank Credit:
- The law breaches the ban on monetary financing, under which central bank funds may not be spent on tasks that are not tasks of the central bank. The generally accepted view in the EU is that bank resolution is not a task of the central bank.
- The draft law also stipulates that the Bank of Slovenia’s liability is potentially objective, while it is subject to a reversed burden of proof. In terms of the liability of public institutions, such strict liability is exceptional both in Slovenia and in the EU.
- It requires the Bank of Slovenia to pay a flat compensation amount to individual investors, without any determination of why damage was incurred. The Bank of Slovenia reiterates that the central bank may not provide funds for measures of a social nature, a description that fits the aforementioned flat compensation amounts. The breach of the ban on monetary financing is even more evident under this arrangement.
- The law also stipulates that compensation should be paid from the Bank of Slovenia’s future earnings, which would otherwise primarily be distributed to the general reserves, and from its existing general reserves. This encroaches on the financial independence of the central bank, which must have adequate funds at its disposal for performing its primary tasks, and must also have the opportunity to decide on creating its own reserves.
At the same time the Bank of Slovenia is proposing that the court also assess certain procedural rules envisaged in the law. These do not provide for effective judicial relief, place the Bank of Slovenia in an extremely inferior position, encroach on the competences of EU institutions, and contravene the rules on the protection of confidential supervisory information applying in the EU.
In the application to assess constitutionality we also propose that the application of the law be stayed, as we believe that the law cannot be enforced in practice.
At the same time we propose priority treatment for the application to assess constitutionality.
Additional details regarding the Bank of Slovenia’s comments can be found in previous observations:
Regulation of judicial relief for holders of subordinated debt: Bank of Slovenia again warns of disputed provisions before voting