EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 4 August 2010 
on amendments to various laws regarding  the reduction of financial imbalances 
(CON/2010/62) 
 Introduction and legal basis
 
On 5 July 2010, the European Central Bank (ECB) received a request from the Hungarian Ministry of the 
National Economy for an opinion on a draft law ame nding certain financial legal acts (hereinafter the 
‘draft law’)1. 
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 sixth indent  of Article 2(1) of Council Decision 98/415/EC of 
29 June 1998 on the consultation of the European Ce ntral Bank by national authorities regarding draft 
legislative provisions2, as the draft law relates to rules applicable to financial institutions in so far as they 
materially influence the stability of financial ins titutions and markets. 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 
On 8 June 2010, Hungary’s Prime Minister announced an action plan containing 29 measures to establish 
a balanced budget and to stimulate economic gr owth. The provisions submitted to the ECB for 
consultation aim to implement several of these measu res, including introducing restrictions on foreign 
currency mortgages and earning limits for certain or ganisations in the public sector; imposing a special 
tax on financial institutions; providi ng for the repayment of State su bsidies on housing saving plans under 
certain conditions; introducing certain organisationa l changes at the Hungarian Financial Supervisory 
Authority and introducing certain amendments to the Law on strengthening stability of the financial 
intermediation system. 
 
                                                 
1  Draft law T/581 on the adoption and amendment of certain ec onomic and financial legal acts, submitted to the Parliament 
by the Minister for the National Economy on 2 July 2010. Arti cles 81 to 83/A, 95 to 96, 115 to 129, 131, 137 to 138 and 
141 to 143 have been submitted to the ECB. 
2  OJ L 189, 3.7.1998, p. 42. 
2 2. General observations 
The appropriate time to consult the ECB 2.1 The consulting authority submitted the relevant Ar ticles of the draft law to the ECB on 5 July 2010, 
requesting the ECB’s opinion as soon as possible. Th e consulting authority did not set the ECB any 
specific time limit for the submission of its opinion nor provide justified reasons for the urgency. 
The ECB interprets the request in  accordance with Article 3(1) of Decision 98/415/EC allowing the 
ECB at least one month for the submission of its opinion. According to information received by the 
ECB, the Parliament expects to adopt the draft law before the extraordin ary summer session of the 
parliamentary legislative process ends. According to  the information available on the website of the 
Hungarian Parliament, the provisions of the draf t law sent for consultation have already been 
adopted with several substantive amendments on 22 July 2010 before the ECB could adopt its 
opinion. 
2.2 Recalling its relevant comments in its pr evious opinion on a related issue in Hungary
3, the ECB 
emphasises that the consultation should have taken place at a point in the legislative process which 
would have afforded the ECB sufficient time to examine the draft legislative provisions and to 
adopt its opinion in all required language versions, and which also would have enabled the relevant 
national authorities to take the ECB’s opinion in to consideration before the provisions were 
adopted. According to Article 3(4) of Decisi on 98/415/EC, Hungary should have suspended the 
adoption process for the draft law, pending receipt of the ECB’s opinion. 
2.3  Furthermore, the opportunity to issue an opini on on a draft law within its competence allows the 
ECB to express its views on the substance of the proposed legislation, including considerations 
such as the importance that the ECB may attach to a particular legislative proposal and its potential 
impact on the European System of Central Banks . Therefore, the ECB reiterates its position that 
even cases of particular urgency do not relieve national authorities from their duty to consult the 
ECB and to allow sufficient time to take into  account its views in accordance with Decision 
98/415/EC. Any substantive amendments to the draf t law – as in the case of the provisions subject 
to this consultation – ha ve to be submitted to the ECB to allow it to issue its opinion based on the 
most recent text. The ECB’s comments on the consulted provisions do not eliminate the breach of the obligation to consult the ECB. Even though th e provisions have already been enacted, the ECB 
considers that its comments are important for the application and interpretation of the enacted law 
and any future amendments. The ECB also emphasis es that it expects the Ministry for the National 
Economy to give due consideration to honouring its obligation to consult the ECB in accordance 
with Decision 98/415/EC. 
Legislation subject to consultation 2.4 Although the draft law amends several legal acts,  this opinion only covers the provisions of the 
draft law that the consulting authority has subm itted for consultation. ECB Opinion CON/2010/56 
                                                 
3  ECB Opinion CON/2010/56. All ECB opinions are publ ished on the ECB’s websit e at www.ecb.europa.eu. 
3 has already addressed Article 95. The ECB also advi ses that this opinion is without prejudice to any 
other ECB opinions concerning any other legal acts  possibly affected by the draft law and falling 
under the ECB’s competence. The ECB expect s to be consulted on all such matters. 
 3. Financial stability Restrictions on foreign currency mortgages 3.1 Articles 81 and 82 of the draft law amending r espectively the Hungarian Civil Code and the Law 
on the Land Register with future effect prohibit entering into or claiming a right as a result of 
foreign currency mortgages contracted by individual s in the Land Register. Article 82(2) introduces 
the possibility of a collateral swap or refinancing operations in case of all such mortgages entered 
into the Land Register before the draft law enters  into force. Under Article 262 of the Civil Code 
real property may be pledged as security only in th e form of a mortgage, and a mortgage is valid 
only if contracted in writing and recorded in  the Land Register. Therefore, the practical 
consequence of Articles 81 and 82 of  the draft law is that after the draft law enters into force, 
claiming a new right as the result of mortgages contra cted by individuals in a foreign currency is no 
longer possible since it cannot serve as adequate secur ity because its entry in the Land Register will 
be prohibited.  
3.1.1 The ECB notes that high levels of foreign cu rrency loans to unhedged borrowers are an important 
vulnerability in Hungary, as they convert direct ex change rate exposure of the banking system into 
credit risk and expose the economy to significant ma cro-financial risks. Furthermore, a high level 
of foreign currency debt may restrict the room for monetary policy manoeuvre and its 
effectiveness. Given these negative side effects associated with foreign currency lending, it is 
important for policymakers to take measures to avoid its excessive build-up in the banking system. 
3.1.2 To contain foreign currency lending, policymak ers are strongly encouraged  to create an overall 
environment for economic agents which encourag es prudent and well-informed decision making. 
This involves the pursuit of sound and stability-ori ented macroeconomic policies and policies to 
strengthen financial literacy and appropriate fina ncial regulation and supervision. If this proves 
insufficient, additional policies to prevent an ex cessive build-up of foreign currency debt, such as 
moral suasion and administrative measures, could be considered.  
3.1.3 Against this background the ECB welcomes the general objective of the Hungarian authorities of 
limiting the building up of further macro-financial imbalances and takes note of the recent changes 
in Hungary’s regulation of foreign currency le nding. In particular, Government Decree 361/2009
4 
has already tightened credit standards subs tantially by defining relative lending limits  and 
maximum loan-to-value ratios and by introducing a dditional stricter criteria for foreign currency 
mortgages, depending on the currency of denominat ion. The efficient implementation and thorough 
                                                 
4  361/2009 . (XII. 30.) Korm. rendelet. a körültekint ő lakossági hitelezés feltételeir ől és a hitelképesség vizsgálatáról . 
4 assessment of the measures laid down by Government Decree 361/2009, as well as the 
improvement in banks’ risk management practices, should be emphasised.  More generally, there is 
a need to ensure that strict and prudent regul atory and administrative measures are in place for 
lending to unhedged domestic borrowe rs in a foreign currency. In addition, banks should always 
hold sufficient capital to reflect the specific risks associated with foreign currency lending, in 
particular as regards the transformation of  exchange rate risk into credit risk. 
3.1.4 If the proposed complete ban on individuals ta king foreign currency mortgages in Articles 81 and 
82 of the draft law has a cross-border effect, it may raise issues of compliance with Article 63 of the Treaty on free movement of capital and payments
5. The ECB appreciates that the free 
movement of capital and payments is without prejudice to, inter alia , ‘measures which are justified 
on grounds of public policy or public security’, as laid  down in Article 65(1)(b) of the Treaty. As in 
the case of exceptions based on the principle of ge neral good, the exemption in Article 65(1)(b) of 
the Treaty is narrowly interpreted by the Court of  Justice of the European Union, with the 
implication that any such measure would, for exam ple, need to meet the proportionality test. Under 
this test, restrictions are justified only if no less restrictive measure would suffice to reach the 
desired end. The final assessment of whether the complete ban on individuals taking foreign currency mortgages is in breach of the free moveme nt of capital and payments is entrusted to the 
Union institutions ensuring the applica tion and observance of the Treaties.  
Special tax imposed on financial institutions 3.2 Articles 115 to 120 of the draft law amending the Law on a special tax and contribution to balance 
the State budget impose a special tax on financial in stitutions. According to Article 116, financial 
institutions whose annual report closed on 1 July 2 010 will be subject to a special tax in 2010. The 
rate will depend on the form of the financial institution. 
3.2.1 The ECB notes that the feasibility of a tax on fina ncial institutions should be considered in relation 
to the objectives of covering the public cost arising from their failure and of addressing the risks posed by them. The proceeds raised by the tax should preferably accrue to the deposit guarantee 
schemes or to resolution funds set up ex-ante that would need to be supported by a robust resolution framework. Furthermore, the proceeds from a bank tax should be ring-fenced to avoid 
their use for general fiscal consolidation purposes. In  this context, the draft law raises the following 
concerns. 
3.2.2 First, using the proceeds for general budget pur poses is not desirable as it does not serve the general 
objective of enhancing financial stability. In par ticular, given the magnitude of the proposed 
measure, the marked deterioration of the financial sector’s capital accumulation ability may 
weaken its solvency position, thereby making th e financial system more vulnerable to potential 
further shocks.  
                                                 
5  See Case C-464/98, Westdeutsche Landes bank Girozentrale v Stefan and Republik Österreich [2001] ECR I-173. 
5  Second, the tax may hamper the provision of bank credit to the non-financial private sector and 
result in extra charges to customers. In particular , banks which aim to partly offset the unexpected 
taxes may increase their margins, thus making cred it to households and enterprises more expensive. 
This, in turn, would lead to even weaker dome stic demand growth, thereby delaying recovery of 
the Hungarian economy. 
Third, as a response to the substantial increase in  the tax burden, some banks and other financial 
institutions may cut back their activities in Hung ary, thus further limiting the availability of 
financing. 
Finally, such ad hoc taxing of an industry ma y create uncertainty for business and thus have a 
detrimental impact on long term growth.  
Given these concerns, the ECB strongly recommends a comprehensive impact assessment of the 
proposed measure. 
3.2.3 Article 118(7) stipulates only the total amount of levy to be paid by the financial sector in 2011 
without specifying the details of the tax. In a ddition, Article 118(8) does not specify the total 
amount of tax to be imposed on the financial sector  in 2012. These measures will be laid down in a 
separate law, which creates additional uncertain ty. For the sake of legal clarity and the 
predictability of the business environment, th e ECB would welcome defining the actual tax 
measures for 2011 and 2012 in the draft law. 
 This opinion will be published on the ECB’s website.    Done at Frankfurt am Main, 4 August 2010. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET