EN ECB -PUBLIC  
 
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 24 February  2014 
on the mismatch of maturity and  foreign currency positions of credit institutions  
(CON/201 4/15) 
 
Introduction and legal basis  
On 16 January 2014, the European Central Bank (ECB) received a request fr om the Magyar Nemzeti 
Bank  (MNB ) for an opinion on a draft decree  regulating the mismatch of maturity and foreign currency 
positions of credit institutions (hereinafter the ‘draft decree ’). 
The ECB’s competence to deliver an opinion is based on Articles 12 7(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/EC1, 
as the draft decree concern s rules applicable to financial institutions insofar as they materially influence 
the sta bility of financial institutions 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. Background information and the p urpose of the dr aft decree  
1.1 From  1 October 2013, the MNB became the entity not only responsible for macro -prudential 
policy, but also for the micro -prudential supervision of the entire financial market. As a result  of 
changes in legislative competence  pursuant to the n ew Law on the Magyar Nemzeti Bank2, the 
Governor of the MNB is now exclusively authorised to adopt legislation on mitigating systemic 
risk, inter alia , to regulate the maturity mismatch and foreign currency position of credit 
institutions . 
1.2 The volume  of foreign currency -denominated mortgage lending to households expanded rapidly in 
Hungary until 2008. Banks financed the fast build -up of foreign currency assets mainly by: 
(a) raising foreign currency -denominated external funding ; and ( b) switching forint  funding to 
foreign exchange ( FX) funding via FX swaps. The average remaining maturity for foreign currency 
funding and FX swaps became  considerably shorter than the average maturity for foreign currency -
denominated loans . This led to significant  maturity mismatches , and consequently increased 
Hungary’s need  for foreign currency reserves3. 
                                                           
1  Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national authorities 
regarding draft legislative provisions ( OJ L 189, 3.7.1998, p. 42 ). 
2  See Law CXXXIX of 2013 on the Magyar Nemzeti Bank . 
3  See also  Opinions CON/2011/87 and CON/2012/27. All ECB opi nions are published on the ECB’s website  at 
www.ecb.europa.eu. 
ECB -PUBLIC  
2 1.3 To mitigate this risk , Government Decree 366/20114 introduced the Balance Sheet Coverage Ratio, 
the Asset Coverage Ratio , and the foreign funding adequacy ratio (FFAR ). 
1.4 The draft decree will review, update and replace the provisions of Government Decree 366/2011 
which are applicable to the FFAR. This review brings about  the following  major proposed changes: 
(a) the calculation of the required amount of stable forei gn currency funding should  change from a 
gross -based approach  to a net-based approach , meaning that certain parts  of the assets are not 
expected to be funded by FX funding  as regulated by the draft decree ; (b) in accordance with the 
prospective NSFR , the d eposits (liabilities ) should  be divided into stable and less stable categories , 
with a proposed weighting of 90% and 80% , respectively ; (c) the weight of foreign currency -
denominated stake s in assets is proposed to decrease to 0% ; (d) the required level of  the FFAR 
should be set at 75% from July 2014 (it is currently at 65%), and should gradually increase further 
to 100% by January 2017 .  
1.5 By introducing these measures , the MNB aims to : 
(a) reduce the funding risk related to short -term foreign exchange d ebt of banks and maturity 
mismatch , and to prevent further deterioration ; 
(b) mitigate the vulnerability arising from  severe  change s in the short -term funding conditions 
by gradually closing the maturity gap between FX assets and FX liabilities ; 
(c) provid e an opportunity to stakeholders until 2018 to prepar e for the implementation of the 
NSFR . 
 
2 General  Observations  
The draft decree regulates the same subject matter as the specific provisions of Government 
Decree  366/2011  that are applicable to the FFAR . Based on the rules applicable with regard to the 
hierarchy of legal acts  in Hungary , the draft decree cannot  repeal the provisions of  Government Decree  
366/2011 that are applicable to the FFAR . Since regulati ng this subject matter now falls within the 
comp etence  of the Governor of the MNB , the ECB would like to draw the Hungarian legislator’s 
attention to  the need to  avoid duplication of relevant legislation by repeal ing the respective provisions of 
Government Decree  366/2011 in line with the procedural rul es applicable to Hungarian legislation.  
 
3 Specific Observations  
3.1 The FFAR is similar in concept to the NSFR that is currently  being  developed under the Basel 
Committee on Banking Supervision (BCBS) , since it builds upon structural funding metrics that 
require banks to hold stable funding in relation to the composition of their assets. However, a 
number of differences between the NSFR and the FFAR remain. Specifically , in December 2013 
the BCBS agreed in a consultative document to introduce a more granul ar calibration through the 
                                                           
4  See Government Decree 366/2011 determining the liquidity requirements and regulating the provisions applicable to 
foreign currency maturity mismatch. The ECB was not consulted on this Govern ment Decree, and therefore it did not 
have the opportunity to issue an opinion as regards its provisions. 
ECB -PUBLIC  
3 consideration of assets and liabilities with a maturity between six months and one year. The 
intention behind this revision was to reduce cliff effects resulting from liabilities  falling below the 
one-year maturity horizon, and t o assign funding factors that reflect the necessary funding 
requirements for assets and the stability of available funding for liabilities.  
3.2 The current wording of the definition of ‘stable deposit’ in Article 2(32) of the draft decree would 
benefit fro m further clarification. In December 2013 , the European Banking Authority  (EBA)  
published a guideline5 for the identification of retail deposits with different stability characteristics , 
which could be a point of reference for such clarification . Reflectin g this guideline may also be 
useful for the differentiation of deposits under the FFAR. While differences between the NSFR and 
the FFAR are to be expected , given that the FFAR’s aim is to limit risks from foreign currency 
mismatches, it may be appropriate to adjust the FFAR in line with applicable international 
standards.  
 
This opinion will be published on the ECB’s website.  
 
 
Done at Frankfurt am Main, 24 February 2014. 
 
[signed]  
 
The President of the ECB  
Mario DRAGHI  
                                                           
5  See Guidelin es EBA/GL/2013/1 on retail deposits subject to different outflows for purposes of liquidity reporting under 
Regulation (EU) No 575/2013 , on prudential requirements for credit institutions and investment firms and amending 
Regulation (EU) No 648/2012 (Capital Requirements Regulation – CRR) . On overview of  the EBA’s regulatory activity 
is available  on the EBA’s website at www.e ba.europa.eu.