EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 1 December 2008 
at the request of the Hungarian Ministry of Finance 
on a draft law on strengthening th e financial intermediary system 
(CON/2008/81) 
 Introduction and legal basis
 
On 17 November 2008 the European Central Bank (ECB) received a request from the Hungarian Ministry 
of Finance for an opinion on a draft law on the Law on strengthening the financial intermediary system 
(hereinafter the ‘draft law’).  
The ECB’s competence to deliver an  opinion is based on Article 105(4) of the Treaty establishing the 
European Community and on 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 provisions
1, as the draft law relates to rules applicable  to financial institutions insofar 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 
1.1 The draft law is intended to limit the effects of the global financial crisis in Hungary and maintain 
its financial system’s stability. Subsequent to th e International Monetary Fund (IMF) loan granted 
to Hungary, and in view of the fi nancial intermediary system’s role  in its economy’s operations, the 
Parliament intends to adopt the draft law to pr eserve this system’s stability, maintain investor 
confidence and balance the interests of the owners of individual institutions within the system and 
the interests of the public.  
1.2 Under the draft law, the Magyar Nemzeti Ba nk (MNB) and the Hungarian  Financial Supervisory 
Authority (HFSA) will continuously assess the regulat ed financial institutions and will inform the 
Minister responsible for the regulation of the money, capital and insurance markets thereof on 
request. The Hungarian State will also deposit HUF 600 billion equivalent foreign currency from 
the IMF loan between 2008 and 2010 on a dedicated  MNB account. The Minister responsible for 
general government will manage the funds via the MNB according to the funds’ management rules 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2 to be laid down in a separate agreement by the Mi nister responsible for ge neral government and the 
MNB’s Governor. 
1.3 Furthermore, the Hungarian State will be author ised to guarantee credit institutions’ debts vis-à-vis 
their creditors subject to the cumulative fulfilment  of the following conditions: (a) the Chair of the 
HFSA’s Supervisory Council and the MNB’s Governor jointly propose the guarantee; (b) the debt 
is based on a loan agreement or debt security; (c) the credit institution’s debt maturity is between 
three months and five years; (d) the credit instituti on’s debt arises between the entry into force of 
the draft law and 31 December 2009; (e) the debt is  denominated in euro, Swiss francs or forint. 
The aggregated amount of the State guarantee may not exceed HUF 1 500 billion. 
1.4 On a joint proposal by the Chair of the HFSA ’s Supervisory Council and the MNB’s Governor, the 
Hungarian State may increase a credit institution’s cap ital at the request or with the consent of the 
credit institution, or ex officio  without the credit institution’s con sent, in exchange for preference 
shares in the credit institution.  
1.5 The temporary provisions on me asures introduced by the draft law will enter into force on the day 
after their publication and will apply until 31 December 2009. 
 2. General observations 
2.1 The ECB would like to point out that, in cases of particular urgency which do not allow for a 
normal consultation period, the consulting authorit y may indicate such urgency in the consultation 
request and ask for a shorter deadline for the ECB’ s opinion to be adopted. This does not prejudice 
the national authorities’ duty under Article 105(4) of  the Treaty to appropriately consult the ECB 
on national draft legislative provisions falling within its fields of competence. It follows from Article 3(4) of Decision 98/415/EC that Member States are obliged to susp end the adoption process 
for a draft legislative provision pending receipt of the ECB’s opinion. The adopting national authority should have the opportunity to deliberate the ECB’s opinion meaningfully prior to taking its decision on the substance. If a time limit has been set for submission of the ECB opinion and 
this time limit has expired, the national authority may restart the adoption process
2. 
2.2 The ECB has issued several recent opinions  on State measures addressing the global financial 
crisis, which all emphasise the importance of a common approach aimed at restoring confidence in financial markets. Similarly, the ECB notes that the conclusions adopted at the Ecofin meeting on 
7 October 2008 highlighted common principles to guide State actions
3. Moreover, the ECB notes 
that on 12 October 2008 the Heads of State of th e euro area issued a ‘Declaration on a concerted 
                                                 
2  See Section 1 of Title IV of the Guide to consultation of the European Cent ral Bank by national authorities regarding 
draft legislative provisions , available on the ECB’s we bsite at www.ecb.europa.eu. 
3  According to these principles, (a) inte rventions should be timely a nd the support should in principle be temporary; (b) the 
interests of taxpayers should be protected; (c) existing share holders should bear the due consequences of the intervention; 
(d) the Government should be in a position to bring about a change of management; (e) management should not retain 
undue benefits; (f) governments may have, inter alia , the power to intervene in remuneration; (g) legitimate interest of 
competitors must be protected, in particular through the St ate aid rules; and (h) negative spillover effects should be 
avoided. 
3 European action plan of the euro area countries’4 (hereinafter the ‘Declaration’), in which they 
confirmed their commitment to act together in  a decisive and comprehensive way to restore 
confidence in and the proper functioning of the fi nancial system, and appr opriate and efficient 
financing conditions for the economy. They agreed on common principles to be followed by the European Union and euro area governments, cent ral banks and supervisor s, to avoid national 
measures adversely affecting the functioning of the single market and the other Member States. This coordinated approach includes initiatives aime d at ensuring appropriate liquidity, facilitating 
the funding of banks by various means, providing additional capital resources to financial institutions and recapitalising distressed banks . The European Council also endorsed these 
principles for all Member States on 16 October 2008. As pointed out in recent ECB opinions
5, it is 
of the utmost importance that the operations cond ucted by national authorities do not interfere in 
any way with the single monetary policy and/or with the Eurosystem’s refinancing operations. 
2.3 The ECB also underlines the importance of ensuri ng that the proposed arrangements comply with 
the relevant Community law provisions, in particul ar as regards competition, including in the area 
of cross-border bank mergers and acquisitions, as well as financial services legislation and the 
single market principles. In additio n, they need to comply with th e criteria set out in the recently 
adopted Commission’s guidance on compliance by fi nancial sector support schemes with State aid 
rules6 (hereinafter the ‘Commission’s guidance’). Hence, the State’s role as shareholder as a 
consequence of recapitalisation under the draft law must be limited in time.  
2.4 The ECB understands that Article 24 of the draf t law authorises the Hungarian Government to 
adopt decrees to regulate the procedure for activ ating a State guarantee under the draft law. The 
ECB expects to be consulted on any new draft legisl ative provisions if they materially influence the 
stability of financial markets. 
 3. Specific observations 
Eligibility for support 3.1 Pursuant to Articles 1 and 2 of the draft law, all banks and specialised credit institutions as defined 
in Law CXII of 1996 on credit institutions
7 having their registered office in Hungary are entitled to 
benefit from the measures under the draft law. The ECB understands, therefore, that subsidiaries of 
foreign banks are also included, but branches of foreign banks are not. The ECB welcomes the 
                                                 
4  Available on the website of the French Presidency at www.ue2008.fr. 
5  See, in particular, ECB Opinion C ON/2008/52 of 17 October 2008 at the request of the Spanish State Secretary for 
Economic Affairs on a Royal Decree-Law cr eating a Fund for the acquisition of fi nancial assets and on a Royal Decree-
law adopting urgent and financia l and economic measures in re lation to the concerted European action plan of the euro 
area countries. See also ECB Opinion CON/2008/60 of 27 Octobe r 2008 at the request of the Spanish State Secretary for 
Economic Affairs on a draft Order impl ementing Royal Decree-Law  6/2008 creating the Fund for the acquisition of 
financial assets and on a draft Basic Ag reement of the Fund’s Executive Council. All ECB opinions are available on the 
ECB’s website at www.ecb.europa.eu. 
6  See ‘Communication from the Commission – The application of St ate aid rules to measures ta ken in relation to financial 
institutions in the context of the current global  financial crisis’ (OJ C 270, 25.10.2008, p. 8).  
7  Magyar Közlöny , 1996.12.12. 
4 above provisions, as they avoid preferential treatment  of specified credit institutions, and distortion 
of the level playing field as regards the treatment of domestic financial ins titutions and subsidiaries 
of foreign institutions8. The ECB notes that, in the specific context of provision of State guarantees, 
the Commission’s guidance includes detailed rule s on the eligibility criteria for the beneficiary 
institutions9. 
Conditions for support and interaction with monetary policy  3.2 The ECB notes that, in line with the Declaration,  Member States must act in a coordinated manner 
to avoid significant differences in national impl ementation from having a counter-productive effect 
and creating distortions in global banking market s. Similarly, support measures by EU Member 
States should be temporary in nature and their ex piry across the EU should be harmonised. In this 
respect, the ECB makes the following observations. 
3.3 First, as regards the support measures in the form of State guarantees under Articles 6 and 7 of the 
draft law, the ECB considers that the implementa tion of the proposed arrangements should aim at: 
(a) addressing the funding problems of liquidi ty-constrained solvent banks by improving the 
functioning of the market for bank debt of longe r term maturity; (b) preserving the level-playing 
field among financial institutions and avoiding market distortions ; and (c) ensuring consistency 
with the management of liquidity by the MNB
10. 
3.4 Second, according to Article 7 of the draft law, the Parliament authorises the Minister responsible 
for general government to provide a guarantee in the name of the Hungarian State to increase a credit institution’s financial resources, subject to the fulfilment of the conditions listed in 
paragraph 1.3 of this Opinion. The ECB finds that  the eligibility criteria are unclear concerning the 
State guarantees for credit institutions that increas e their financial resources under Article 7 and 
need further consideration by the legislator
11.  
3.5 Third, the ECB considers that further clarification is needed in the draft law of the type of liabilities 
that the State guarantees may cover. In particular, it is not clear whether the guarantees provided by the Hungarian State cover interbank deposits. In this respect, the ECB notes that State guarantees to 
cover interbank deposits should be  avoided as they have the potential to interfere with the conduct 
of a central bank’s liquidity-providing operations , and thus with the transmission of monetary 
policy decisions. In particular, the ECB consider s that State guarantees to be provided under the 
                                                 
8  On these aspects see, in pa rticular, ECB Opinion CON/2008/44 of 3 October 2008  at the request of the Irish Minister for 
Finance on a draft Credit Institutions (Financial Support) Bill 2008. See also ECB Opinion CON/2008/48 of 
15 October 2008 at the request of the Irish  Minister for Finance on a draft Credit Institutions (Financial Support) Scheme 
2008. See also ECB Opinion CON/2008/52 and ECB Opinion CON/2008/55 of 20 October 2008 at the request of the 
Austrian Ministry of Finance on draft legal measures to ensure the stability of the Austrian financial market. 
9  See paragraph 18 of the Commission’s guida nce, specifying that ‘The eligibility criteria of financial institutions … must 
be objective, taking due acco unt of their role in the relevant banki ng system and the overall economy, and non-
discriminatory so as to avoid undue distortive effects on ne ighbouring markets and the intern al market as a whole. In 
application of the principle of non disc rimination on the grounds of nationality, all institutions incorporated in the 
Member State concerned, including subsidiaries, and with si gnificant activities in that Me mber State should be covered 
by the scheme.’ 
10  See, e.g. paragraph 2.1.2 of ECB Opinion CON/2008/62 of 29 October 2008 at the request of the Swedish Ministry of 
Finance on a draft ordinance for State guarantees for banks etc. 
11  See inter alia  paragraph 3.3(a) of this Opinion. 
5 draft law may be economic in nature as guarantees for the repayment of the interbank deposits if 
the guarantee is provided for the repayment of an  unsecured loan drawn by the borrower bank. The 
ECB thus recommends avoiding the provision of St ate guarantees which are economic in nature as 
guarantees for deposits12.  
3.6  Fourth, the ECB also notes that the Declara tion states that the Member State governments would 
make available a State guarantee of new medium-t erm, i.e. up to five years, bank senior debt 
issuance. The ECB understands that the draft law empowers the Minister for Finance to provide 
State guarantees on the basis of the agreements to be entered into until the end of 2009, while the 
maximum time limit for guara nteed obligations remains undefined. The ECB recommends 
amending the draft law to ensure full compliance with the Declaration’s criteria in this respect13. 
3.7 Fifth, Article 7(7) of the draft law provides that a beneficiary bank may be charged a fee in 
connection with the provision of the State guarantee, th e level of which is to be set in the relevant 
agreement ‘taking into account the relevant r ecommendations and communications issued by the 
European Commission’. In this respect, the ECB notes that it is important to ensure that the price of 
the State guarantee is risk-based and market-oriente d and determined on the basis of the costs of a 
corresponding guarantee in the market. For the sa ke of transparency, a further more precise 
indication should be given on the method to be used to calculate the fee. The ECB also notes in this 
respect that it is of crucial importance to ensu re harmonisation of the price for such guarantees 
within the EU, as a level playing field is essential14. 
3.8 Sixth, as regards the provision of capital to the credit institutions under Article 8, the ECB makes 
the following observations. On the one hand, th e eligibility criteria are unclear and should be 
clarified in the draft law. Furthermore, in lin e with its previous opini ons, the ECB notes that 
harmonisation and coordination of government measures intended to alleviate tensions in the 
financial markets are of crucial importance. The recapitalisation measures considered in Member States are aimed at strengthening the capital positio n of fundamentally sound financial institutions 
to improve the functioning and stability of the ba nking system and ensure the proper financing of 
the economy. In particular, the conditions for recapitalisations, including the pricing of the 
instruments to provide Tier 1 capital to financia l institutions, should be de fined consistently to 
support the implementation of the Declaration. Ag ainst this background, the ECB notes that in 
general the conditions for capital support should aim at protecting the interest of taxpayers and 
respecting the level playing field for institutions. On the other hand, the ECB highlights that the pricing conditions for capital support should be ri sk-based and market-oriented, determined by 
taking into consideration the specific risk of bo th the specific instrument chosen for injecting 
capital and the institution concerned. Specific feat ures of the instruments for capital injections, 
such as preferred shares and other hybrid instrument s, should be appropriately chosen so that, while 
                                                 
12  See, e.g. paragraph 3.2 of ECB Op inion CON/2008/50 of 17 October 2008 at the request of the Belgian Ministry of 
Finance on a draft royal decree adopted under Article 117 bis of the Law of 2 August 2002 on the supervision of the 
financial sector and on financial services. 
13  See, e.g. paragraphs 3.4 a nd 3.5 of ECB Opinion CON/2008/55. 
14  See, e.g. paragraph 2.1. 3 of ECB Opinion CON/2008/62. 
6 encouraging an early end to the State’s capital su pport for banks, they should not result in an 
excessive increase in the cost of capital. Finally, the temporary nature of the State’s intervention 
should be ensured by providing financial institutions  with incentives to redeem such instruments as 
early as possible after a certain period of time.  
Role of the central bank 3.9 The ECB understands that the MNB in its superv isory role will under Article 3 of the draft law 
assess the regulated institutions under the La w of 2007 CXXXV on the Hungarian Financial 
Supervisory Authority
15. The ECB appreciates that the draft law recognises the MNB’s expertise in 
strengthening the financial intermediary system. 
3.10 The ECB expects that the functions to be performed by the MNB under the draft law16 will be 
conducted in a manner fully compatible with its  institutional and financial independence, as a 
safeguard for the proper performance of its tasks under the Treaty and the Statute of the European 
System of Central Banks and of the European Ce ntral Bank. It is therefore expected that the 
MNB’s involvement will not go beyond an advisory and procedural role and, in particular, that it 
will fully comply with the prohibition of monetary financing laid down in the Article 101(1) of the 
Treaty17, interpreted in line with Council Regulati on (EC) No 3603/93 of 13 December 1993 
specifying definitions for the application of the prohibitions referred to in Articles 104 and 104b(1) of the Treaty
18. 
3.11  Finally, the ECB notes that the amendment to Law CXII of 1996 proposed under Article 28 of the 
draft law provides that sharing of information on individual credit institutions by the HFSA or the MNB with the Minister responsible for general government and the Minister responsible for the 
regulation of money, capital and insurance mark ets will not constitute a breach of business secrets 
if (a) the data is provided for the purpose of an alysing trends in the national economy and planning 
the central budget; or (b) the stability of the financial intermediary system is potentially endangered. The ECB notes that limits imposed  by Community law on sharing information on 
individual credit institutions are currently subject to discussion in the cont ext of the Commission’s 
proposed amendments to Directive 2006/48/EC of th e European Parliament and of the Council of 
14 July 2006 relating to the taking up and pu rsuit of the business of credit institutions
19, according 
to which authorities may disclose information to governments in emergency situations. The draft 
law will need to fully comply with Community law. 
 
                                                 
15  Magyar Közlöny , 2007.11.12. 
16  In particular the function under Article 4 of the draft law. See paragraph 1.2 of this Opinion.  
17  See paragraph 3.2 of ECB Opinion CON/2008/52. 
18  OJ L 332, 31.12.1993, p. 1. 
19  OJ L 177, 30.6.2006, p. 1. 
7 This opinion will be published on the ECB’s website.  
  Done at Frankfurt am Main, 1 December 2008. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET