EN ECB-PUBLIC 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 6 June 2014  
on the short-term liquidity requirements of credit institutions 
(CON/2014/41) 
 
Introduction and legal basis 
On 7 May 2014, the European Central Bank (ECB) r eceived a request from the Magyar Nemzeti Bank 
(MNB) for an opinion on a draft MNB Decree on th e short-term liquidity requirements of credit 
institutions (hereinafter the ‘draft decree’). 
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 inde nt of Article 2(1) of Council Decision 98/415/EC1, 
as the draft decree relates to rules applicable to fina ncial institutions insofar as they materially influence 
the stability of financial institutions and markets. In acc ordance 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 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 brought about by the new Law on the Magyar Nemzeti Bank
2, 
the Governor of the MNB is now exclusively authorised to, inter alia , adopt legislation aimed at 
reducing systemic liquidity risk. Prior to these changes, the competence was shared between the 
MNB and the Hungarian Government. In the exercise of its powers, the MNB conducted a review 
of existing legislation defining the liquidity require ments applicable to credit institutions, an area 
which is currently regulated by  Government Decree No 366/20113 (hereinafter the ‘Government 
Decree’). 
1.2 As a result of the review, the MNB plans to adopt legislation mirroring the content of the 
Government Decree.  In effect, this will result in the current  short-term liquidity requirements 
being maintained, which are applicable to the balance sheet coverage ratio and the deposit coverage ratio of credit institutions. 
                                                 
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 Government Decree No 366/2011 (XII. 30.) determining the liquidity requirements and regulating the provisions 
applicable to foreign currency maturity mismatch. The ECB was not consulted on this Government Decree, therefore it 
did not have the opportunity to issue an opinion as regards its provisions. 
ECB-PUBLIC  
2 1.3 According to the definition provided by the Government Decree, the purpose of the short-term 
liquidity requirements applicable to credit instituti ons was to ensure that credit institutions hold a 
sufficient liquidity buffer to manage any stress scenario. Credit institution s have been required to 
hold liquidity reserves over a 30-day horizon, covering either 20 per cent of their retail and 
corporate deposits, i.e. deposit coverage ratio or, al ternatively, 10 per cent of their total balance 
sheet (total liabilities) i.e. balance sheet covera ge ratio. Mortgage credit institutions have been 
required to meet a minimum balance sheet coverage  ratio of 5 per cent. Based on the explanatory 
memorandum attached to the consultation reque st, the MNB does not intend to change the 
applicable level of coverage at this point in time. 
 
2 General observations  
2.1 The draft decree overlaps with some specific pr ovisions of the Government Decree in terms of the 
liquidity requirements applicable to credit ins titutions. As the ECB has previously pointed out4, the 
draft decree cannot repeal the Government Decree. Since the regulation of liquidity requirements 
now falls within the competence of the Governor of the MNB, the ECB would like to once again 
draw the Hungarian authorities’ atte ntion to the need to avoid duplication of relevant legislation by 
repealing the Government Decree in accordance with the procedural rules applicable to Hungarian legislation. 
2.2 According to the explanatory memorandum, the MNB plans to review the provisions of the draft 
decree following the adoption of detailed requireme nts relating to a liquidity coverage ratio (LCR) 
in a delegated act of the Commission under Regulation (EU) No 575/2013 of the European Parliament and of the Council (hereinafter the ‘CRR’)
5. 
 
3. Specific observations 3.1 National implementation of Directive 2013/36/EU  of the European Parliament and of the Council 
(hereinafter the ‘CRD IV’)
6 and Part VI of the CRR7 specifies liquidity requirements in the 
Member States. The LCR and the Net Stable Funding Ratio (NSFR) have been developed by the 
Basel Committee on Banking Supervision under th e Basel III framework. As indicated above, the 
CRR mandates the European Commission to adopt a delegated act specifying the LCR8, the 
adoption of which is currently pending. Further specifications include the Implementing Technical 
Standards and Regulatory Technical Standards provided by the European Banking Authority 
(EBA). 
                                                 
4  See paragraph 2 of Opinion CON/2014/1 5. All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 
5 Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements 
for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p 1). 
6  Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit 
institutions and the prudential supervisio n of credit institutions and investment firms (OJ L 176, 27.6.2013, p. 338). See, 
in particular, recitals 76, 77, 101 and 102, and Articles 51(1)(b), 86 and 105 thereof. 
7  See, in particular, Articles 411 to 428. 
8  See Article 460 of the CRR. 
ECB-PUBLIC  
3 3.2 The LCR will become binding from 2015 and w ill be phased in gradually, with full implementation 
required by January 20189. The NSFR will become binding from 2018. According to the CRR10, 
Member States may introduce or maintain natio nal provisions relating to liquidity coverage 
requirements until binding standards are specified and in full effect at Union level. Hence, at the 
present time, there is no legal requirement to bring the draft decree in line with the CRD IV or the 
CRR. It is however suggested, that the MNB a ssess whether the deposit coverage ratio and the 
balance sheet coverage ratio specifi ed in the draft decree adequately address national liquidity risks 
to be covered by the LCR in the future. 
3.3 Furthermore, since the CRR provides ‘minimum ’ standards for liquidity coverage during the 
grandfathering period stipulated in the CRR11, national rules requiring higher standards to be met, 
e.g. up to 100 per cent of the LCR, could remain in place until the LCR becomes fully binding in 
2018. The benchmark for liquidity coverage by 2015 is 60 per cent of the liquidity coverage 
requirement and will rise by 10 per cent each year until it reaches 100 per cent in 2018. The deposit coverage ratio and the ba lance sheet coverage ratio in the draf t decree have similarities with the 
LCR, notably in being 30-day, forward-looking me asures. The MNB should ensure that the deposit 
coverage ratio and the balance sheet coverage ratio are in line with the general principle stipulated 
by the CRR, according to which it is appropriate to promote a diversified and high-quality liquidity buffer consisting of different asset categories
12. It should also be ensured that the assets defined by 
the draft decree as operative liquidity reserves fa ll under the definition of liquid assets in the 
CRR13. Moreover, the ECB is of the opinion that careful attention should be paid to the use of 
stress parameters should the draft decree be updated in the future, in view of the delegated act to be 
adopted by the Commission. 
3.4 The CRR already requires banks to report the co mponents of their liquidity positions, as specified 
in the EBA’s Implementing Technical Standard s on supervisory reporting. There are also 
differences in the draft decree and the Implementing Technical Standards with respect to the treatment of transactions between entities bel onging to the same group. The ECB recommends 
further clarity relating to the calculation of the fund ing position referred to in Article 4 of the draft 
decree, in particular as regards the issue of whet her only contractual cash-flows can be considered 
or whether the expected behaviour of counterparti es can also be taken into account. This would 
enhance the common understanding among supervisors. 
3.5 The ECB sees limited value in maintaining the me asures of the draft decree after the LCR has been 
specified at Union level by the Commission. Th e ECB welcomes the intention expressed by the 
MNB to review, and should any collision be de tected, repeal the draft decree once the 
Commission’s delegated act has entered into force. 
                                                 
9  See Article 460 of the CRR. 
10  See Article 412(5) of the CRR. 
11  See Article 460 of the CRR. 
12  See recital 100 of the CRR. 
13  See Article 416 of the CRR. 
ECB-PUBLIC  
4 3.6 As regards the foreign funding adequacy ratio, all observations made in Opinion CON/2014/15 still 
apply. 
 
This opinion will be published on the ECB’s website. 
  
Done at Frankfurt am Main, 6 June 2014. 
 
[signed] 
 
The President of the ECB 
Mario DRAGHI