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 the financial intermediary systemof 1 December 2008 at the request of the Hungarian Ministry of Finance on a draft law on strengthening the financial intermediary system (CON/2008/81)
Date: 2008-12-01
Institutions: European Central Bank
Subjects: Hungary, credit institution, financial requirements, financial stability, financial supervision, monetary crisis

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 the 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  Central  Bank  by  national  authorities  regarding  draft 
legislative provisions1, as the draft law relates to rules applicable to financial institutions insofar as they 

materially  influence  the  stability  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.  

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 the International Monetary Fund (IMF) loan granted 

to Hungary, and in view of the financial intermediary system’s role in its economy’s operations, the 

Parliament  intends  to  adopt  the  draft  law  to  preserve  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 Bank (MNB) and the Hungarian Financial Supervisory 

Authority (HFSA) will continuously assess the regulated 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.  

 
 
 
 
                                                 
to be laid down in a separate agreement by the Minister responsible for general government and the 

MNB’s Governor. 

1.3  Furthermore, the Hungarian State will be authorised 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 institution’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 capital at the request or with the consent of the 

credit institution, or ex officio without the credit institution’s consent, in exchange for preference 

shares in the credit institution.  

1.5  The temporary provisions on measures 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 authority 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 suspend 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 process2. 

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 actions3. Moreover, the ECB notes 

that on 12 October 2008 the Heads of State of the euro area issued a ‘Declaration on a concerted 

2 

3  

See Section 1 of Title IV of the Guide to consultation of the European Central Bank by national authorities regarding 
draft legislative provisions, available on the ECB’s website at www.ecb.europa.eu. 
According to these principles, (a) interventions should be timely and the support should in principle be temporary; (b) the 
interests of taxpayers should be protected; (c) existing shareholders 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  State  aid  rules;  and  (h) negative  spillover  effects  should  be 
avoided. 

2 

 
                                                 
 
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  financial  system,  and  appropriate  and  efficient 

financing  conditions  for  the  economy.  They  agreed  on  common  principles  to  be  followed  by  the 

European  Union  and  euro  area  governments,  central  banks  and  supervisors,  to  avoid  national 

measures  adversely  affecting  the  functioning  of  the  single  market  and  the  other  Member  States. 

This coordinated approach includes initiatives aimed 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 opinions5, it is 

of the utmost importance that the operations conducted 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 ensuring that the proposed arrangements comply with 

the relevant Community law provisions, in particular 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 addition, they need to comply with the criteria set out in the recently 

adopted Commission’s guidance on compliance by financial 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  draft  law  authorises  the  Hungarian  Government  to 

adopt  decrees  to  regulate  the  procedure  for  activating  a  State  guarantee  under  the  draft  law.  The 

ECB expects to be consulted on any new draft legislative 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 institutions7 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  
5  

6  

7  

Available on the website of the French Presidency at www.ue2008.fr. 
See,  in  particular,  ECB  Opinion  CON/2008/52  of  17  October  2008  at  the  request  of  the  Spanish  State  Secretary  for 
Economic Affairs on a Royal Decree-Law creating a Fund for the acquisition of financial assets and on a Royal Decree-
law adopting urgent and financial and economic measures in relation to the concerted European action plan of the euro 
area countries. See also ECB Opinion CON/2008/60 of 27 October 2008 at the request of the Spanish State Secretary for 
Economic  Affairs  on  a  draft  Order  implementing  Royal  Decree-Law  6/2008  creating  the  Fund  for  the  acquisition  of 
financial assets and on a draft Basic Agreement of the Fund’s Executive Council. All ECB opinions are available on the 
ECB’s website at www.ecb.europa.eu. 
See ‘Communication from the Commission – The application of State aid rules to measures taken in relation to financial 
institutions in the context of the current global financial crisis’ (OJ C 270, 25.10.2008, p. 8).  
Magyar Közlöny, 1996.12.12. 

3 

 
                                                 
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 institutions and subsidiaries 
of foreign institutions8. The ECB notes that, in the specific context of provision of State guarantees, 

the  Commission’s  guidance  includes  detailed  rules  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 implementation from having a counter-productive effect 

and  creating  distortions  in  global  banking  markets.  Similarly,  support  measures  by  EU  Member 

States should be temporary in nature and their expiry 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 implementation of the proposed arrangements should aim at: 

(a)  addressing  the  funding  problems  of  liquidity-constrained  solvent  banks  by  improving  the 

functioning of the  market  for bank debt of longer 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 MNB10. 

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  increase  their  financial  resources  under  Article  7  and 
need further consideration by the legislator11.  

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  considers  that  State  guarantees  to  be  provided  under  the 

8  

9  

10  

11  

On these aspects see, in particular, 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. 
See paragraph 18 of the Commission’s guidance, specifying that ‘The eligibility criteria of financial institutions … must 
be  objective,  taking  due  account  of  their  role  in  the  relevant  banking  system  and  the  overall  economy,  and  non-
discriminatory  so  as  to  avoid  undue  distortive  effects  on  neighbouring  markets  and  the  internal  market  as  a  whole.  In 
application  of  the  principle  of  non  discrimination  on  the  grounds  of  nationality,  all  institutions  incorporated  in  the 
Member State concerned, including subsidiaries, and with significant activities in that Member State should be covered 
by the scheme.’ 
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. 
See inter alia paragraph 3.3(a) of this Opinion. 

4 

                                                 
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 State guarantees which are economic in nature as 
guarantees for deposits12.  

3.6   Fourth, the ECB also notes that the Declaration states that the Member State governments would 

make  available  a  State  guarantee  of  new  medium-term,  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  guaranteed  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, the level of which is to be set in the relevant 

agreement  ‘taking  into  account  the  relevant  recommendations  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-oriented and determined on the basis of the costs of a 

corresponding  guarantee  in  the  market.  For  the  sake  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  ensure  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,  the  eligibility  criteria  are  unclear  and  should  be 

clarified  in  the  draft  law.  Furthermore,  in  line  with  its  previous  opinions,  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 position of fundamentally sound financial institutions 

to improve the functioning and stability of the banking 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  financial  institutions,  should  be  defined  consistently  to 

support  the  implementation  of  the  Declaration.  Against  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  risk-based  and  market-oriented,  determined  by 

taking  into  consideration  the  specific  risk  of  both  the  specific  instrument  chosen  for  injecting 

capital  and  the  institution  concerned.  Specific  features  of  the  instruments  for  capital  injections, 

such as preferred shares and other hybrid instruments, should be appropriately chosen so that, while 

12  

13  
14  

See,  e.g.  paragraph  3.2  of  ECB  Opinion  CON/2008/50  of  17  October  2008  at  the  request  of  the  Belgian  Ministry  of 
Finance  on  a  draft  royal  decree  adopted  under  Article  117bis  of  the  Law  of  2  August  2002  on  the  supervision  of  the 
financial sector and on financial services. 
See, e.g. paragraphs 3.4 and 3.5 of ECB Opinion CON/2008/55. 
See, e.g. paragraph 2.1.3 of ECB Opinion CON/2008/62. 

5 

                                                 
encouraging  an  early  end  to  the  State’s  capital  support  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  supervisory  role  will  under  Article  3  of  the  draft  law 

assess  the  regulated  institutions  under  the  Law  of  2007  CXXXV  on  the  Hungarian  Financial 
Supervisory Authority15. 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  Central  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  Regulation  (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 Treaty18. 

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 markets will not constitute a breach of business secrets 

if (a) the data is provided for the purpose of analysing 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 context of the Commission’s 

proposed amendments to Directive 2006/48/EC of the European Parliament and of the Council of 
14 July 2006 relating to the taking up and pursuit of the business of credit institutions19, 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  
17  
18  
19  

In particular the function under Article 4 of the draft law. See paragraph 1.2 of this Opinion.  
See paragraph 3.2 of ECB Opinion CON/2008/52. 
OJ L 332, 31.12.1993, p. 1. 
OJ L 177, 30.6.2006, p. 1. 

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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 

7