Opinion of the European Central Bank of 25 March 2009 at the request of the Hungarian Minister for Finance on a draft government regulation on the procedural rules for State guarantees in the interests of stabilising the financial system (CON/2009/28)
Date: 2009-03-25
Institutions: European Central Bank
Subjects: Hungary, State aid, credit guarantee, financial stability, financial supervision, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 25 March 2009 

at the request of the Hungarian Minister for Finance 

on a draft government regulation on the procedural rules for State guarantees in the interests of 

stabilising the financial system 

(CON/2009/28) 

Introduction and legal basis 

On 17 March 2009 the European Central Bank (ECB) received a request from the Hungarian Minister for 

Finance for an opinion on a draft government regulation on the procedural rules for State guarantees in 

the interests of stabilising the financial system (hereinafter the ‘draft regulation’).  

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 regulation 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 regulation 

1.1  The  legal  basis  for  the  adoption  of  the  draft  regulation  is  the  Law  on  strengthening  the  financial 
intermediary system (hereinafter the ‘Law’)2, which was intended to limit the effects of the global 

financial crisis in Hungary and maintain its financial stability. To that end, the Law provides inter 

alia  that  the  Hungarian  State  is  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 

Hungarian Financial Supervisory Authority’s Supervisory Council and the Governor of the Magyar 

Nemzeti Bank (MNB) 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 

1  
2  

OJ L 189, 3.7.1998, p. 42.  
Act  CIV/2008  on  reinforcing  the  stability  of  the  financial  intermediary  system.  Magyar  Közlöny,  22  December  2008, 
p. 24618. 

 
 
 
 
                                                 
amount of the State guarantee may not exceed HUF 1 500 billion. Article 7(8) of the Law provides 

that  procedural  rules  related  to  the  guarantees  provided  under  the  Law  shall  be  laid  down  in  a 

regulation by the Government. 

1.2  The  draft  regulation  lays  down  detailed  procedural  provisions  for  applications  for  and  grants  of 

State guarantees to beneficiary institutions. It sets out the procedure for the approval of applications 

for  guarantees,  the  requirements  relating  to  the  provision  of  information,  and  detailed  rules  for 

enforcing the guarantees. The draft regulation also provides that agreements entered into with credit 

institutions  must  specify  the  credit  institutions’  commitments  in  relation  to  lending  activities  and 

other commitments and the consequences of breaching such commitments. 

1.3 

In line with the Law, the draft regulation will apply until 31 December 2009.  

2.  General observations 

2.1  As stated, the draft regulation lays down detailed provisions for implementing the Law, on which 
the  ECB  commented  in  its  Opinion  CON/2008/813.  The  observations  made  in  Opinion 

CON/2008/81 also apply to the draft regulation. 

2.2 

In  particular,  in  line  with  the  ‘Declaration  on  a  concerted  European  action  plan  of  the  euro  area 

countries’  issued  by  the  Heads  of  State  of  the  euro  area  on  12 October  2008  (hereinafter  the 
‘Declaration’)4, Member States must act in a coordinated manner to avoid significant differences in 

national  implementation  having  a  counter-productive  effect  and  creating  distortions  in  global 

banking markets. The Declaration acknowledges the need to work in cooperation with the ECB to 

ensure  consistency  with  the  Eurosystem’s  management  of  liquidity  and  compatibility  with  its 
operational framework5.  

2.3  Moreover, the ECB emphasises the importance of ensuring that the proposed arrangements comply 

with the relevant Community law provisions, including European Union single  market principles 

and financial services legislation, as well as competition and State aid rules.  

2.4 

In  paragraph  3.5  of  its  Opinion  CON/2008/81  the  ECB  noted  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 
decisions6. In particular, the ECB considered that State guarantees to be provided under the Law 

could relate to the repayment of unsecured loans drawn by a borrower bank from another bank, in 

which  case  the  guarantee  could  have  the  same  effect  as  a  guarantee  for  the  repayment  of  an 

3  

4  
5  
6  

ECB Opinion CON/2008/81 of 1 December 2008 at the request of the Hungarian Ministry of Finance on a draft law on 
strengthening the financial intermediary system. 
The Declaration is available on the French Presidency’s website at www.ue2008.fr. 
See paragraphs 2.2 and 3.2 et seq. of Opinion CON/2008/81. 
See 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. 

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interbank deposit. In this context, the ECB reiterates its recommendation that the provision of State 

guarantees which have the same effect as guarantees for deposits should be avoided.  

2.5  Finally,  the  ECB  refers  to  the  Recommendations  of  the  Governing  Council  of  the  ECB  on 
government guarantees for bank debt7. On this basis, the ECB reiterates its position that the price of 

a  State  guarantee  should  be  risk-based  and  market-oriented,  and  determined  on  the  basis  of  the 

costs  of  a  corresponding  guarantee  in  the  market.  It  is  important  that  the  pricing  of  a  State 

guarantee should link the level of charges to be paid by a credit institution receiving a guarantee to 

the residual maturities of the guaranteed obligations with maturities exceeding one year. 

3. 

Specific observations 

In line with the Law, the draft regulation provides for the involvement of the MNB, but limited only to 

the  process  of  granting  guarantees.  In  particular,  the  ECB  understands  that  the  Governor  of  the  MNB 

gives his opinion on whether the provision of a guarantee to a given credit institution is justified in the 

light of the liquidity situation and the role of the credit institution in the financial system. It is understood 

that  the  involvement  of  the  MNB  will  not  go  beyond  this  advisory  role.  In  this  context,  the  ECB 

recommends  that  the  MNB  should  also  be  informed  when  the  activation  of  a  guarantee  is  expected,  as 

provided  for  in  Article  7(1)  of  the  draft  regulation  in  the  case  of  the  minister  responsible  for  the  state 

budget and the Government Debt Management Agency. 

This opinion will be published on the ECB’s website.  

Done at Frankfurt am Main, 25 March 2009. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

7  

See the Recommendations of the Governing Council of the European Central Bank on government guarantees for bank 
debt, issued on 20 October 2008 and available on the ECB’s website at www.ecb.europa.eu. 

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