Opinion of the European Central Bank of 14 December 2011 on the Magyar Nemzeti Bank (CON/2011/104)
Date: 2011-12-14
Institutions: European Central Bank
Subjects: Hungary, central bank, financial risk, financial stability, financial supervision, institutional activity, national law, pay

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 14 December 2011 

on the Magyar Nemzeti Bank 

(CON/2011/104) 

Introduction and legal basis 

On 2 November 2011, the European Central Bank (ECB) received a request from the Hungarian Ministry 

for the National Economy for an opinion on a draft law replacing the Law on the Magyar Nemzeti Bank 

(hereinafter the ‘draft law’).  

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 third 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 the Magyar Nemzeti Bank (MNB). 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.  

Subject of the draft law 

The draft law will recast Law LVIII of 2001 on the Magyar Nemzeti Bank (MNB) (hereinafter the ‘MNB 

Law’).  The  draft  law  maintains  several  provisions  of  the  MNB  Law,  as  well  as  introducing  new 

provisions into the current legal framework. Under the new Constitution effective on 1 January 2012, this 

subject matter will be regulated in a law adopted with a qualified majority, referred to as an organic law. 

The draft law will introduce several changes into the MNB’s legislative framework. 

1.1  Decision-making bodies 

The  draft  law  modifies  the  appointment  procedure  for  the  Monetary  Council  adopted  in  January 

2011.  The  Prime  Minister  rather  than  the  Governor  may  give  recommendations  to  Hungary’s 

President on deputy governors. The possible number of deputy governors will increase to three and 
the Deputy Chair of the Monetary Council will act for the Governor in the event of his absence2. 

1 
2  

OJ L 189, 3.7.1998, p. 42. 
Except for the Governor’s power to adopt decrees which he may delegate to a Deputy Governor of his choice. 

 
 
 
 
                                                 
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The Monetary Council will have five to nine members chaired by the Governor. Its members will 

comprise  the  Deputy  Governors  and  other  members,  nominated  by  Hungary’s  President,  for  six 

years.  

The  draft  law  reinstates  the  Executive  Board,  with  the  Governor  as  Chair,  and  the  Deputy 

Governors  to  take  over  the  Governor’s  implementing  responsibilities  for  Monetary  Council 

decisions.  Its  further  tasks  include  in  particular  financial  management,  internal  organisation, 

operational management of the MNB and auditing. The Monetary Council will become the supreme 

decision-maker for all MNB tasks.  

1.2  Monetary policy 

The MNB may set different levels of reserve ratios for different types of liabilities, individual assets 

and  non-balance  sheet  items  of  financial  institutions  and  investment  companies.  Furthermore,  it 

may remunerate the minimum reserves deposited by the institutions. Remuneration depends on the 

different reserve ratio components. 

1.3  Macroprudential supervision 

The  MNB’s  task  is  identifying  business  and  economic  risks  threatening  the  financial  system  as  a 

whole and facilitating the prevention and mitigation of systemic risks. On the basis of the Monetary 

Council’s decision, the Governor may issue decrees on this matter. Also, the MNB will track the 

operations of major financial institutions and assess their liquidity positions. 

1.4  Changes in the salary structure 

The draft law proposes three alternative salary structure scenarios linking the remuneration of the 

Governor, Deputy Governors, other Monetary Council members and the Chair and members of the 

Supervisory  Board  to  a  certain  baseline,  such  as  average  monthly  gross  income  or  the  financial 

sector’s  average  monthly  gross  income,  with  the  proviso  that  no  MNB  employee  monthly  salary 

may exceed the salary of the MNB’s Deputy Governors. 

1.5  Relations with the Government, the ministries and the public 

The  Governor  will  be  subject  to  a  comprehensive  reporting  scheme  to  the  Parliament  on  request 

and to the Parliament’s Committee for Economic Affairs every six months. In addition, the MNB 

will be required to draw up a prior annual operating and investment cost plan. The Parliamentary 

Committee for Economic Affairs and the State Audit Office, on the basis of the MNB’s subsequent 

internal performance review, will monitor its adherence. Article 31(4) of the draft law sets out the 

competence  of  the  Parliamentary  Committee  for  Economic  Affairs  and  the  State  Audit  Office  to 
examine the operational efficiency of the management of the MNB3.  

The MNB will submit its opinion on the budget proposal to the Minister responsible for budgetary 

matters.  However,  the  MNB  will  no  longer  have  an  opportunity  to  submit  this  opinion  to  the 

3  

See for comparison Article 27.2 of the Statute of the ESCB. 

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Parliament’s relevant committee. Furthermore, the Governor will present the MNB’s opinion to the 

Budgetary Council. 

1.6  Relations with the general budget 

The forint and the exchange rate equalisation reserves may be offset against each other. The rules 

for  recapitalisation  will  change  as  follows.  Recapitalisation  will  only  be  available  to  the 

Government  if  the  balance  of  the  respective  equalisation  reserves  is  negative  and  this  negative 

balance exceeds the sum of the accumulated profit reserve and the balance sheet. The shareholder 

may  provide  capital  injections  in  cash  to  the  accumulated  profit  reserve  any  time  throughout  the 

year, regardless of the balance of the MNB’s accumulated profit reserve. 

1.7  Relations with the Hungarian Financial Supervisory Authority 

The  MNB  will  cooperate  with  the  Financial  Supervisory  Authority,  including,  inter  alia, 

exchanging  information  and  sharing  the  results  of  its  on-site  checks  in  matters  falling  under  the 

Financial Supervisory Authority’s powers.  

1.8  Balance sheet and dividend payments  

In the future, the Executive Board rather than the shareholder will adopt the MNB’s balance sheet, 

financial statement, profit and loss statement, as well as decisions on dividend payments, subject to 

an affirmative resolution by the shareholder. 

2. 

Need for a stable institutional framework 

2.1   Previous  ECB  Opinions4  repeatedly  highlighted  the  key  role  of  credible  monetary  policy  in 

controlling  inflationary  expectations  and  promoting  sustainable  convergence  towards  price 

stability.  A  credible  monetary  policy  is  rooted  in  an  independent  central  bank  with  a  stable 

institutional environment. The Treaty’s requirement of central bank independence reflects the view 

that the primary objective of price stability is best served by a fully independent institution with a 

precisely  defined  mandate.  It  is  of  utmost  importance  to  design  an  institutional  structure  that 

separates monetary policy from the influence of short-term political interests.  

2.2  The ECB reiterates its previous observations regarding frequent amendments to the MNB Law. In 

the  context  of  central  bank  independence,  the  central  bank  legal  framework  needs  to  provide  a 

stable basis for the central bank’s functioning. The appointment procedure for Monetary Council 

members,  as  well  as  the  MNB’s  decision-making  bodies’  salary  structure,  was  subject  to  several 

recent  amendments  without  consulting  these  bodies  or  taking  the  MNB’s  functional  needs  or  the 

prevailing  economic  environment  into  account.  These  frequent  changes  to  the  MNB  Law  are 

incompatible  with  the  principle  of  legal  certainty.  They  have  already  significantly  impacted  the 

4 

See CON/2007/14, CON/2008/83 and CON/2010/91. All ECB opinions and reports are published on the ECB’s website 
at www.ecb.europa.eu. 

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MNB’s  organisational  and  governance  stability5,  as  will  the  planned  increase  in  the  number  of 

members of decision-making bodies.  

2.3  The ECB understands that the new Constitutional framework justifies a recast  of the MNB  Law, 

and would welcome a recast that results in a long-term stable basis for central banking in Hungary.  

2.4   Some  central  bank  and  monetary  financing  prohibition  issues  in  the  ECB’s  December  2006  and 

May 2010 Convergence Reports are still not addressed. 

2.5   The  ECB  has  learned  that  the  version  of  the  draft  law  submitted  to  the  Government  contains 

substantive  amendments  compared  to  the  version  submitted  to  the  ECB,  in  particular  as  regards 

macroprudential and remuneration policy matters. The ECB reiterates its position that it should be 

re-consulted if there are substantive amendments proposed to the draft law at a stage when the ECB 

has  not  yet  adopted  its  opinion.  In  such  situations,  the  ECB  expects  the  consulting  authority  to 

submit the amended draft legislative provision to it as soon as possible, so that the opinion can be 

based on the most recent text. The ECB would appreciate the Ministry for the National Economy 

giving due consideration to honouring its obligation to consult the ECB in the future. 

3. 

Subscription to the ECB’s capital 

Article  63  of  the  draft  law  prohibits  the  MNB  from  holding  shares  in  any  domestic  or  international 

organisation  apart  from  shares  in  organisations  set  up  in  relation  to  its  activity.  The  ECB  seeks 

clarification  that  this  provision  will  not  impede  the  MNB’s  ability  to  pay  its  contribution  to  the  ECB’s 

capital.  

4. 

Establishment of the balance sheet and the decision on the payment of dividends 

The  ECB  notes  the  transfer  of  these  functions  from  the  shareholder  to  the  Executive  Board.  The 

affirmative  decision  by  the  shareholder  in  Article  43(2)  of  the  draft  law  leaves  room  for  doubts  over 
whether  profit  distribution  decision  will  continue  to  be  subject  to  the  shareholder’s  resolution6.  Hence, 

this provision in conjunction with Article 49(4) and Article 64 of the draft law should be clarified.  

5. 

The number of Monetary Council members and decision-making 

5.1   Against  the  backdrop  of  constant  changes  in  the  composition  of  the  MNB’s  decision-making 

bodies, the increase in the number of Monetary Council members, together with the possibility of 

increasing  the  number  of  deputy  governors  -  without  due  justification  for  the  need  to  amend  the 

MNB’s institutional framework - gives rise to concerns whether this could be used to influence the 

decision-making process to the detriment of central bank independence.  

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6  

See CON/2007/14 and CON/2008/83. 
See also ECB Convergence Report May 2010, p. 249. 

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5.2   Apart from the prohibited employment relationships specified under the conflict of interest rules in 

the  draft  law,  members  of  the  Monetary  Council  may  also  have  employment  relationships  other 

than their membership in the Monetary Council. The draft law provides that, following 1 January 

2012,  all  decisions  in  connection  with MNB  tasks  previously  not  taken  by  the  Monetary  Council 

will have to be discussed and decided by the Monetary Council. To provide for a smooth transition 

in  the  decision-making  process,  and  to  ensure  the  MNB’s  operational  continuity,  the  ECB  would 

welcome  implementation  of  the  changes  in  the  decision-making  process  to  ensure  a  smooth 

handover  of  decision-making  to  the  Monetary  Council.  A  transitional  period  would  appropriately 

address this. 

6. 

Governor’s reporting obligations 

The Governor will be subject to an exceptional reporting obligation at the request of the Speaker of the 

Hungarian Parliament or the Chair of the Parliamentary Committee for Economic Affairs. The dialogue 

between  national  central  banks  (NCBs)  and  third  parties,  even  when  based  on  statutory  obligations  to 

provide information and exchange views, is compatible with central bank independence provided that: 

(i) 

it  does  not  result  in  interference  with  the  independence  of  the  members  of  the  NCB’s  decision-

making bodies;  

(ii) 

the special status of Governors in their capacity as members of the ECB’s General Council is fully 

respected; and  

(iii)  confidentiality  requirements  resulting  from  the  Statute  of  the  European  System  of  Central  Banks 

and of the European Central Bank (hereinafter ‘Statute of the ESCB’) are observed7.  

The ECB understands that such reporting respects the limits of central bank independence set out in the 

Convergence  Report  and  that  it  will  concern  the  MNB’s  activities  and  monetary  policy.  The  ECB 

recommends clarifying in this sense the scope of the reporting.  

The  purpose  of  the  obligation  to  forward  the  agenda  of  the  meetings  of  the  Executive  Board  to  the 
Government8  is  unclear.  The  representative  of  the  Government  participates  without  voting  rights  in 

Monetary Council and not in Executive Board meetings. This obligation should be clarified to avoid the 

impression that the Government actively takes part in Executive Board decision-making.  

7.   MNB role in macroprudential supervision  

7.1   The ECB welcomes the MNB’s new macroprudential mandate to identify, monitor and assess risks 

to  financial  stability  and  take  on  macroprudential  policy  in  Hungary.  Central  banks  are  natural 

candidates  to  be  assigned  a  formal  macroprudential  mandate,  given  the  potential  synergies  with 

7 
8  

See Convergence Report May 2010, p. 19. 
See Article 34(1) of the draft law. 

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traditional  central  bank  functions  relating  to  promoting  financial  stability.  Furthermore, 

independence - which is an essential element in central banking - is also a necessary precondition 

for  macroprudential  supervision.  However,  the  draft  law  should  ensure  that  the  MNB’s 

macroprudential  mandate  does  not  interfere  with  the  orderly  fulfilment  of  its  monetary  policy 

mandate, in particular with its primary objective of maintaining price stability, and that it does not 

restrict the Eurosystem’s contribution to the stability of the financial system under Article 127(5) of 

the Treaty. 

7.2   The MNB needs to be equipped with tools and powers to efficiently fulfil the tasks attributed to it. 

In  this  respect,  the  ECB  notes  that  the  only  tool  mentioned  in  the  draft  law  is  the  adoption  of  a 

decree by the Governor ‘to prevent the build-up of system risks or reduce such risks in areas not 

regulated in law or government decrees’. 

7.3   The ECB also notes that, as the general rules allow the MNB to collect data in the central banking 

information  system,  these  provisions  of  the  draft  law  would  enable  the  MNB  to  collect  data 

specifically in respect of its macroprudential mandate. In this respect, it is of crucial importance, if 

the  MNB  is  to  effectively  fulfil  its  new  macroprudential  mandate,  that  it  receives  in  a  timely 

manner  all  necessary  data  and  information,  including  information  specific  to  supervised 

institutions,  and  that  it  may  designate  –  in  cooperation  with  the  micro-prudential  supervisor  – 

systemically relevant financial structures and institutions. 

8. 

Changes in the salary structure - financial and personal independence 

The  ECB’s  Convergence  Reports  in  2008  and  2010,  and  several  ECB  opinions9  on  autonomy  in  staff 

matters, stressed that Member States may not impair an NCB’s ability to recruit and retain the qualified 

staff necessary for the NCB to perform independently the tasks conferred on it by the Treaty, the Statute 

of the ESCB and national legislation. Furthermore, an NCB may not be put into a position where it has 

limited or no control over its staff, or where a Member State’s government is in a position to influence the 

NCB’s policy on staff matters.  

To  protect  the  MNB’s  autonomy  in  staff  matters,  in  accordance  with  the  principle  of  central  bank 

independence under Article 130 of the Treaty, the Hungarian authorities must ensure that any amendment 

to the legislation on the remuneration of the MNB’s staff is decided in close cooperation with the MNB, 
taking  due  account  of  the  MNB’s  views10  regarding  the  impact  of  such  legislative  amendments  on  its 

ongoing  ability  to  carry  out  its  tasks.  The  ECB  notes  that  the  recent  amendments  to  the  legislation  on 

salaries  of  the  members  of  the  MNB’s  decision-making  have  been  implemented  without  taking  into 
account the above aspects of the MNB’s financial independence addressed in previous opinions11.  

9  

10  
11 

ECB  Opinions  CON/2008/9,  CON/2009/45,  CON/2009/47,  CON/2010/42,  CON/2010/51  and  CON/2010/56.  All  ECB 
opinions are available on the ECB’s website at www.ecb.europa.eu. 
See for example paragraph 4.3 of ECB Opinion CON/2010/42 and Opinion CON/2010/56. 
See CON/2010/56 and CON/2010/91.  

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Against this background, the MNB should be effectively involved in drawing up the relevant parts of the 

draft law so as to safeguard the principle of central bank independence.  

9. 

Prohibition on monetary financing 

9.1   The draft law aims to mirror Union provisions on the prohibition of monetary financing. It provides 

that  Article  123  of  the  Treaty  –  having  regard  to  Council  Regulation  (EC)  No  3603/93  of 

13 December  1993  specifying  definitions  for  the  application  of  the  prohibitions  referred  to  in 

Articles  104  and  104(b)(1)  of  the  Treaty  -  is  authoritative  in  MNB’s  financing  of  the  public 
sector12.  The  ECB  understands  that  this  general  provision  seeks  to  state  that  Article  123  of  the 

Treaty and Regulation (EC) No 3603/93 are applicable to the MNB, addressing some of the defects 

highlighted  in  the  ECB’s  Convergence  Report  in  relation  to  the  prohibition  on  monetary 
financing13. The ECB welcomes these changes. However, in general, it is unnecessary to refer to 

Article 123 of the Treaty or Regulation (EC) No 3603/93 in national legislation as they are both 

directly  applicable.  If,  nevertheless,  national  legislative  provisions  refer  to  them,  they  may  not 
change  the  scope  of  application  of  the  monetary  financing  prohibition14.  Hence,  the  wording  of 

Article 15 of the draft law must ensure that financing of the public sector is, as a rule, prohibited 

pursuant to Article 123 Treaty and Regulation No 3603/93.  

9.2   The  draft  law15  refers  to  activities  to  be  carried  out  as  an  agent  of  the  State.  Article  21.2  of  the 

Statute  of  the  ESCB  provides  that  the  national  central  banks  may  act  as  fiscal  agents.  However, 

they  should  comply  with  the  monetary  financing  prohibition,  so  that  such  services  may  not 

constitute central bank financing of public sector obligations vis-à-vis third parties or credit to the 

public  sector,  outside  the  narrowly  defined  exceptions  specified  in  Regulation  (EC)  No  3603/93. 

Against this background, the ECB believes that the tasks assigned to the MNB under the draft law 

will be performed in compliance with the prohibition on monetary financing in Article 123 of the 

Treaty and Regulation (EC) No 3603/93. 

9.3  The  ECB  understands  that  the  draft  law  also  refers  to  possible  financing  by  the  MNB  of  the 

national deposit guarantee scheme. The only compatible forms of central bank financing of deposit 

guarantee schemes are: (a) intraday credit in line with the general rules on provision of such credit 

by  the  central  bank,  and  (b)  short-term  emergency  liquidity  financing  under  strict  conditions 

established in the ECB’s Convergence Reports, i.e. if such funding is short term, addresses urgent 

situations, systemic stability aspects are at stake and decisions are at the NCB’s discretion. These 

conditions need to be listed in national law in the cases where emergency liquidity financing of the 

deposit guarantee system is foreseen by the national legal system. Article 13 of the draft law refers 

to the possibility for MNB to provide a loan to the National Deposit Insurance Fund, subject to the 

12  
13  
14  
15  

See Article 15 of the draft law. 
See e.g. the ECB’s Convergence Report of May 2010, pp. 249-250. 
See the ECB’s Convergence Report of May 2010, p. 24. 
See in particular Articles 17 and 18 of the draft law. 

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prohibition on monetary financing, in urgent and exceptional cases that threaten the stability of the 

financial system as a whole, and the smooth completion of cash transactions, the due date of which 

loan  may  not  be  greater  than  three  months.  It  is  understood  that  these  conditions  are  intended  to 

ensure compliance with the monetary financing prohibition. In this respect, the condition that loans 

are granted at the full discretion of the MNB would in particular need to be included in the draft 

law. When exercising its discretion to grant a loan, the MNB has to ensure that by doing so it is de 

facto  not  taking  over  a  State  task.  The  ECB  also  notes  that  the  issue  of  monetary  financing 

compliance may require closer scrutiny in circumstances where the facilities are extended for more 

than one-a-half months. Moreover, it may be useful to specify that such loans are extended against 

adequate collateral, thus introducing an additional safeguard which should minimise the possibility 

of the MNB suffering any loss. 

10.  Central banking information system 

The  draft  law16  indicates  that  even  without  a  request  by  the  Hungarian  Central  Statistics  Office  (CSO) 

MNB  is  automatically  obliged  to  hand  over  regularly  all  individual  data  available  in  its  statistical 

information system to the CSO. This rule should be formulated more precisely to clarify that the MNB is 

only  obliged  to  hand  over  individual  data  to  the  CSO  on  request.  The  ECB  understands  that  the  good 

practice of the exchange of data between the two institutions has been working well for several years and 

is already covered by the MNB Law currently in force.  

The rules on code generation used for anonymised data need clarification. Article 21(6) and (13) of the 

draft law contains contradictory provisions on the deadline for the destruction of the linking codes used in 

handling anonymised data.  

11.  Compatibility with the Treaties and the Statute of the ESCB 

11.1  Personal independence - right of judicial review 

Pursuant to Article 46(12) of the draft law, an action may be brought before the Labour Court by a 

dismissed  Monetary  Council  member  in  accordance  with  the  Labour  Code.  Article  47(5)  of  the 

draft provides the same for the Governor. The ECB would welcome clarification that the Labour 

Court’s jurisdiction under the draft law is without prejudice to that of the Court of Justice of the 

European Union under Article 14.2 of the Statute of the ESCB.  

11.2  Institutional independence 

Article 1 of the draft law specifies that the MNB, and members of its bodies, when executing their 

duties  and  fulfilling  their  obligations,  should  be  independent,  and  may  neither  request  nor  take 

instructions from the Government, the Union institutions, bodies or offices, with the exception of 

16  

See Article 21(3) of the draft law. 

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the ECB, nor from other Member States’ governments or any other organisation or political party. 

Full respect of central bank independence in Article 130 of the Treaty and Article 7 of the Statute 

of the ESCB requires a prohibition on government instructions to the central bank or any member 

of  its  decision-making  bodies,  as  well  as  on  seeking  to  influence  the  members  of  the  MNB’s 

decision-making bodies in the performance of their tasks. This should be clarified in the draft law. 

12.  The Governor’s role as a member of the Budgetary Council 

The ECB considers that the provisions of the draft law governing the role of the MNB’s Governor as a 

member of the Budgetary Council conflict with the provisions governing the operations of the Budgetary 
Council17. According to the draft law, the MNB’s Governor represents the MNB for the budget proposal 

in the Budgetary Council, while the provisions governing the operations of the Budgetary Council require 

a distinction between the tasks fulfilled by the MNB’s Governor acting as Governor and as a member of 

the  Budgetary  Council.  Therefore,  the  draft  law  needs  to  be  amended  to  avoid  any  conflict  with  the 

provisions of the law governing the operations of the Budgetary Council. 

13.  Legal integration of the MNB into the Eurosystem 

Hungary is a Member State with a derogation and must therefore comply with all adaptation requirements 

under the Treaty. The Hungarian authorities should take this opportunity offered by the recast to make the 

necessary adjustments to ensure the MNB’s full integration into the Eurosystem when Hungary adopts the 

euro.  The  draft  law  should  be  adapted  to  comply  with  Article  127(1)  of  the  Treaty  by  reflecting  the 

central  bank’s  secondary  objective  of  supporting  the  general  economic  policies  of  the  Union  and  its 

obligation to comply with the Eurosystem’s regime on financial reporting of NCB operations. Similarly, 

express  recognition  of  the  ECB’s  powers  in  the  fields  of  monetary  policy  and  monetary  policy 

instruments,  collecting  statistics,  managing  foreign  reserves,  payment  systems,  issuing  banknotes, 

cooperating with international money institutions under Article 6 of the Statute of the ESCB, imposing 

sanctions, setting an exchange rate policy and appointing the MNB’s auditors, including the powers of the 
Council of the European in this respect, would be necessary. 

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

Done at Frankfurt am Main, 14 December 2011. 

[signed] 

The President of the ECB 

Mario DRAGHI 

17   

Law LXXV of 2008 on cost-efficient State management and fiscal responsibility. 

9