Opinion of the European Central Bank of 6 June 2014 on the short-term liquidity requirements of credit institutions (CON/2014/41)
Date: 2014-06-06
Institutions: European Central Bank
Subjects: Hungary, credit institution, financial stability, money-market liquidity, national law

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) received a request from the Magyar Nemzeti Bank 

(MNB)  for  an  opinion  on  a  draft  MNB  Decree  on  the  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 indent of Article 2(1) of Council Decision 98/415/EC1, 

as the draft decree 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. 

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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 Bank2, 

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 requirements 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. 

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2  
3  

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). 
See Law CXXXIX of 2013 on the Magyar Nemzeti Bank. 
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. 

 
 
 
 
                                                 
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1.3  According  to  the  definition  provided  by  the  Government  Decree,  the  purpose  of  the  short-term 

liquidity requirements applicable to credit institutions was to ensure that credit institutions hold a 

sufficient liquidity buffer to manage any stress scenario. Credit institutions 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,  alternatively,  10  per  cent  of  their  total  balance 

sheet  (total  liabilities)  i.e.  balance  sheet  coverage  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  request,  the  MNB  does  not  intend  to  change  the 

applicable level of coverage at this point in time. 

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General observations 

2.1  The draft decree overlaps with some specific provisions of the Government Decree in terms of the 
liquidity requirements applicable to credit institutions. 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’ attention 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 requirements 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 the 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). 

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5 

6  

7  
8  

See paragraph 2 of Opinion CON/2014/15. All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 
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). 
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 supervision 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. 
See, in particular, Articles 411 to 428. 
See Article 460 of the CRR. 

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3.2  The LCR will become binding from 2015 and will 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  national  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  assess  whether  the  deposit  coverage  ratio  and  the 

balance sheet coverage ratio specified 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  balance  sheet  coverage  ratio  in  the  draft  decree  have  similarities  with  the 

LCR, notably in being 30-day, forward-looking measures. 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 categories12. It should also be ensured that the assets defined by 

the  draft  decree  as  operative  liquidity  reserves  fall  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 components of their liquidity positions, as specified 

in  the  EBA’s  Implementing  Technical  Standards  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  belonging  to  the  same  group.  The  ECB  recommends 

further clarity relating to the calculation of the funding position referred to in Article 4 of the draft 

decree, in particular as regards the issue of whether only contractual cash-flows can be considered 

or  whether  the  expected  behaviour  of  counterparties  can  also  be  taken  into  account.  This  would 

enhance the common understanding among supervisors. 

3.5  The ECB sees limited value in maintaining the measures of the draft decree after the LCR has been 

specified  at  Union  level  by  the  Commission.  The  ECB  welcomes  the  intention  expressed  by  the 

MNB  to  review,  and  should  any  collision  be  detected,  repeal  the  draft  decree  once  the 

Commission’s delegated act has entered into force. 

9  
10  
11  
12  
13  

See Article 460 of the CRR. 
See Article 412(5) of the CRR. 
See Article 460 of the CRR. 
See recital 100 of the CRR. 
See Article 416 of the CRR. 

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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 

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