Opinion of the European Central Bank of 21 May 2015 on regulating open positions in assets on the balance sheets of credit institutions (CON/2015/15)
Date: 2015-05-21
Institutions: European Central Bank
Subjects: Hungary, balance sheet, banking supervision, credit institution, financial stability, foreign-exchange reserves, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 21 May 2015 

on regulating open positions in assets on the balance sheets of credit institutions 

(CON/2015/15) 

Introduction and legal basis 

On  9  April  2015,  the  European  Central  Bank  (ECB)  received  a  request  from  the  Magyar  Nemzeti  Bank 

(MNB) for an opinion on two draft decrees.  

The  first  draft  decree  amends  MNB  Decree  14/2014 1  to  address  maturity  mismatches  in  credit 

institutions’  foreign  currency  positions  (hereinafter  the  ‘draft  decree  on  maturity  mismatches  in  foreign 

currency positions’).  

The second defines the rules applicable to the denomination of credit institutions’ assets and liabilities.   

On  10  April  2015  the  ECB  received  a  further  request  from  the  MNB  for  an  opinion  on  a  draft  decree 

regulating  maturity  mismatches  in  credit  institutions’  Hungarian  forint  (HUF)  positions.  Given  that  the 

three draft decrees concern related issues, the ECB has adopted one single opinion.  

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/EC 2, as 

the  three  draft  decrees  concern  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. 

Background information and the purpose of the draft decrees 

1.1  The  ECB  was  consulted  on  MNB  Decree  14/2014  in  its  draft  form  in  2014  and  adopted  Opinion 
CON/2014/153. As indicated, the draft decree on maturity mismatches in foreign currency positions 

amends MNB Decree 14/2014. By doing so, it aims to enhance the stability of the financial system 

by means of (a) derecognising long term (meaning those with a maturity greater than one year) net 

FX swaps against HUF as an accepted source of stable long-term funding, and (b) bringing forward 

the full implementation of the Foreign Funding Adequacy Ratio (FFAR) requirement by 15 months 

to 1 October 2015. 

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2  

3  

MNB  Decree  14/2014  (V.19.)  regulating  credit  institutions’  maturity  mismatches  in  foreign  currency  positions  and 
amending MNB Decree 43/2013 (XII. 29.) on the obligations of money and credit market institutions to report data to 
the  central  bank’s  information  system  primarily  to  enable  the  Magyar  Nemzeti  Bank  to  carry  out  its  supervisory 
duties. 
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 Opinion CON/2014/15. All ECB opinions are available on the ECB’s website at www.ecb.europa.eu. 

 
 
 
 
                                                           
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1.2  The  draft  decree  on  denomination  of  credit  institutions’  assets  and  liabilities,  introduces  a  new 

macro-prudential  tool,  the  foreign  exchange  coverage  ratio  (FECR),  aimed  at  limiting  the  overall 

level of currency mismatches of credit institutions in  Hungary. It sets a maximum absolute FECR 

of 15%. 

1.3  The  draft  decree  on  maturity  mismatches  in  HUF  positions  introduces  the  Mortgage  Funding 

Adequacy  Ratio  (MFAR),  which  targets  excessive  maturity  mismatches  between  mortgage  loans 

denominated  in  HUF  and  their  funding  sources.  The  explanatory  memorandum  attached  to  this 

draft  decree  states  that  the  conversion  of  foreign  currency  loans  into  HUF,  which  took  place  on 

1 February  2015,  resulted  in  ‘serious  systemic  HUF  maturity  mismatches’.  The  MFAR  requires 

credit institutions’ share of HUF-denominated mortgage-backed liabilities to reach at least 15% of 
the total value of their residential mortgage loans by 1 July 2016 4.  

2. 

General Observations 

2.1  Recent major legislative changes in Hungary5 have significantly weighed on the profitability of the 

banking sector with possible implications for its capital position. 

2.2  The explanatory memoranda attached  to the draft decrees state that  the  proposed measures are 

justified  by  those  recent  legislative  changes  and  may  be  instrumental  in  addressing  potential 

sources  of  systemic  risk.  The  ECB  emphasises  the  need  for  constant  monitoring  of  the  new 

measures and the required ratios. The ECB also recommends that the MNB consider preparing an 

impact assessment of the measures contained in the three draft decrees on the Hungarian banking 

sector as well as on its capital position. 

2.3 

In  Opinion  CON/2014/15  the  ECB  noted  that  the  provisions  of  MNB  Decree  2014/14  regarding 

maturity  mismatches  in  foreign  currency  positions  would  benefit  from  being  aligned  with  the  Net 

Stable  Funding  Ratio  (NSFR)  currently  being  developed  by  the  Basel  Committee  on  Banking 

Supervision  (BCBS)  under  the  Basel  III  framework.  The  ECB  reiterates  the  need  to  align  MNB 

Decree 2014/14 with the NSFR upon its finalisation by the BCBS and subsequent implementation 

in the European Union. 

3. 

Specific Observation 

3.1  As  regards  point  3(d)  of  Annex  1  of  the  draft  decree  on  maturity  mismatches  in  HUF  positions, 

which  prohibits  a  credit  institution  from  taking  into  account  liabilities  recorded  on  the  balance 

sheets of other members of the group when calculating the MFAR, the ECB notes the aim of this 

draft  decree  of  ensuring  that  credit  institutions’  external  funding  sources  are  more  balanced.  The 

ECB  also  takes  note  of  point  4  of  Annex  1  of  this  draft  decree,  which  eases  the  conditions  for 

certain assets to be accepted as stable long-term funding sources. The consulting authority should 

pay  due  attention  to  whether  these  measures  provide  for  a  level  playing  field  for  all  market 

4  

5  

The draft decree on mismatches in HUF positions defines the types of assets and liabilities which may be used to 
calculate the MFAR and sets a number of eligibility conditions. 

For  more  details  on  these  legislative  measures  see  the  following  ECB  Opinions:  CON/2014/59,  CON/2014/72, 
CON/2014/76, CON/2014/85 and CON/2014/87. 

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participants, particularly as regards whether they are currently entitled to issue mortgage bonds or 

not. The timing of the introduction of these measures should also foster a level playing field.  

3.2  The ECB understands that credit institutions which do not already operate mortgage units will need 

to rely on licensed market participants to fulfil the MFAR requirements set out in points 2(c) and (d) 

of  Annex  1  of  the  draft  decree  on  maturity  mismatches  in  HUF  positions,  alternatively,  they  will 

have  to  set  up  a  separate  subsidiary  for  the  issuance  of  mortgage  bonds  or  mortgage  backed 

securities acceptable for MFAR purposes. Against this background and with a view to ensuring a 

level playing field, the ECB underlines the importance of operating a smooth and efficient licensing 

mechanism in Hungary that will allow credit institutions to have equal access to the mortgage bond 

market  or  other  forms  of  external  funding,  in  order  to  ensure  their  ability  to  meet  the  MFAR 

requirements in the future. 

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

Done at Frankfurt am Main, 21 May 2015. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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