Opinion of the European Central Bank of 18 November 2016 on reserve ratios (CON/2016/56)
Date: 2016-11-18
Institutions: European Central Bank
Subjects: Hungary, credit institution, foreign-exchange reserves, monetary policy, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 18 November 2016 

on reserve ratios 

(CON/2016/56) 

Introduction and legal basis 

On  25  October  2016  the  European  Central  Bank  (ECB)  received  a  request  from  the  Magyar  Nemzeti 

Bank (MNB) for an opinion on a MNB draft decree on the reserve ratio (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 Article 2(2) of Council Decision 98/415/EC1, as the draft decree 

relates  to  the  instruments  of  monetary  policy  of  a  Member  State  whose  currency  is  not  the  euro.  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 and purpose of the draft decree 

1.1 

In  2015  the  Governor  of  the  MNB  adopted  Decree  46/20152  on  the  reserve  ratio,  in  relation  to 
which  the  ECB  adopted  Opinion  CON/2015/393.  Decree  46/2015  provided  that  a  reserve  ratio  of 

0% would apply to: (a) deposits and loans received with a remaining maturity of over two years at 

the time they are entered into the balance sheet of the credit institution; (b) debt securities issued 

with an agreed maturity over two years; and (c) repos. Further, a reserve ratio of 2% would apply to 

all  other  liabilities  included  in  the  reserve  base  of  a  credit  institution  subject  to  reserve 

requirements.  The  draft  decree  now  proposes  to  reduce  the  reserve  ratio  referred  to  above  from 

2% to 1%, while keeping all other elements of the minimum reserve system unchanged. 

1.2 

In the explanatory memorandum  attached to the  draft decree, the MNB  notes that the suggested 

legislative  change  has  been  brought  forward  to  support  the  effectiveness  of  the  operational 

framework  of  Hungarian  monetary  policy,  and  especially  the  quantitative  limitation  of  the  three-

month  deposit  facility.  More  specifically,  the  amendment  aims  to  increase  the  amount  of  freely 

available  liquidity  in  the  banking  sector,  to  foster  activity  in  the  money  market  and  enhance  the 

reliability  of  the  interbank  market,  as  well  as  to  allow  for  further  convergence  with  the  ECB’s 

practice in the field of reserve ratios. The change is also consistent with the MNB’s new operational 

1  

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). 

MNB Decree 46/2015 (XI.11.) on the reserve ratio, published in Magyar Közlöny 2015/170. 
All ECB opinions are available on the ECB’s website at www.ecb.europa.eu. 

 
 
 
 
                                                 
 
ECB-PUBLIC 

framework  for  monetary  policy  and  the  monetary  easing  measures  established  by  the  MNB  to 

address the still subdued inflationary environment. As regards the latter, the reduced frequency of 

the three-month deposit instrument’s tenders and the capping of the same instrument allow for the 

reduction  of  money  and  capital  market  interest  rates,  by  rechannelling  banks’  excess  liquidity  to 

deposit facilities of the MNB and to the interbank market. The proposed amendment of the reserve 

ratio may lead to a liquidity surplus in the banking sector that could enhance  the effectiveness of 

the monetary measures. 

2. 

General observations 

The ECB noted in earlier opinions4 that Member States whose currency is not the euro retain their 

powers  in  the  field  of  monetary  policy,  which  gives  them  greater  flexibility  to  address  liquidity 

shocks  and  market  inefficiencies  that  hinder  the  implementation  of  national  monetary  policy.  In 

those  opinions,  the  ECB  noted  that  once  the  euro  is  introduced,  Hungary’s  monetary  policy  will 

need to be consistent with the Eurosystem’s operational framework, and credit institutions should 

therefore be familiar with the requirements that will apply to them once the single monetary policy is 

implemented in Hungary. 

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

Done at Frankfurt am Main, 18 November 2016. 

[signed] 

The President of the ECB 

Mario DRAGHI 

4  

Opinion  CON/2010/68  and  Opinion  CON/2015/39.  All  ECB  opinions  are  available  on  the  ECB’s  website  at 
www.ecb.europa.eu. 

2