Opinion of the European Central Bank of 6 February 2018 on the reliance of credit institutions on funds originating from financial corporations (CON/2018/7)
Date: 2018-02-06
Institutions: European Central Bank
Subjects: Hungary, banking supervision, banking system, credit institution, financial stability, financing, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 6 February 2018 

on the reliance of credit institutions on funds originating from financial corporations 

(CON/2018/7) 

Introduction and legal basis 

On 15 December 2017 the European Central Bank (ECB) received a request from the Magyar Nemzeti 

Bank  (the  ‘MNB’)  for  an  opinion  on  a  draft  MNB  decree  on  the  regulation  of  the  reliance  of  credit 

institutions on funds originating from financial corporations (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/EC 1, as 

the draft decree contains 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 decree 

1.1  The  draft  decree  is  a  targeted  macro-prudential  measure  aimed  at  preventing  the  build-up  of 

excessive reliance by credit institutions on wholesale funding. To this end, the draft decree sets a 

maximum  limit  on  the  share  of  the  total  funding  of  credit  institutions  originating  from  financial 

corporations. The MNB considers that although wholesale funding is not currently at an excessive 

level in the Hungarian banking sector, the potentially significant role of such funding in the banks’ 

funding structure and composition justifies the need for preventive macro-prudential measures.  

1.2  The  draft  decree  lays  down  a  limit  for  an  interbank  funding  ratio  (IFR),  which  is  defined  as  the 

weighted amount of liabilities originating from financial corporations, divided by the balance sheet 

total excluding own funds, and which is set to be at a maximum of 30% as of 1 July 2018. 

1.3  The limit will apply in respect of entities covered by the scope of the draft decree, which includes: 

credit institutions operating as limited companies (with specific enumerated exceptions); Hungarian 

branches  of  foreign  credit  institutions;  and  entities  belonging  to  groups  which  include  credit 

institutions  and  fall  under  consolidated  supervision  pursuant  to  Law  CCXXXVII  of  2013  on  credit 
institutions  and  financial  enterprises 2  and  Law  CXXXV  of  2013  on  the  integration  of  cooperative 

1  

2  

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). 
2013.  évi  CCXXXVII.  Törvény  a  hitelintézetekről  és  a  pénzügyi  vállalkozásokról,  published  in  Magyar  Közlöny 
217/2013 on 23 December 2013. 

 
 
 
 
                                                 
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credit  institutions 3.  The  limit  will  not  be  applicable  to  entities  exempt  from  the  scope  of  the  draft 

decree,  which  includes:  credit  institutions  with  a  balance  sheet  total  of  less  than  HUF  30  billion 

(approx. EUR 100 million); home savings and loan associations; two Hungarian institutions outside 
the  scope  of  Directive  2013/36/EU  of  the  European  Parliament  and  of  the  Council4  (Magyar 

Fejlesztési  Bank  Zártkörűen  Működő  Részvénytársaság  and  Magyar  Export-Import  Bank 

Zártkörűen  Működő  Részvénytársaság);  and  KELER  Ltd.,  the  Hungarian  central  securities 

depository. 

1.4  For the purposes of calculating the IFR, the draft decree also specifies those items that are not to 

be  considered  as  liabilities  originating  from  financial  corporations  and  are  therefore  exempt  from 

being  included  in  the  numerator  of  the  IFR  formula.  This  includes  for  example:  mortgage  bonds; 

refinancing  mortgage  loans;  bonds  issued  with  a  maturity  of  two  years  or  longer;  or  any  funds 

provided  by  foreign  branches  to  Hungarian  parent  companies.  In  addition,  with  respect  to  the 

numerator  of  the  IFR  formula,  the  draft  decree  also  specifies  certain  weightings  of  liabilities 
originating  from  financial  corporations  according  to  a  six-pronged  classification 5,  in  which  each 

category has a different weighting. The weighting of 0 to 100 percentage points generally depends 

on whether the liability is denominated in forint (HUF) or in another currency and on the remaining 

maturity  of  the  funds  (liabilities),  with  short-term  and  non-HUF  denominated  liabilities  assigned  a 
higher  weighting.6  Moreover,  the  specific  weighting  of  0  to  20  percentage  points  lower  than  the 

weighting  of  0  to  100  percentage  points  is  to  be  assigned  to  either:  (i)  any  funds  received  from 

parent  companies,  as  defined  in  Law  CCXXXVII  of  2013  on  credit  institutions  and  financial 
enterprises7  or,  in  the  case  of  a  Hungarian  branch  of  a  foreign  credit  institution,  from  the 

establishing institution; or (ii) the balance of ‘loro’ accounts other than those in point (i), defined as 

demand deposit or payment accounts maintained by a credit institution or a member of a group of 

credit  institutions  for  credit  institutions  established  outside  Hungary  for  the  purpose  of  providing 

financial services. 

1.5  The  IFR  limit  should  be  complied  with  by  both  individual  and,  in  case  of  group  members 

established in Hungary, on a consolidated level.  

1.6  The IFR will be calculated on the basis of regular reporting of credit institutions to the MNB. 

1.7  The IFR aims to rule out the overreliance of the banking system on funds originating from financial 

corporations which are a highly volatile type of funding. Overall, the IFR does not cover the whole 

liability  side  of  the  balance  sheet,  but  only  items  originating  from financial  corporations,  which,  in 

the  MNB’s  view,  have  proven  to  be  excessively  volatile  during  crisis  situations.  The  IFR  is  not 

regarded as a preliminary stable funding or a net stable funding ratio (NSFR) type requirement or a 

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4  

5  
6  

7 

2013.  évi  CXXXV.  Törvény  a  szövetkezeti  hitelintézetek  integrációjáról  és  egyes  gazdasági  tárgyú  jogszabályok 
módosításáról published in Magyar Közlöny 120/2013 on 12 July 2013. 
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,  amending  Directive 
2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338). 

See Point 4 of the Annex to the draft decree. 
It is specified that amounts on  a deposit account shall be considered as having a maturity equalling to the earliest 
possibility of withdrawal. 

See Section 6, point 3 of 2013. évi CCXXXVII. Törvény a hitelintézetekről és a pénzügyi vállalkozásokról. 

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requirement  aimed  at  the  general  diversification  of  funding  sources,  but  rather  as  a  measure 

targeting one specific funding risk. The draft decree also intends to set differentiated requirements 

for  funds  with  between  0  to  1  year  and  1  to  2  year  remaining  maturities.  The  MNB  does  not 

consider  the  IFR  to  be  a  derivation  or  early  implementation  of  the  NSFR,  as  provided  for  in 
Article 413(3)  of  Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council8, 

since in its current calibration it serves as a backstop measure aimed at limiting the possibility of a 

build-up of systemic risks and is therefore of a macro-prudential nature.  

2. 

General observations  

2.1  The ECB understands that the MNB intends to introduce the IFR as a national measure, based on 

national law, targeting different systemic risks than those addressed by the standards for liquidity 

coverage requirements and net stable funding requirements laid down in the relevant EU regulatory 

framework, most notably Regulation (EU) No 575/2013.  

2.2  The IFR is intended to complement the foreign funding adequacy ratio (FFAR), a requirement that 

is  currently  applicable  for  credit  institutions  in  respect  of  foreign  exchange  assets  and  that  is 
regulated by MNB Decree 14/2014 9. The FFAR is a systemic risk mitigation measure which aims to 
regulate  the  maturity  mismatches  and  foreign  currency  positions  of  credit  institutions.10  The  ECB 

has  previously  noted  that  the  FFAR  is  similar  in  concept  to  the  NSFR  developed  by  the  Basel 

Committee  on  Banking  Supervision,  since  it  builds  upon  structural  funding  metrics  that  require 

banks  to  hold  stable  funding  in  relation  to  the  composition  of  their  assets.  However,  there  are  a 
number of differences between the NSFR and the FFAR11.  

3. 

Specific observations 

3.1  The ECB notes that the risk of unstable funding sources is to be addressed by the NSFR pursuant 

to  Article  413  of  Regulation  (EU)  No  575/2013.  Article  413(3)  specifically  provides  that  Member 

States  may  maintain  or  introduce  national  provisions  in  the  area  of  stable  funding  requirements 

before  binding  minimum  standards  for  net  stable  funding  requirements  are  specified  and 

introduced in the Union in accordance with Article 510 of the same Regulation. 

3.2  The ECB agrees that the IFR is less complex than the NSFR being developed under the European 

Union  regulatory  framework  as  the  NSFR  addresses  risk  stemming  from  undiversified  funding 

more generally and also considers the funding needs of the assets held on the balance sheet. Both 

8  

9  

10  

11  

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). 
14/2014. (V. 19.) MNB rendelet a hitelintézetek devizapozícióbeli lejárati összhangjának szabályozásáról, valamint a 
pénz-  és  hitelpiaci  szervezetek  által  a  jegybanki  információs  rendszerhez  elsődlegesen  a  Magyar  Nemzeti  Bank 
felügyeleti  feladatai  ellátása  érdekében  teljesítendő  adatszolgáltatási  kötelezettségekről  szóló  43/2013.  (XII.  29.) 
MNB rendelet módosításáról, published in Magyar Közlöny 72/2014 on 19 May 2014. 
In the light of the fact that the  volume of foreign currency-denominated mortgage lending to households expanded 
rapidly in Hungary until 2008 resulting in significant maturity mismatches, consequently increasing Hungary’s need 
for foreign currency reserves. See Opinion CON/2014/15, as well as Opinions CON/2011/87 and CON/2012/27. All 
ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 

See Opinions CON/2014/15 and CON/2015/15. 

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metrics, nevertheless, address the risk stemming from the excessive reliance by credit institutions 

on  wholesale  funding  from  financial  corporations.  In  the  light  of  this,  the  ECB  suggests  that  the 

need  for  the  IFR,  as  well  as  its  calibration,  be  reassessed  once  the  NSFR  has  been  fully 

implemented as a binding minimum ratio at the Union level. 

3.3  As a separate matter, the ECB reiterates that the need for and calibration of the FFAR laid down in 

MNB  Decree  2014/14  should  be  reassessed  with  the  implementation  of  the  binding  NSFR  in  the 
European Union, as expressed in its previous opinions.12  

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

Done at Frankfurt am Main, 6 February 2018. 

[signed] 

The President of the ECB 

Mario DRAGHI 

12  

See Opinions CON/2014/15 and CON/2015/15. 

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