Opinion of the European Central Bank of 1 September 2023 on the recapitalisation of the Magyar Nemzeti Bank (CON/2023/24)
Date: 2023-09-01
Institutions: European Central Bank
Subjects: legal basis

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 1 September 2023  

on the recapitalisation of the Magyar Nemzeti Bank 

(CON/2023/24) 

Introduction and legal basis 

On  24  July  2023  the  European  Central  Bank  (ECB)  received  a  request  from  the  Hungarian  Ministry  of 

Finance for an opinion on a draft law amending the Law on the Magyar Nemzeti Bank1 and the Law on the 

Economic Stability of Hungary2 (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  (TFEU)  and  the  third  indent  of  Article 2(1)  of  Council  Decision 

98/415/EC3,  as  the  draft  law  concerns  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. 

Purpose of the draft law 

1.1  The main purpose of the draft law is to modify the provisions of the Law on the Magyar Nemzeti Bank 

(hereinafter the ‘Law on the MNB’) and the Law on the Economic Stability of Hungary regarding the 

recapitalisation of the MNB and reimbursement by the State in case the amount of equity of the MNB 

falls below its subscribed capital. 

1.2  Under the current provisions of the Law on the MNB4, if, at the end of the year under review, the 

amount of equity of the MNB falls below the subscribed capital, the  difference is to be reimbursed 

from the central budget in equal annual instalments within five years, within 30 days of receipt of the 

financial  statements  for  the  year  under  review  by  the  shareholder,  directly  to  the  profit  and  loss 

reserve. For this purpose, the equity consists of the following elements: (1) subscribed capital; (2) 

retained earnings; (3) valuation reserve; (4) revaluation reserve due to exchange rate change; (5) 

revaluation  reserve  of  foreign  currency  securities;  and  (6)  the  result  of  the  financial  year  under 

review5. The subscribed capital of the MNB is ten billion forints (HUF)6. If the amount of the equity 

exceeds the subscribed capital, all outstanding reimbursement obligations  will cease. If, within the 

1  
2  
3  

4  
5  

6  

A Magyar Nemzeti Bankról szóló 2013. évi CXXXIX. törvény. 

Magyarország gazdasági stabilitásáról szóló 2011. évi CXCIV. törvény. 
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 Article 166(3) of the Law on the MNB. 

See  Annex  I  to  the  Decree  on  the  MNB’s  accounts  (a  Magyar  Nemzeti  Bank  éves  beszámoló  készítési  és 
könyvvezetési kötelezettségének sajátosságairól szóló 221/2000. (XII.19.) Korm. rendelet. 

See Article 5(5) of the Law on the MNB. 

 
 
 
 
 
ECB-PUBLIC 

five-year period, a new reimbursement obligation is incurred by the central budget, the central budget 

must ensure that the MNB’s equity does not remain below the subscribed capital for a longer period7. 

The Executive Board of the MNB must establish and decide on the financial statements of the MNB,8 

decide  on  dividend  payments9  and  approve  the  report  to  be  sent  to  the  shareholder  on  the 

management and assets of the MNB10. In addition to the above, the current Law on the MNB also 

stipulates that if, at the end of the year under review, the amount of the equity exceeds the subscribed 

capital, the MNB pays 50 % of the profit of the year under review as dividends11. 

1.3  According to the explanatory memorandum accompanying the draft law (hereinafter the ‘explanatory 

memorandum’), the current reimbursement rule may require a large one-off reimbursement from the 

central  budget  roughly  one  year  after  the  adoption  of  the  central  budget.  The  explanatory 

memorandum also notes that while the negative equity does not bind the central bank in fulfilling its 

legal  mandate,  central  bank  losses  may  have  unintended  negative  effects  for  fiscal  policy  and 

monetary policy and may reduce the room for manoeuvre for central banks.  

1.4  Against this background, the draft law proposes to replace the existing reimbursement rule with a 

general reimbursement commitment. In particular, the draft law provides that if the equity of the MNB 

is  below  the  subscribed  capital  for  a  prolonged  period  of  time,  it  must  be  ensured,  by  direct 

reimbursement  to  the  retained  earnings  provided  from  the  central  budget,  that  the  amount  of  the 

MNB’s equity is at least at the level of the subscribed capital within a reasonable period of time, in 

order to comply with the principle of financial independence. Consequently, if the amount of equity 

exceeds the subscribed capital at the end of the year under review, the MNB must pay 50 % of its 

profit for the year under review as a dividend, and there is no obligation to reimburse pursuant to the 

above  in  the  year  following  the  year  under  review.  Noting  that  few  Union  Member  States  have  a 

recapitalisation  rule  for  their  central  banks,  the  explanatory  memorandum  states  that  the  new 

reimbursement rule is very close to the Croatian central bank law, and is in harmony with the ECB’s 

convergence criteria.  

1.5  The draft law provides that the Executive Board of the MNB must approve a year-by-year forecast of 

the preliminary level of the equity at the end of the previous year and its expected development and 

send  the  report  to  the  shareholder  and  the  Fiscal  Council  by  30  April.  The  draft  law  proposes  to 

amend the Law on the Economic Stability of Hungary to stipulate that when providing an opinion on 

the  draft  law  on  the  central  budget  prior  to  its  adoption  by  the  Hungarian  Parliament,  the  Fiscal 

Council must examine the compliance of the equity of the MNB with the provisions of the Law on the 

MNB as amended, as set out above. 

2. 

General observations  

2.1  The ECB would like to emphasise that, although Member States with a derogation, like Hungary, do 

not yet participate in the third stage of economic and monetary union, they have a legal duty to adapt 

7  
8  
9  
10  
11  

See Article 166(3) of the Law on the MNB. 
See Article 12(4), point (b), of the Law on the MNB. 

Pursuant to Article 166(1a) of the Law on the MNB. 
See Article 12(4), point (b), of the Law on the MNB. 

See Article 166(1) of the Law on the MNB. 

2 

 
 
ECB-PUBLIC 

the statutes of their national central banks (NCBs) to ensure compatibility with the TFEU 12 and the 

Statute of the European System of Central Banks and of the European Central Bank (hereinafter the 

‘Statute  of  the  ESCB’).  Any  legislative  reform  in  non-participating  Member  States  should  aim  to 

gradually achieve consistency with Eurosystem standards13. 

2.2  The  ECB  notes  that  the  provisions  of  the  Law  on  the  MNB  to  be  amended  by  the  draft  law  only 

entered into force very recently, and that the ECB recently adopted an opinion on the current rules 

on dividend payments, recapitalisation and reimbursement of the MNB14. 

3. 

Specific observations  

3.1  Article 130 TFEU and Article 7 of the Statute of the ESCB expressly prohibit the ECB, the NCBs, and 

the  members  of  their  decision-making  bodies  from  seeking  or  taking  instructions  from  Union 

institutions, bodies, offices or agencies, from any government of a Member State or from any other 

body, on the one hand, and prohibits those Union institutions, bodies, offices or agencies and any 

government of a Member State from seeking to influence the members of the decision-making bodies 

of  the  ECB  and  the  NCBs  in  the  performance  of  their  tasks,  on  the  other.  The  intention  of  these 

provisions is to shield the European System of Central Banks (ESCB) from all political pressure in 

order to enable it effectively to pursue the objectives ascribed to its tasks, through the independent 

exercise  of  the  specific  powers  conferred  on  it  for  that  purpose  by  primary  law15.  National  rules 

therefore cannot, without infringing Article 130 TFEU and Article 7 of the Statute of the ESCB, place 

the NCB concerned in a situation where it is potentially exposed to political pressure or which in any 

way undermines its ability to carry out independently a task falling within the scope of the ESCB16. 

3.2 

In that regard, in order to ensure the independence of the ECB, the authors of the TFEU provided, 

inter alia, in the third sentence of Article 282(3) TFEU, that it is to be independent in the management 

of  its  finances.  While  it  is  true  that  neither  the  TFEU  nor  the  Statute  of  the  ESCB  lay  down  an 

equivalent rule in respect of the NCBs, the fact remains that the basic tasks of the ESCB fall not only 

on the ECB but also on the NCBs17. The ECB has consistently held that the overall independence of 

the NCB concerned would be jeopardised if it could not autonomously avail itself of sufficient financial 

resources to perform the ESCB-related tasks required of it under the Treaty and the Statute of the 

ESCB18. In order to have at its disposal the funds necessary to carry out its tasks within the ESCB, 

national rules may not place the NCB concerned in a situation where it is forced to seek the consent 

of the political authorities mentioned in the first sentence of paragraph 3.1 in order to obtain funding 

or recapitalisation19.  

See Article 131 TFEU. 

See, for example, paragraph 3.4 of Opinion CON/2008/34, paragraph 2.1 of Opinion CON/2017/17 and paragraph 2.1 
of Opinion CON/2022/37. All ECB opinions are available on EUR-Lex. 
See Opinion CON/2022/37.  

See, for example, judgment of the Court of Justice of 26 February 2019, Rimšēvičs and ECB v Latvia, C-202/18 and 
C-238/18, EU:C:2019:139, paragraph 47. 

Judgment of the Court of Justice of 13 September 2022, Banka Slovenije, C-45/21, EU:C:2022:670 (hereinafter the 
‘judgment in Case C-45/21’), paragraphs 97 and 104. 
Judgment in Case C-45/21, paragraphs 98 and 99. 
ECB Convergence Report 2022, Chapter 2.2.3, first paragraph of the section on ‘Financial independence’. 

Judgment in Case C-45/21, paragraph 104. 

3 

12  
13  

14  
15  

16  

17  
18  
19  

 
 
ECB-PUBLIC 

3.3  As previously noted20, in order to participate in the implementation of the Union’s monetary policy, it 

is essential that NCBs have the ability to establish reserves21. The Law on the MNB stipulates that 

the MNB must place gains and losses resulting from the valuation of its foreign currency assets and 

liabilities at the official exchange rate on the last day of the year in question in the HUF revaluation 

reserve22.  In  addition,  the  MNB  must  place  the  difference  resulting  from  the  market  valuation  of 

security based claims denominated in foreign currency in the foreign currency securities revaluation 

reserve23. The HUF revaluation reserve and the foreign currency securities revaluation reserve are 

elements  of  the  MNB’s  equity24.  The  ECB  understands  that,  in  addition  to  the  abovementioned 

revaluation reserves, which cannot be regarded as a buffer against all risks and cannot be used to 

cover financial losses of whatever kind, as they serve to cover dedicated risks, the MNB may freely 

establish reserves  of  a general type. As previously  noted by the  ECB,  the NCB is best placed to 

assess independently what level of reserves is necessary to enable it to perform its tasks25, and such 

a decision should not be subject to any third party’s decision. 

3.4  The ECB has consistently held that any situation should be avoided whereby for a prolonged period 

of time an NCB’s net equity is below the level of its statutory capital or is even negative, including 

where losses beyond the capital and the reserves are carried over. Therefore, the event of an NCB’s 

net equity becoming less than its statutory capital or even negative would require that the respective 

Member State provides the NCB with an appropriate amount of capital at least up to the level of the 

statutory  capital  within  a  reasonable  period  of  time  so  as  to  comply  with  the  principle  of  financial 

independence26.  

3.5  As indicated in the explanatory memorandum, the  majority of the Member States do not have  an 

explicit  mechanism  for  the  recapitalisation  of  their  NCBs  by  the  State  in  their  respective  NCBs’ 

statutes. As indicated in the explanatory memorandum, the reimbursement mechanism contained in 

the draft law closely resembles the recapitalisation mechanism in Croatia, which provides that should 

the overall capital of the Hrvatska Narodna Banka (HNB), reduced for the loss from previous years, 

be lower than the capital of the HNB for a longer period, the difference required up to the amount of 

the capital must be covered from the State budget in the following medium-term period27. The ECB 

notes that it considered the pre-existing mechanism in Croatia, whereby the HNB’s losses that could 

not be covered from general reserves  were automatically covered from the  State  budget, to be  a 

useful mechanism that served to strengthen the HNB’s financial independence. The ECB therefore 

regretted  the  fact  that  this  pre-existing  mechanism  was  not  maintained  in  the  HNB’s  statutes28. 

However, the ECB concluded that this mechanism is consistent with the Treaty and the Statute of 

the ESCB29. 

See paragraph 3.2 of Opinion CON/2022/37.  
Judgment in Case C-45/21, paragraph 100. 
See Article 147(1) of the Law on the MNB. 

See Article 147(2) of the Law on the MNB. 
See Article 147(3) of the Law on the MNB. 

See, for example, paragraph 3.4.3 of Opinion CON/2017/17. 
ECB Convergence Report 2022, Chapter 2.2.3, fourth paragraph of the section on ‘Financial independence’. 

See Article 57(7) of the Act on Hrvatska Narodna Banka.  
See paragraph 2.6 of Opinion CON/2020/8.  

ECB Convergence Report 2022, Chapter 7.3.4, ‘Croatia’, ‘Conclusions’. 

4 

20  
21  
22  
23  
24  
25  
26  
27  
28  
29  

 
ECB-PUBLIC 

3.6  The  Hungarian  economy  is  facing  important  macro-financial  challenges.  Monetary  policy  is 

confronted  with  very  high  inflation,  with  annual  Harmonized  Index  of  Consumer  Prices  inflation 

standing at 17.6 % in June 2023, which triggered a significant increase in policy rates, with the central 

bank  base  rate  and  the  overnight  collateralised  loan  rate  currently  standing  at  13 %  and  17.5 %, 

respectively. This has, among other factors, contributed to losses of about HUF 402 billion in 2022. 

It  is  possible  that  the  MNB  incurs  further  losses  in  2023.  Given  these  particular  challenges,  it  is 

important that the MNB maintains a sufficiently strong balance sheet that can absorb possible future 

losses and safeguard the financial independence and operational effectiveness of the MNB.   The 

Hungarian authorities may wish to take account of these specific circumstances when designing a 

regime for the possible future recapitalisation of the MNB via the state budget.   

3.7  Due to the substitution in the draft law of the current reimbursement rule for a general commitment 

to reimburse the MNB from the central budget, it seems that State authorities have a wide margin of 

discretion  to  determine  when  the  MNB’s  equity  would  be  restored  up  to  the  level  of  the  MNB’s 

subscribed  capital.  That  wide  margin  of  discretion  on  the  part  of  the  State  authorities  is  not 

inconsistent with the Treaty and the Statute of the ESCB.  

3.8  The Law on the MNB provides that if the amount of equity exceeds the subscribed capital at the end 

of the year under review, the MNB must pay 50 % of its profit for the year under review as a dividend 

(automatic dividend payment)30. In addition to this, upon the decision of the Executive Board of the 

MNB, the MNB pays dividends from the positive amount of the retained earnings supplemented by 

the loss for the year or 50 % of the profit for the year, up to the amount by which the equity of the 

MNB exceeds the subscribed capital (discretionary dividend payment)31. If in the year under review 

the equity of the MNB falls under the subscribed capital, no dividend payment, whether automatic or 

upon the decision of the Executive Board of the MNB, may occur. In relation to dividend payments, 

the ECB has taken the consistent position that profit allocation rules in NCBs’ statutes should ensure 

that profits may be distributed to the State only after any accumulated losses from previous years 

have been covered and financial buffers deemed necessary to safeguard the real value of the NCB’s 

capital and assets have been created32. In this respect, the ECB  understands that profits may be 

distributed  by  the  MNB  to  the  State  only  after  any  accumulated  losses  from  previous  years  have 

been covered, as, under the Hungarian Civil Code and Accounting Act33, which are also applicable 

to the MNB34, a  dividend may only  be paid from positive  retained earnings, supplemented  by the 

accumulated losses of previous years.  

30  
31  
32  

33  

34  

See Article 166(1) of the Law on the MNB. 
See Article 166(1a) of the Law on the MNB. 

ECB Convergence Report 2022, Chapter 2.2.3, first paragraph of the section on ‘Distribution of profits, NCBs’ capital 
and financial provisions’. 

See Article 3:88(2) of the Civil Code (A Polgári Törvénykönyvről szóló 2013. évi V. törvény) and Article 37(2) of the 
Accounting Act (a számvitelről szóló 2000. évi C. törvény). 

See Article 7 of the Law on the MNB and Article 1(2) of the Decree on the MNB’s accounts. 

5 

 
 
 
 
 
 
This opinion will be published on EUR-Lex.  

Done at Frankfurt am Main,1 September 2023. 

[signed] 

The President of the ECB 

Christine LAGARDE 

ECB-PUBLIC 

6