Notification by Magyar Nemzeti Bank (Central Bank of Hungary) on amendments of the FFAR, FECR and IFR regulations

Template for notifying national macroprudential measures not covered by CRR/CRD

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• [e-mail] notifying the ESRB;
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1. Notifying national authority and scope of the notification

1.1 Name of the notifying authority.

Magyar Nemzeti Bank (MNB)

1.2 Name of the macroprudential measure	Amendment of 3 regulations:
that is notified.	• the restoration of the Foreign Exchange Funding
	Adequacy Ratio (FFAR) requirement to its earlier
	state (before 24 March 2020),
	• the restoration of the Foreign Exchange Coverage
	Ratio (FECR) requirement to its earlier state (before
	24 March 2020) and
	• the modification of the Interbank Funding Ratio (IFR).

2. Description of the measure

2.1

Description of the measure.

Modification of the FFAR regulation:

The temporary modification of the measure in effect from 24 March 2020, according to which the FX liabilities from financial customers with a residual maturity of over one year are subdivided into groups according to residual maturity, with different weights for different maturities, was repealed. Thus, the FFAR regulation is restored to accept FX funds with a residual maturity over one year as 100% stable funds, regardless of the funding partner or fund type.

Modification of the FECR regulation:

The temporary modification of the measure in effect from 24 March 2020, according to which the limit on the FX mismatches between assets and liabilities relative to the

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Date of template version: 2016-03-01

		balance sheet total narrowed from 15 per cent to 10 per
		cent is repealed. Thus, the FECR limit is restored to 15
		percent.
		Modification of the IFR regulation:
		The on-balance sheet liabilities related to derivative
		transactions with financial companies and arising from
		the revaluation of these transactions are exempted in
		determining the IFR.
2.2	Legal basis and process of	As macroprudential authority in Hungary, the MNB has
	implementation of the measure.	the power to issue legally binding regulations in order to
		reduce systemic risks, as stipulated in Law CXXXIX of
		2013 on the Magyar Nemzeti Bank (the MNB Act).
		Article 171 (1) k) kc) of the MNB Act authorises the
		Governor of the MNB to decree the measures required to
		prevent the build-up of systemic risks and to reduce
		systemic risks, and to increase the resilience of the
		financial intermediary system, within the strategic
		framework defined by the Monetary Council, based on
		the decision of the Financial Stability Board, including
		requirements for the reduction of systemic liquidity risks.
		Furthermore, Article 4 (7) of the MNB Act states that the
		MNB shall explore risks threatening the financial
		intermediary system as a whole, it shall help to prevent
		the build-up of systemic risks, and shall help to mitigate
		or eliminate the systemic risks that may already exist.
2.3	Coverage	The scope of the measures remains unchanged.
		The FFAR and the FECR requirements shall apply to
		credit institutions operating as companies limited by
		shares and the Hungarian branches of foreign credit
		institutions, as well as the credit institutions of groups
		including credit institutions under consolidated
		supervision. The scope of the measure does not cover
		building societies, the Magyar Fejlesztési Bank Zrt., the
		Magyar Export-Import Bank Zrt. and the Központi
		Elszámolóház és Értéktár (Budapest) Zrt.. Banks and
		banking groups subject to the proposed regulation need
		to comply on a sub-consolidated level.
		The IFR requirement applies to credit institutions
		operating as companies limited by shares and the

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		Hungarian branches of foreign credit institutions, as well
		as the institutions of groups including credit institutions
		under consolidated supervision. The scope of the
		measure does not cover building societies, the Magyar
		Fejlesztési Bank Zrt., the Magyar Export-Import Bank Zrt.
		and the Központi Elszámolóház és Értéktár (Budapest)
		Zrt. Banks and banking groups subject to the proposed
		regulation need to comply on a sub-consolidated level.
2.4	Any other relevant information.	In case of the FFAR and the FECR, the regulations in
		effect before 24 March 2020 were restored.

3.	Timing
3.1	Timing of the decision	The Financial Stability Board (FSB) of the MNB reached
		a decision regarding the amendments on 7 September
		2020.
3.2	Timing of the publication	The decree was published in the Official Gazette on 16
		September 2020.

3.3	Disclosure	Due to the restoring, loosening nature of the measures,
		no consultations took place with participants before the
		official publication of the Decree, but comments received
		from institutions since the last modification of the
		measures were taken into account.
3.4	Timing of the application	The amendment of the measures came into effect on 17
		September 2020.
3.5	End date (if applicable)	There is no end date set for the regulations, measures
		are reviewed regularly.

4. Reason for the activation of the measure

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4.1	Description of the macroprudential risk to	The worldwide spread of the coronavirus pandemic could
	be addressed.	have a significant negative economic and financial
		impact. In order to counteract the emerging systemic
		risks, ensure a safely financed banking system and
		sustain its contribution to economic growth, the
		immediate revision of the national macroprudential tools
		addressing funding risks was warranted in March 2020.
		The MNB continuously monitored the development of
		risks and the effects of the coronavirus epidemic on the
		financial system, on the basis of which it considered it
		necessary to review these transitional measures. As the
		risks targeted by the measures were not materialized at
		the sectoral level and the epidemic situation did not lead
		to a substantial change in the financing structure and in
		the availability of proper funding, it was justified to restore
		the previous requirements for FFAR and FECR and to
		withdraw the temporarily tightened measures. The
		restoration could increase the room for maneuver of
		banks active in some specialized financial services in
		terms of funding, which could also support a more
		efficient future operation of the domestic foreign
		exchange swap market.
		The on-balance sheet liabilities related to derivative
		transactions with financial corporations and arising from
		the revaluation of these transactions are exempted from
		the IFR requirement, as they show significant volatility for
		banks active in the foreign exchange swap market, thus
		making it harder for institutions to plan their compliance
		and triggering unwanted adjustments.
4.2	Description of the indicators on the basis	The FSB of the MNB has considered numerous factors
	of which the measure is activated.	while deciding on the current set of measures. These
		include the FX mismatch between assets and liabilities,
		maturity mismatch between FX assets and liabilities of
		credit institutions, the distribution of the maturity of FX
		assets and liabilities, the share of long-term FX funds
		relative to all FX liabilities and indicators related to the
		development of the FX swap market.

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