The Financial Stability Council of MNB has decided to restore the requirements on the Foreign Exchange Coverage Ratio (FECR) and Foreign Exchange Funding Adequacy Ratio (FFAR) that were tightened temporarily in response to the COVID-19 pandemic. The Financial Stability Council of MNB also decided to amend the regulation on the Interbank Funding Ratio. The decision may increase the room in funding for banks providing specialized financial services, which in turn may contribute to more efficient operation of the Foreign Exchange swap market in the future. The amendments will take effect in September, on the day following the publication of the Decree in the Hungarian Gazette.
In March 2020, the Financial Stability Council of MNB had announced a package of prudential measures in response to COVID-19 pandemic. As part of this package, FECR and FFAR regulations were temporarily tightened to mitigate and/or prevent the risks posed by pandemic to bank funding. In case of the FECR, the permitted maximum currency mismatch was lowered from 15% to 10% while long-term funds from financial corporations were weighted in the FFAR so as to incentivize banks to raise longer-term funding.
MNB has considered it necessary to review these temporary measures. As the risks targeted by the preventive measures have not materialized and the pandemic situation has not led to a material change in funding structures, the restoration of FECR and FFAR requirements to their previous form and the withdrawal of the tightening measures is warranted. Consequently, the Financial Stability Council of MNB has decided to restore the FECR and FFAR requirements in effect up to March and to repeal the amendments made in relation to COVID-19 pandemic. Furthermore, Financial Stability Council of MNB decided to amend the requirements of the Interbank Funding Ratio. Therefore, on-balance sheet liabilities arising from derivative transactions with financial corporations and from the revaluation of such transactions will be exempted when determining the Interbank Funding Ratio requirement, as these show significant volatility for banks active in the foreign exchange swap market and, therefore, may limit the predictability of compliance and trigger unwanted adjustments.
Related Link: Press Release
Keywords: Europe, Hungary, Banking, COVID-19, Foreign Exchange, Foreign Exchange Coverage Ratio, Foreign Exchange Funding Adequacy Ratio, Macro-Prudential Policy, MNB
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleECB Updates List of Supervised Entities in EU in September 2020
The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.
The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.
The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.
The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.
The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.