MNB published the General Decision of the Financial Stability Council of MNB to amend the systemic risk buffer (SRB) requirement. While calculating the capital requirement, MNB will take into account not only problem project loans but also non-problem foreign currency project loans in the future to prevent the potential re-emergence of systemic risks related to the unhealthy structure of commercial real estate project financing. The modifications will come into effect on January 01, 2020. MNB also notified EBA, ECB, and ESRB about its decision on changing the scope of an existing systemic risk buffer (SRB).
As of January 01, 2020, the calibration of systemic risk buffer required by MNB will be extended to new risks. In addition to problem exposures already covered, project loans qualified as non-problem, but denominated in foreign currency, will also be included in the determination of the capital buffer rate. To ensure that the capital buffer does not unduly hinder lending processes, non-problem foreign-exchange commercial real estate project financing loans will initially be taken into account with a low, 5% weight. The de minimis limit for the exemption threshold is also being modified. The limit on the amount of problem and non-problem foreign currency project loans is raised to HUF 20 billion to exempt institutions that manage a stock which is non-material from a systemic risk perspective.
So far, the systemic risk buffer requirement has been aimed at mitigating systemic risks related to non-performing and restructured, but not yet performing, project loans, together with on-balance sheet held-for-sale commercial real estate (the so-called problem stocks). As the targeted systemic risk related to problem exposures has been substantially decreased with the support of the existing systemic risk buffer and along favorable market conditions, adjusting the instrument in accordance with the changing risk environment has become timely. The amendment of the requirement is intended to strengthen the shock resilience in case of an excessive outflow of foreign currency project loans and may also contribute to counteracting excessive risk-taking. In line with the preventive nature of the modification, it is expected that no institution will be required to maintain a systemic risk buffer as of January 01, 2020, based to the rate determination conducted on the third quarter data for 2019.
Related Link: Notification to EBA, ECB, and ESRB (PDF)
Effective Date: January 01, 2020
Keywords: Europe, Hungary, Banking, Systemic Risk Buffer, Systemic Risk, Capital Requirement, MNB, EBA, ECB, ESRB
The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.
The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.
The European Banking Authority (EBA) published a methodological guide to mystery shopping.
The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.
The European Securities and Markets Authority (ESMA) has responded to the IFRS consultation on targeted amendments to the IFRS Foundation constitution to accommodate an International Sustainability Standards Board (ISSB) to set IFRS Sustainability Standards.