MNB Publishes Decision to Amend Systemic Risk Buffer Requirement
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
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Blake Coules
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Previous Article
SNB Updates Forms and Instructions for Large Exposure ReportingNext Article
US Agencies Propose Rule on the Treatment of HVCRERelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
