MNB Reviews Macro-Prudential Rules on Foreign Exchange Funding Risks
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
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Previous Article
ECB Updates List of Supervised Entities in EU in September 2020Related Articles
BSP Tackles Aspects of Lending and Islamic, Open & Sustainable Finance
The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance.
US Agencies Issue Regulatory Updates, FDIC Launches Tech Sprint
The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.
EBA Issues Guide on Bank Resolvability, Consults on Transferability
The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).
MFSA Publishes CRD5 Updates and Supervisory Priorities for 2022
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0.
HKMA Extends Repayment for Trade Facilities, Consults on Crypto-Assets
The Hong Kong Monetary Authority (HKMA) published a circular, along with the reporting form and instructions, for self-assessment, by authorized institutions, of compliance with the Code of Banking Practice 2021.
FCA Registers Securitization Repositories; PRA Issues 2022 Priorities
The Financial Conduct Authority (FCA) decided to register European DataWarehouse Ltd and SecRep Limited as securitization repositories under the UK Securitization Regulation, with effect from January 17, 2022.
EC Regulation Sets Out Methods for Measuring K-Factors Under IFR
The European Commission (EC) published the Delegated Regulation 2022/25, which supplements the Investment Firms Regulation (IFR or Regulation 2019/2033) with respect to the regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of the IFR.
BIS Studies How Platform Models Impact Financial Stability & Inclusion
The Bank of International Settlements (BIS) published a paper that assesses the ways in which platform-based business models can affect financial inclusion, competition, financial stability and consumer protection.
CBE Issues Additional Measures to Ease Disruptions from Pandemic
The Central Bank of Egypt (CBE) published a circular with instructions on emergency liquidity assistance to banks that are unable to meet their liquidity requirements.
ESAs Publish List of Financial Conglomerates for 2021
The European Supervisory Authorities (ESAs) published the list of identified financial conglomerates for 2021.
