Foreign exchange Funding Adequacy Ratio (FFAR)
The instrument expects institutions to hold a sufficient amount of stable foreign exchange funds in proportion to their foreign exchange assets that require stable financing.
The impact mechanism of the regulation is twofold. On the one hand, the instrument requires the use of stable foreign exchange funds to finance foreign exchange assets requiring stable financing. This reduces the risks stemming from on-balance sheet currency mismatches. In addition, with respect to foreign exchange liabilities, it orients banks towards the use of funds embodying long-term financing, thereby reducing the maturity mismatches on the balance sheets of credit institutions as well.
Supplemented by other instruments, such as the Foreign Exchange Coverage ratio, the instrument can also mitigate the external vulnerability of the banking sector.
The instrument is effective from 1 July 2012. The currently expected minimum level of the indicator is 100 percent.
Calculation of the Foreign exchange Funding Adequacy Ratio
FFAR regulatory changes
|17 September 2020||Deduction of tightening due to increased liquidity risk associated with the effects of the coronavirus.|
|24 March 2020||Tightening due to the increase in liquidity risk associated with the effects of the coronavirus: differentiated treatment of foreign exchange funding over one year according to the remaining term, with a greater weight for longer maturities.|
|1 June 2018||Bank balance sheet structures and financing business models changed after the forint conversion, as well as a review in order to further approach the NSFR.|
|1 January 2016||Raising the expected level to 100 percent and excluding the net foreign exchange swap portfolio beyond the year from stable foreign exchange funding.|
|1 July 2014||Prescription as an MNB decree, gradual tightening at the level and extension of the institutional scope to EU branches as well.|
|1 July 2012||Introduction of FFAR in a government decree, with the expectation of a minimum level of 65 percent.|
14/2014. (V. 19.) MNB Decree on the regulation of credit institutions' currency position maturity consistency, and on the data provision obligations to be fulfilled by money and credit market organizations to the central bank's information system, primarily in order to fulfill the supervision tasks of the Magyar Nemzeti Bank. (XII. 29) on amending the MNB decree (available in Hungarian).
Foreign Exchange Coverage Ratio (FECR)
The regulation imposes a limit on the degree of currency mismatches between assets and liabilities relative to the balance sheet total.
The instrument lowers the risks associated with excessive currency mismatches. The reduction of on-balance sheet currency mismatches also reduces institutions’ reliance on off-balance sheet instruments (mainly swaps) which, in turn, lowers the risks stemming from these instruments as well (renewal, liquidity and margin call risks).
With its simple structure and targeted effect on risks, the indicator lowers the probability of regulatory arbitrage. Supplemented by other instruments, such as the Foreign Exchange Funding Adequacy Ratio, the instrument can also mitigate risks stemming from the vulnerability of external financing.
The instrument was introduced by the MNB on 1 January 2016. The indicator currently operates with an asymmetric minimum and maximum limit of -30 and +15 percent.
Calculation of the Foreign Exchange Coverage Ratio
FECR regulatory changes
|10 December 2021||Easing of the FECR regulatory limit and making it asymmetrical, the minimum level changed to -30 percent, the maximum level remained at 15 percent.|
|17 September 2020||Reset FECR limit tightening|
|24 March 2020||Temporary tightening of the FECR limit with a minimum and maximum limit of -/+10 percent|
|1 January 2016||Introduction of FECR with a minimum and maximum limit of -/+15 percent|
Interbank funding ratio (IFR)
The regulation sets a maximum limit for the weighted amount of liabilities based on denomination and time to maturity which are originated from all financial corporations divided by the balance sheet total excluding own funds.
Excessive reliance on funds from financial corporations can carry a significant systemic risk and the possible materialization of this can have serious implications for the financial system and the real economy. The targeted measure and the established regulatory limit may prevent the build-up of over-reliance on wholesale financing.
The instrument was introduced by the MNB on 1 July 2018. The requirement was subsequently revised, during which, from 17 September 2020, on-balance sheet liabilities in connection with derivative transactions concluded with financial corporations were exempted from inclusion in the index.
Calculation of the Interbank Funding Ratio
IFR regulatory changes
|1 July 2018||Introduction of IFR with the expectation of a maximum level of 30 percent.|
|17 September 2020||Easing of IFR: release of on-balance sheet liabilities arising in connection with derivative transactions concluded with financial corporations and occurring due to the revaluation of these transactions.|