28 March 2018
The MNB has decided to introduce a subsequent targeted macroprudential measure, the Interbank Funding Ratio (IFR). The new requirement mitigates excessive reliance on funding from financial corporations and related systemic risks. The ratio will be effective from 1 July 2018, and – given its preventive nature –, currently does not require significant adjustment by the banking sector, but increases financial stability.
The 2008 financial crisis highlighted that excessive reliance on funding from financial corporations may pose systemics risk and, if such risks materialised, they could have serious consequences for the financial system and the real economy. Although the current liquidity and funding requirements contribute efficiently to the banking sector’s overall resilience to shock, it is necessary to introduce a targeted measure that will be able to prevent the build-up of systemic risks arising from such less stable funding.
The MNB has therefore decided to introduce a targeted macroprudential measure, the Interbank Funding Ratio (IFR), the terms of which were set out in a decree. The ratio limits funds from financial corporations, weighted according to currency and residual maturity. The ratio considers all funding received from financial corporations, but exceptions and benefits ensure that the requirement does not materially affect normal banking operations.
Based on available data, the 30 percent upper limit effective from 1 July 2018, will not require adjustment for the overwhelming majority of institutions; it will nevertheless act as a barrier to the build-up of excessive reliance on wholesale funding.
The MNB has consulted the European Central Bank and market participants with regard to the draft decree. As a result several comments have been incorporated into the planned regulation, thereby contributing to the smooth future application of the new decree and enhancing its efficiency.
For more information concerning the macroprudential tools of the MNB regulating liquidity and funding risks, please follow this link.