The preparations for EU integration that started in the beginning of the 1990s and resulted in Hungary’s accession to the EU in 2004 contributed to the broadening of MNB’s international relations. The following summary aims to give an overview on the various aspects of cooperation between MNB and EU institutions.
MNB relations with the European System of Central Banks (ESCB) and the European Central Bank (ECB)
Hungary’s accession to the EU also entailed MNB’s membership in the European System of Central Banks (ESCB). The ESCB comprises the European Central Bank (ECB), established in June 1998 and the national central banks of EU Member States.
The governing bodies of the ECB are the Executive Board (its members are the President of the ECB, the Vice-President and four other members) and the Governing Council, the latter consisting of the members of the ECB’s Executive Board and the Governors of euro area central banks. The third decision-making body of the ECB/ESCB is the General Council which is responsible for maintaining an institutional relationship between the Eurosystem (i.e. the ECB and the euro area central banks) and the central banks of non-euro area Member States. The General Council comprises the President and Vice-President of the ECB and the Governors of all EU national central banks, who meet quarterly in Frankfurt, at the seat of the ECB.
The key responsibilities of the General Council include consultancy concerning preparations for euro area accession, approval of the ECB convergence reports and monitoring the functioning of ERM II. In addition, the General Council is involved in verifying whether EU central banks and the ECB comply with the prohibition on monetary financing of the budget and privileged access of the public sector to financial institutions. Moreover, the General Council contributes to the ECB’s advisory functions and to the collection of statistical information; its opinion must be sought regarding any changes in the rules of accounting and financial data supply, as well as issues related to the adjustment of the ECB’s key for capital subscription. The mandate of the General Council will expire on the date when all EU Member States have adopted the euro.
ESCB members are also owners of the ECB. Ownership shares of central banks are determined according to their country’s share in the GDP and total population of the EU (on the basis of statistical data compiled by the European Commission). Currently, euro area central banks subscribe to 81,33% of the ECB’s capital, while the remaining 18,67% is divided among the central banks of non-euro area Member States. These latter central banks pay a pre-defined minimum (currently 3.75) percentage of their respective subscriptions to the ECB’s capital as a contribution to the operational costs of the ECB related to their ESCB membership. As a result of Brexit, the Bank of England left the ESCB, which called for an adjustment in the ECB’s capital keys, thereby the MNB’s capital key increased to 1.5488 per cent as of 1 February 2020.
The role of ESCB committees
The ESCB committees and their working groups play an important role in the work of the ECB/ESCB’s decision making-bodies. The basic role of these committees is to prepare decisions and facilitate coordination as per the division of the various central bank activities, covering all areas of central banking operations from monetary policy through communication to statistical data reporting. The members of these committees are the experts of the ECB and EU central banks. Experts from non-euro area central banks attend those committee meetings, where the agenda includes items affecting the ESCB as a whole and which fall within the competence of the General Council. The committees meet and discuss current issues relevant to their professional areas 4-5 times a year, according to a pre-determined schedule.
Senior executives and experts of MNB participate actively in the work of the committees and their substructures. This cooperation provides opportunities for developing common approaches among central banks and serves as a very useful forum for the exchange of professional experience.
Legal consultations with the ECB
The ECB plays a key role in formulating opinions on EU-level and national legislative proposals in the area of financial regulation and on country-specific legislation related to the responsibilities and functions of national central banks. The process of legal consultations follows a pre-determined schedule, during which all EU national central banks are involved and have an opportunity to contribute to the formulation of the ECB’s opinion by submitting comments. The initiation of the consultation procedure is the responsability and obligation of the Member State concerned (however, the ECB is entitled to prepare an opinion on its own inititative, as well, whenever it seems it appropriate).
MNB relations with other EU institutions and fora
European Systemic Risk Board (ESRB)
In response to the global financial crisis of 2008-2009, the European Commission tasked a High Level Group, chaired by Mr Jacques de Larosiere, to consider how the European supervisory arrangements could be strengthened. Among its many conclusions, the Group highlighted that supervisory arrangements should not only concentrate on the supervision of individual firms, but also place emphasis on the stability of the financial system as a whole. In 2009, the de Larosiere report recommended, among other things, that a Union level body be established with a mandate to oversee risks in the financial system. The establishment of the European Systemic Risk Board was the result of these recommendations.
The ESRB was established by Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24/11/2010 for the macro-prudential oversight of the EU financial system. Meanwhile Council Regulation (EU) No 1096/2010 of 17/11/2010 conferred specific tasks upon the European Central Bank concerning the functioning of the European Systemic Risk Board. On 16 December 2010 the legislation establishing the ESRB entered into force.
The ESRB is part of the European System of Financial Supervision (ESFS), the purpose of which is to ensure supervision of the Union’s financial system. Besides the ESRB, the ESFS comprises the European Banking Authority (EBA); the European Insurance and Occupational Pensions Authority (EIOPA); the European Securities and Markets Authority (ESMA); the Joint Committee of the European Supervisory Authorities (ESAs); and the competent or supervisory authorities in the Member States as specified in the legislation establishing the three ESAs.
Mandate and tasks of the ESRB
According to the ESRB Regulation: “The ESRB shall be responsible for the macro-prudential oversight of the financial system within the Union in order to contribute to the prevention or mitigation of systemic risks to financial stability in the Union that arise from developments within the financial system and taking into account macro-economic developments, so as to avoid periods of widespread financial distress. It shall contribute to the smooth functioning of the internal market and thereby ensure a sustainable contribution of the financial sector to economic growth.”
For this purpose, the ESRB shall carry out the following main tasks:
- identifying and prioritising systemic risks;
- issuing warnings where such systemic risks are deemed to be significant and, where appropriate, make those warnings public;
- issuing recommendations for remedial action in response to the risks identified and, where appropriate, making those recommendations public;
- when the ESRB determines that an emergency situation may arise, issuing a confidential warning addressed to the Council and providing the Council with an assessment of the situation, in order to enable the Council to adopt a decision addressed to the European Supervisory Authorities (ESAs) determining the existence of an emergency situation;
- monitoring the follow-up to warnings and recommendations;
- cooperating closely with all the other parties to the European System of Financial Supervision (ESFS); where appropriate, providing the ESAs with the information on systemic risks required for the performance of their tasks; and, in particular, in collaboration with the ESAs, developing a common set of quantitative and qualitative indicators (risk dashboard) to identify and measure systemic risk;
- participating, where appropriate, in the Joint Committee of the ESAs;
- coordinating its actions with those of international financial organisations, particularly the International Monetary Fund (IMF) and the Financial Stability Board (FSB), as well as the relevant bodies in third countries on matters related to macro-prudential oversight.
The main decision-making body of the ESRB is the General Board, which is supported by different committees, like the Steering Committee, the Advisory Scientific Committee, or the Advisory Technical Committee. The General Board meets four times a year. The Governor of the Magyar Nemzeti Bank is a voting member at the ESRB General Board.
Economic and Financial Committee (EFC)
Upon EU-accession MNB became a member of the Economic and Financial Committee (EFC), which prepares the meetings of EU finance ministers, i.e. the Ecofin Council.
The members of the EFC are the representatives of EU Member States (both from ministries of finance and national central banks), the ECB and the European Commission.
The EFC meets in two formats: either in restricted (only ministries of finance, the ECB and the European Commission participate) or in full composition (when central banks are also involved), depending on topics to be discussed. Meetings in full composition are usually organised 9-10 times per year, with the participation of deputy governors from central banks. Two of the full composition meetings per year have a more complex agenda involving a so-called ‘Financial Stability Table’ section (EFC-FST meetings). These two meetings are attended by the representatives of the new authorities of the European System of Financial Supervision established in 2011 (ESRB, EBA, ESMA, EIOPA), as well.
The most important topics discussed by the EFC are the stability and convergence programmes of EU Member States, the preparation of documentation related to the Excessive Deficit Procedures (EDP) against Member States and the coordination of EU economic policies. In parallel with the recent financial crises the EFC has become the main preparatory forum within the EU regarding the reform of financial regulations and the establishment of crisis prevention and management arrangements at EU level.
The experts of MNB participate in the following two sub-committees of the EFC: Sub-Committee on IMF (SCIMF) and the Euro Coin Sub-Committee (ECSC).
Central banks are directly involved in the work of the Ecofin Council (i.e. the meetings of EU finance ministers) through the so-called informal Ecofin meetings, which take place twice a year with the participation of EU finance ministers, the Governors of EU national central banks and the ECB. At these meetings Ministers and Governors discuss financial policy issues which are of relevance also for the national central banks.
Although the relations of MNB are mainly directed towards the ESCB, within the EU the cooperation with the Directorate General Economic and Financial Affairs (DG Ecfin) of the European Commission is also worth mentioning. The main area of common issues with DG Ecfin relates to the convergence programme of Hungary, which is to be submitted to the European Commission (MNB participates in commenting the chapters of the programme concerning monetary and exchange rate policy and inflation developments). Furthermore, regular meetings are taking place among MNB and DG Ecfin experts in the topics of macro-framework, fiscal policy, monetary policy and the financial sector.