Opinion of the European Central Bank of 12 September 2022 on the reserve ratio and minimum reserves (CON/2022/33)

OPINION OF THE EUROPEAN CENTRAL BANK of 12 September 2022 on the reserve ratio and minimum reserves (CON/2022/33) Introduction and legal basis

On 11 August 2022 the European Central Bank (ECB) received a request from the Magyar Nemzeti Bank (MNB) for an opinion on the draft decree of the Governor of the Magyar Nemzeti Bank on the reserve ratio (hereinafter the ‘draft decree on the reserve ratio’) and the draft decree on the calculation, the method of allocation and placement of minimum reserves (hereinafter the ‘draft decree on minimum reserves’) (hereinafter, collectively the ‘draft decrees’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and Article 2(2) of Council Decision 98/415/EC , as the draft decrees relate to the instruments of monetary policy. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

1. Background and purpose of the draft Decrees

1.1 In 2016 the Governor of the MNB adopted Decree 45/2016 on the reserve ratio, in relation to which the ECB adopted Opinion CON/2016/56 . Decree 45/2016 provided that a reserve ratio of 0 % would apply to: (a) deposits and loans received with a remaining maturity of over two years at the time they are entered into the balance sheet of the credit institution; (b) debt securities issued with an agreed maturity over two years; and (c) repos. Further, a reserve ratio of 1% would apply to all other liabilities included in the reserve base of a credit institution subject to reserve requirements. The draft decree on the reserve ratio proposes to increase the reserve ratio referred to above from 1% to 5 %, 6 %, 7 %, 8 %, 9 % or 10 %, depending on the declaration of the credit institution that is subject to reserve requirements. In the absence of a declaration, the reserve ratio will be 5 %. The draft decree on the reserve ratio proposes to retain the 0% reserve ratio regarding the liability categories listed above under (a)-(c).

1.2 In 2005 the Governor of the MNB adopted Decree 10/2005 on the calculation, the method of allocation and placement of minimum reserves. That Decree was amended in 2018 , in which connection the ECB adopted Opinion CON/2018/48 on the proposed draft amendments. Decree 10/2005 provided that the credit institutions subject to minimum reserve requirements must comply with the reserve requirement once a month, on the last calendar day of the maintenance period, by applying the average calculation for the calendar days of the maintenance period. The draft decree on minimum reserves proposes to amend the method of calculation by introducing a partial averaging mechanism according to which credit institutions must hold the lowest level of minimum reserves applicable to that institution on each calendar day of the maintenance period. Credit institutions must also comply with the additional reserve requirements applicable to them depending on their declaration on a monthly basis, on the last calendar day of the maintenance period. 1.3 The draft decree on minimum reserves proposes the introduction of a new kind of penalty for cases of reserve deficiencies: the MNB may debit the forint settlement account of the credit institution with an amount proportional to the shortfall of the reserve holding amount, with an interest rate corresponding to twice the prevailing central bank policy rate effective on the day of the shortfall.

2. Observations

2.1 The ECB takes note of the draft decrees. As noted in earlier opinions , Member States whose currency is not the euro retain their powers in the field of monetary policy. Once the euro is introduced, Hungary’s monetary policy will be the single monetary policy and will need to be the consistent with the Eurosystem’s operational framework . 2.2 The ECB supports legal clarity . In that regard, and to increase consistency with the Eurosystem’s 9 10 operational framework , the term ‘minimum reserves’ should be used in both draft decrees .

This opinion will be published on EUR-Lex.

Done at Frankfurt am Main, 12 September 2022. [signed]

The President of the ECB

Christine LAGARDE