Economy
ECB agrees with, but has concerns about Hungarian market watchdog integration into c.bank
The main concerns of the ECB are the following:
- the integration of the HFSA into the NBH would transfer the obligations stemming from the watchdog’s previous decisions to the central bank. This gives reasons for concern from the aspect of the bank’s financial independence therefore the state should take over these payment obligations not the NBH;
- after the integration the NBH - similarly to the HFSA - would finance its supervisory activity from the market players’ contributions, the supervisory fee. In view of the ECB, if the central bank wants to maintain its independence it would need to fix the size of the contribution and report it as a separate item in its books;
- the central bank’s autonomy is also put in jeopardy by the fact that the NBH will take over every employee of the HFSA as of 1 October.
Sources cited by Magyar Nemzet claim these concerns are exaggerated because the supervisory function is self-maintaining and financing is managed under well-defined regulations. They also said the NBH can still decide about the (former) HFSA employees at any later date.
Why is the integration needed?
Banks will come under tighter control, systemic risks will be more easily managed, monetary policy could become more efficient once the NBH and the PSZÁF are merged, central bank Governor György Matolcsy explained in early June.
In a letter written to a member of Parliament who had asked for a rationale for the planned integration of the watchdog Matolcsy argued in favour of the move by saying the the new joint organization will have the power and independence necessary to control the financial sector, a key priority in systemic risk management. A central bank with greater power could place these organizations under tighter, targeted supervisory control, he added.
Further, the integration is seen as beneficial in terms of creating a balance between policies aiming at the individual stability and safety of each financial organization vs. managing and mitigating systemic risks in the financial system, the Governor emphasized. Past attempts in this respect were unsuccessful, as the Financial Stability Council jointly set up by the National Bank of Hungary, the Economy Ministry and the State Financial Supervisory Authority was not effective enough. An integrated organization would make integrated communication possible, as well as a clear allocation of responsibilities, he argued.
The merger could be supportive of monetary policy as well, especially as regards secondary objectives, such as economic stimulus, according to Matolcsy. Having integrated the supervisory authority, the NBH will have more direct information at its fingertips about financial markets and monetary transmission, which could possibly support monetary policymaking.
- the integration of the HFSA into the NBH would transfer the obligations stemming from the watchdog’s previous decisions to the central bank. This gives reasons for concern from the aspect of the bank’s financial independence therefore the state should take over these payment obligations not the NBH;
- after the integration the NBH - similarly to the HFSA - would finance its supervisory activity from the market players’ contributions, the supervisory fee. In view of the ECB, if the central bank wants to maintain its independence it would need to fix the size of the contribution and report it as a separate item in its books;
- the central bank’s autonomy is also put in jeopardy by the fact that the NBH will take over every employee of the HFSA as of 1 October.
Sources cited by Magyar Nemzet claim these concerns are exaggerated because the supervisory function is self-maintaining and financing is managed under well-defined regulations. They also said the NBH can still decide about the (former) HFSA employees at any later date.
Why is the integration needed?
Banks will come under tighter control, systemic risks will be more easily managed, monetary policy could become more efficient once the NBH and the PSZÁF are merged, central bank Governor György Matolcsy explained in early June.
In a letter written to a member of Parliament who had asked for a rationale for the planned integration of the watchdog Matolcsy argued in favour of the move by saying the the new joint organization will have the power and independence necessary to control the financial sector, a key priority in systemic risk management. A central bank with greater power could place these organizations under tighter, targeted supervisory control, he added.
Further, the integration is seen as beneficial in terms of creating a balance between policies aiming at the individual stability and safety of each financial organization vs. managing and mitigating systemic risks in the financial system, the Governor emphasized. Past attempts in this respect were unsuccessful, as the Financial Stability Council jointly set up by the National Bank of Hungary, the Economy Ministry and the State Financial Supervisory Authority was not effective enough. An integrated organization would make integrated communication possible, as well as a clear allocation of responsibilities, he argued.
The merger could be supportive of monetary policy as well, especially as regards secondary objectives, such as economic stimulus, according to Matolcsy. Having integrated the supervisory authority, the NBH will have more direct information at its fingertips about financial markets and monetary transmission, which could possibly support monetary policymaking.
