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Bill would establish full joint liability for savings coops, extend scope of MNB oversight

Initiatives

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A bill submitted to Parliament by National Economy Minister Mihály Varga yesterday would establish full joint liability for Hungaryʼs integrated savings cooperatives and give the National Bank of Hungary closer oversight of the sector, Hungarian news agency MTI reported yesterday.

The bill was submitted a week after the Hungarian Banking Associationʼs head, Mihály Patai, complained in a letter to Varga that savings cooperatives enjoy a competitive advantage over banks. He said the bank levy is less of burden to savings cooperatives than it is to banks – savings cooperatives are not under the sole oversight of the central bank and banks must sometimes fill in to cover savings cooperativesʼ liabilities – news weekly HVG reported, citing a copy of the letter it obtained.

In a statement released Monday, the National Bank of Hungary said it agrees with the head of the Hungarian Banking Association that oversight of the countryʼs savings cooperatives could be improved and that eliminating limits on integrated coopsʼ joint liability could contribute to banking sector stability and level the playing field.

“At present, the system of oversight, liability and requirements for savings cooperatives is different from that for other credit institutions. If the legislature decides to move further in the direction of uniform financial oversight, the central bank stands ready for the implementation of such a measure,” the MNB said.

In a letter sent to the head of the National Association of Savings Cooperatives on Monday, Prime Minister Viktor Orbán said the bill would “place the entire savings cooperative system under the banking sector watchdog” and give the watchdog the legal tools to “guarantee the secure, legal and transparent operation of the savings cooperatives”.

Orbán wrote in the letter to Sándor Demján, posted on the governmentʼs website, that he accepted the view that the savings cooperative system “cannot operate without appropriate oversight, which must put the Hungarian banking sector on a level playing field”, noting that the Hungarian Banking Association shares the same view.

Orbán added in the letter that the government is “openly and unequivocally opposed” to the acquisition of further shares in FHB Bank by savings cooperatives.

“We will take the necessary steps to prevent this,” he added.

Orbán earlier called the stateʼs exclusion from a capital raise at FHB Bank late last year a “hostile” step and said the stateʼs stake in the lender “may not be reduced”.

Orbán noted at the time that FHBʼs accession to the savings cooperative integration was organized by the government.

Speaking at a press conference late yesterday, Varga said the bill would allow more efficient oversight of the savings cooperative system by the MNB. The MNB could intervene as well, mandating the savings cooperativesʼ central bank to conduct probes, he added.

The MNB would have the power to initiate penalties, suspensions and revocation of licenses under the rules, he said.

Another important element of the bill would give greater legal power to the integrator of the savings cooperatives, he added.

Varga acknowledged the government had received the letters from Demján and Patai and added that Takarékbank, the “ central bank” for savings cooperatives, and savings cooperative integrator SZHISZ had also weighed in on the matter. The government discussed the issue on Friday and decided to draft legislation with the involvement of the MNB and the Hungarian Banking Association, he said. The bill was finished by Monday morning, he added.

Though the government could accept the banking associationʼs stand on creating a level playing field and modifying the system of oversight for savings cooperatives, it could not require the coops to pay the bank levy as a group, Varga said.

The Hungarian Banking Association told MTI that it agreed with the basic elements of the proposed changes to the rules on the integrated savings cooperatives. Regulation of the sector would be ensured by uniform oversight, rather than determined by the business policy of a single bank or group within the integration, it added.

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