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MNB launches macroprudential strategy

Analysis

Image by Jessica Fejos

The National Bank of Hungary (MNB) today launched a macroprudential strategy that aims to prevent or minimize the impact of financial crises in future.

(Photo: Jessica Fejos)

The MNB is laying out its macroprudential strategy because losses from the international financial crises have shown that the stability of the financial system cannot be guaranteed solely by microprudential intervention.

The central bank would like to encourage the responsible risk-taking of financial actors, strengthen the resilience of the financial system and support the financial system in aiding sustainable growth.

In its strategy, the MNB noted the importance of cyclical and structural risk factors to financial stability, mentioning moral hazards, ex-post state intervention and excessive risk taking as cyclical factors and liquidity shortages, feedback into the real economy and financial institutions “too big to fail” as structural factors.

As countermeasures, the MNB is setting out intermediate objectives such as moderating credit and collateral growth, moderating and preventing liquidity shortages, limiting risk exposure in key sectors, moderating bad financial incentives with special focus on moral hazard and strengthening the adaptability of the financial system.

The MNBʼs macroprudential tools include the anti-cyclical capital buffer, determining the minimal level of loss given default (LGD) for assets backed by real estate, determining extra capital requirements for systematically important institutions, determining a system wide capital buffer, laying down rules for managing short-term liquidity needs, laying down collateral rules for household borrowers, determining the minimum rate of mortgage backed securities for banks, determining the amount of foreign exchange reserves for institutions based on their offered services and suspending certain services for periods up to 90 days.

In future MNB will give an annual review on the effects of the macroprudential tools it uses and how the market adapts to them.

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