Draghi: ECB continues to monitor MNB foundations

MNB

The European Central Bank (ECB) continues to monitor several operations of the National Bank of Hungary (MNB), including the investment strategy of its Pallas Athene foundations, checking their compliance with the prohibition on monetary financing, ECB President Mario Draghi confirmed in a letter to an MEP dated August 29.

As Draghi recalls in the letter to MEP Sophie in ĘĽt Veld, a member of the Dutch party Democrats 66, part of the Alliance of Liberals and Democrats for Europe, the ECB has been monitoring several operations of the MNB from the perspective of compliance with Article 123 of the Treaty on the Functioning of the European Union (TFEU). He adds that this encompasses the network of the Pallas Athene foundations established by the MNB to promote financial literacy, including their investment strategy.

As Draghi recalls, Article 123 of the TFEU "prohibits the ECB and national central banks from purchasing public debt instruments directly on the primary market." In addition, he adds: "Secondary market purchases of public debt instruments are allowed [...] but they must not be used to circumvent the objectives of the prohibition on monetary financing, as clarified in Council Regulation (EC) No 3603/93."

Draghi referred to the ECB’s Annual Report 2016, saying that "in view of the multitude, scope and size of the foundations established by the [MNB], the ECB will continue its close monitoring of their operations to ensure that there are no conflicts with the prohibition of monetary financing and of privileged access." Furthermore, he added, the MNB "should ensure that the central bank resources it has conferred on its network of foundations are not used, directly or indirectly, for state financing purposes."

"Based on its continuous monitoring, and in case the investment strategy or activities of the foundations are used to circumvent the objectives of the prohibition on monetary financing, the ECB would consider the appropriate steps to take, which may involve the initiation of infringement proceedings," the ECB president warned in the letter.

Reducing securities holdings

The ECB made similar observations in its 2015 report released in April 2016, after which the MNB foundations said that the government securities in their endowment would "gradually be exchanged for yield-producing real estate, in line with the stand of the European Central Bank."

In September 2016, the Pallas Athene foundations said they were scaling back their portfolio of government securities but maintained that keeping such instruments in their portfolio is not a violation of the law. They said their government securities holdings fell by HUF 56 billion in nine months to HUF 156.9 bln at the end of September 2016, when they held HUF 70.8 bln in real estate, HUF 19.0 bln in bank deposits, and HUF 21 bln in corporate bonds. The portfolio was practically unchanged at the end of 2016.

The latest figures reported by Optima, the asset manager of the six foundations, show that their government securities portfolio fell to HUF 122.6 bln at the end of June, their real estate portfolio grew to HUF 84 bln, and they held HUF 22.1 bln in bank deposits and HUF 39.1 bln in corporate bonds, according to MTI.

The MNB set up the foundations with a contribution of about HUF 267 bln in 2014, the state news agency recalled.

Hungary Current Account has EUR 213 mln Deficit in January Debt

Hungary Current Account has EUR 213 mln Deficit in January

Budapest Residents to Weigh in on Rákosrendező Development P... Issues

Budapest Residents to Weigh in on Rákosrendező Development P...

AutoWallis Becomes Importer of Geely Group’s Commercial EV B... Automotive

AutoWallis Becomes Importer of Geely Group’s Commercial EV B...

These Are the Most Sleep-friendly Hotels in Hungary Hotels

These Are the Most Sleep-friendly Hotels in Hungary

SUPPORT THE BUDAPEST BUSINESS JOURNAL

Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.