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Simor says govt has obligation to consult with ECB on MNB-PSZAF merger

Hungary’s government is obligated to consult with the European Central Bank on a proposed amendment to the Constitution that would allow the merger of the National Bank of Hungary and the country’s financial market regulator, just as it must consult with the ECB on changes to the Central Bank Act, MNB governor Andras Simor said in an interview broadcast on commercial television station ATV.

The government has not asked the ECB’s opinion of the merger, but if it did, the answer would be that it goes against the EU Treaty, Mr Simor said. He explained that the merger itself is not the problem but the introduction of a new position above the central bank governor.

The government’s proposal would merge the MNB and financial market watchdog PSZAF into a new institution whose chairman would be appointed by the President for six years. The MNB governor and the head of PSZAF would be deputy chairmen in the new institution.

A central bank governor cannot be demoted, Mr Simor said.

Mr Simor said National Economy Minister Gyorgy Matolcsy had earlier suggested the MNB should operate along lines similar to the Anglo-Saxon model of central banking, focusing on growth as well as inflation. Broadening the MNB’s focus to include growth, as well as inflation, is an expectation that comes neither from the EU Treaty nor the Central Bank Act, he added.

Asked about press reports, Mr Simor said the matter of using the central bank’s forex reserves to support economic growth had not come up at talks with the government.

Mr Simor said about 40% of Hungarian banks, based on share of total assets, would be loss-making this year. Most of the profits will be generated by three banks, he added.