ECB continues to probe MNB programs

Initiatives

The European Central Bank is continuing to monitor a number of programs launched by the National Bank of Hungary (MNB) which it says “were not related to monetary policy and which could be perceived as being potentially in conflict with the monetary financing prohibition” according to the ECB’s annual report published on Thursday.

The programs the ECB was referring to are real estate investment purchases, a program to promote literacy through a network of six foundations, the transfer of MNB staff previously employed by the Hungarian Financial Supervisory Authority and a program to purchase Hungarian artworks and cultural properties, according to the report. Concerns regarding these programs had already been raised in the ECB’s 2014 report and it said that these the issues surrounding these programs have yet to be resolved.

The ECB added that it is monitoring the MNB to “ensure that the central bank resources that it conferred on its network of foundations are not used, directly or indirectly, for state financing purposes”.

The ECB also questioned the MNB’s majority ownership of the Budapest Stock Exchange which it said “may be seen as giving rise to monetary financing concerns as the MNB effectively used central bank resources to support an economic policy goal that is typically seen as a government competence”.

Providing incentives for banks to buy forint-denominated government securities in order to support the MNB’s self-financing program “could be seen as a means of circumventing the prohibition of privileged access under Article 124 of the Treaty”, the ECB added in its report. Article 124 of the Treaty of Lisbon prohibits “any measure, not based on prudential considerations” that establishes privileged access by bodies governed by public law to financial institutions.

The ECB asked in its report that the MNB review its operations and in future make all necessary attempts to avoid conflicts between its practices and monetary financing and privileged access prohibitions.

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