The preparations for EU integration that started in the beginning of the 1990s and resulted in Hungary’s accession to the EU in 2004 contributed to the broadening of MNB’s international relations. The following summary aims to give an overview on the many aspects of cooperation between MNB and EU institutions.
MNB relations with the European System of Central Banks (ESCB) and the European Central Bank (ECB)
Hungary’s accession to the EU also entailed MNB’s membership in the European System of Central Banks (ESCB). The ESCB comprises the European Central Bank (ECB), established in June 1998 and the national central banks of EU Member States.
The governing bodies of the ECB are the Executive Board (its members are the President of the ECB, the Vice-President of the ECB and four other members) and the Governing Council, the latter consisting of the members of the ECB’s Executive Board and the Governors of the national central banks of euro area Member States. The third decision-making body of the ECB/ESCB is the General Council, which is responsible for maintaining an institutional relationship between the Eurosystem (i.e. the ECB and the national central banks of euro area Member States) and the national central banks of non-euro area Member States. The General Council comprises the President and Vice-President of the ECB and the Governors of all EU national central banks, who meet quarterly in Frankfurt, at the seat of the ECB.
The key responsibilities of the General Council include consultancy concerning preparations for euro area accession, approval of the ECB convergence reports and monitoring the functioning of ERM II. In addition, the General Council is involved in verifying whether the national central banks of EU Member States and the ECB observe the prohibition on monetary financing of the budget and privileged access of the public sector to financial institutions. Moreover, the General Council contributes to the ECB’s advisory functions and to the collection of statistical information; its opinion must be sought regarding any changes in the rules of accounting and financial data supply, as well as issues related to the adjustment of the ECB’s key for capital subscription. The mandate of the General Council will expire on the date when all EU Member States have adopted the euro.
ESCB members are also owners of the ECB. Ownership share is based on demographic and GDP data (as calculated by the European Commission). Euro area national central banks presently subscribe to 70% of the ECB’s shareholder equity, while the remaining 30% is divided among the national central banks of non-euro area EU Member States in a way that these central banks pay 7% of their respective subscriptions to the ECB’s capital as a contribution to the operational costs of the ECB related to their ESCB membership.
Between 1 May 2004 and 31 December 2006 Hungary’s ownership share in the ECB’s capital amounted to 1,3884%. As a non-euro area Member State, upon accession to the EU and the ESCB (on 1 May 2004) Hungary paid 7% of its ownership share, i.e. a total of EUR 5,4 million to the ECB’ capital.
As set forth in the Statutes of the ESCB and the ECB, the capital keys are adjusted every five years and whenever a new Member State joins the EU. The capital keys were adjusted following the accession of Bulgaria and Romania to the EU. Consequently, as from 1 January 2007, Hungary’s share in the ECB’s capital and its paid-up capital fell to 1,3141% and to EUR 5,3 million, respectively.
The above mentioned five-yearly revision became due in 2008, thus the capital keys had to be adjusted again. Accordingly, as from 1 January 2009, Hungary’s share in the ECB’s capital and is paid-up capital increased to 1,3856% and EUR 5,6 million, respectively.
The role of ESCB committees
The so-called ESCB committees and their working groups play an important role in the work of the ECB/ESCB decision making-bodies. The members of these committees are the experts of the ECB and EU national central banks. The aim of the committees is to prepare decisions and facilitate coordination among central banks, covering all areas of central banking activities from monetary policy through communication to statistical data reporting. Experts from non-euro area national central banks attend those committee meetings, where the agenda includes items affecting the ESCB as a whole and which fall within the competence of the General Council. The committees meet and discuss current issues relevant to their professional areas 4-5 times a year, according to a pre-determined schedule.
Senior executives and experts of MNB participate actively in the work of the committees and their substructures. This cooperation provides opportunities for developing common approaches among central banks and serves as a very useful forum for the exchange of professional experience.
Legal consultations with the ECB
The European Central Bank plays a key role in formulating opinions on different EU-level and national legislative proposals in the area of financial regulation and on country-specific legislation related to the responsibilities and functions of national central banks. The process of legal consultations follows a pre-determined schedule, during which all EU national central banks are involved and have an opportunity to contribute to the formulation of the ECB’s opinion by submitting comments. The initiation of the consultation procedure is the responsability and obligation of the Member State concerned (however, the ECB is entitled to prepare an opinion on its own inititative, as well, whenever it seems it appropriate).
MNB relations with other EU institutions and fora
European Commission
Although the relations of MNB are mainly directed towards the ESCB, within the EU the cooperation with the Directorate General Economic and Financial Affairs (DG Ecfin) of the European Commission is also worth to be mentioned. The main area of common issues with DG Ecfin relates to the convergence programme of Hungary, which is to be submitted to the European Commission (MNB participates in commenting the chapters of the programme concerning monetary and exchange rate policy and inflation developments).
Economic and Financial Committee (EFC)
Upon EU-accession MNB became a member of the Economic and Financial Committee (EFC), which prepares the meetings of EU finance ministers, i.e. the Ecofin Council.
The members of the EFC are the representatives of EU Member States (both from ministries of finance and national central banks), the ECB and the European Commission.
The EFC meets in two formats: either in restricted (only ministries of finance, the ECB and the European Commission participate) or in full composition (when central banks are also involved), depending on topics to be discussed. Meetings in full composition are usually organised 6-7 times per year, with the participation of deputy governors from central banks. Two of the full composition meetings per year have a more complex agenda involving a so-called ‘Financial Stability Table’ section (EFC-FST meetings). These two meetings are attended by the representatives of the so-called Level 3 committees, or European Supervisory Committees, as well.
The most important topics discussed by the EFC are the stability and convergence programmes of EU Member States, the preparation of documentation related to the Excessive Deficit Procedures (EDP) against Member States and the coordination of EU economic policies. In parallel with the recent financial crises the EFC has become the main preparatory forum within the EU regarding the renewal of the European supervisory structures, the reform of financial regulations, and the establishment of crisis prevention and management arrangements at EU level.
The experts of MNB participate in the following two sub-committees of the EFC: Sub-Committee on IMF (SCIMF) and the Euro Coin Sub-Committee (ECSC).
Committee of European Banking Supervisors (CEBS)
CEBS is one of the so-called Level 3 (or European Supervisory) Committees, it comprises the heads of all national banking supervisory authorities and the representatives of national central banks, which do not have banking supervisory functions. In case of Hungary the representative of the Hungarian Financial Supervisory Authority (HFSA) has a primary responsability in CEBS, however, the representative of MNB also participates at its meetings.
CEBS basically creates standards, recommendations and methodology for banking supervision, moreover it identifies risks emerging in the European banking system and makes proposals how to diminish them. In the framework of the ongoing reform of European supervisory structures, CEBS, very soon, will be transformed into a European Banking Authority with legal personality.
Ecofin Council
Central banks are involved in the work of the Ecofin Council (i.e. the meetings of EU finance ministers) through the so-called informal Ecofin meetings, which take place twice a year with the participation of EU finance ministers, the Governors of EU national central banks and the ECB. At these meetings Ministers and Governors discuss financial policy issues which are of relevance also for the national central banks. MNB is represented at these meetings by its Governor.