Capital buffer for other systemically important institutions (O-SII)

The MNB identifies and annually reviews the list of global and other systemically important credit institutions and investment firms based in Hungary, and if necessary, imposes an additional capital buffer requirement on these institutions while continuously monitoring their operation. There is no institution domiciled in Hungary under the jurisdiction of the MNB whose group-level international activities are so extensive that they would be considered globally systemically important. In contrast, in the domestic banking system, several domestic systemically important credit institutions, or other systemically important institutions (O-SIIs) as they are referred to in the regulatory terminology of the European Union, can be identified.

Improving the loss-absorption capacity of systemically important institutions is a preventive macroprudential tool intended to limit the severe contagion effects stemming from the insolvency or stress situation of systemically important institutions. The purpose of the buffers is to lower the probability of negative external financial and real economy effects generated by the stress situation of important institutions (as well as the costs to be incurred by the state budget during the prevention of such effects). The requirement may curtail the misaligned motivation of managers and owners of capital arising from the moral hazard problem, as a higher “skin in the game” may prompt stakeholders to reduce the extent of their risk-taking.

On the negative side, banking operations may become more expensive due to the increase in the cost of funds. Imposing the surcharge may reconfirm the institution's priority status both for the relevant institution and its creditors, which could give rise to a special kind of moral hazard, as it increases their expectations about a funding subsidy in the event of a default. This risk, however, is considerably reduced by the uniform resolution framework (BRRD) harmonised at the EU level (e.g.: through bail-in).

The MNB reviews annually the identification of other systemically important credit institutions and the individual buffer rates set for them. During its regular identification exercise, the individual scores expressing the significance of credit institutions in a single indicator are generated by aggregating the core indicators harmonised at EU level and the optional indicators adding country-specific dimensions to the measurement. The MNB determines the buffer rates of O-SII banks proportionally with the scores measuring significance, and accordingly modifies the buffer rates in case material changes in the systemic significance and substantive rearrangements of the scores necessitate the adjustment.

Main indicators used for identification

Source: MNB

The scores of credit institutions identified as systemically important in 2024 and the buffer rates prescribed for 2025

Note: Scores as a result of the 2024 identification, based on data from the end of 2023.

Source: MNB

The development over time of the systemic importance scores of the O-SII banks identified by the MNB

Note: The years indicate the validity period of the scores, the reference year of the data used for the calculation is the end of the year two years prior to the validity period. Source: MNB.

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