The Resolution Fund

The objective of the Resolution Fund

From a fiscal perspective, a positive by-product of the crisis management framework revised in light of the conclusions drawn from the global financial crisis of 2007 is the establishment of the Resolution Fund, which is intended to ensure that the typically high costs associated with addressing the problems arising in the financial sector are borne by market participants instead of the taxpayers. A pivotal element of the new regulation is the Resolution Fund supplied by the financial contributions of credit institutions and investment firms, which added a new element to the financial stability backstop.

Tasks of the Resolution Fund

The main task of the Resolution Fund is to finance the costs incurred in the resolution phase of institutional crisis management, i.e. the application of the resolution tools. Pursuant to Article 126 of the Resolution Act, the relevant tasks are the following:

a)       guarantee the assets or the liabilities of institutions under resolution, their subsidiaries, bridge institutions and trustees in resolution;

b)       provide loans to institutions under resolution, their subsidiaries, bridge institutions and trustees in resolution;

c)       purchase the assets of the institution under resolution;

d)       capital contribution to a bridge institution or an asset management vehicle;

e)       contribution to the institution under resolution for the purposes specified in Articles 59–60 of the Resolution Act;

f)        indemnification payable to the National Deposit Insurance Fund (hereinafter: OBA) in accordance with Article 143 (5) of the Resolution Act;

g)       compensation payable to shareholders or creditors in accordance with Article 98 of the Resolution Act;

h)       ensure that the principle of fiscal neutrality as set out in Article 128 of the Resolution Act is observed;

i)         take any combination of the actions specified in paragraphs a)–h); and

j)         in the course of the application of the sale of business tool, use the Resolution Fund in respect of the acquirer for the purposes of the actions specified in paragraphs a)–d) above.

The assets of the Resolution Fund

The Resolution Fund is composed of the contributions of market participants (credit institutions and investment firms), to be paid evenly over a ten-year temporary period until the minimum requirement is reached, which is, for each Member State’s resolution fund, at least 1 per cent of the amount of covered deposits (not exceeding EUR 100,000). Based on the latest finalised data, this implies a target level of around HUF 82 billion in Hungary. This target level, however, changes dynamically in function of the covered deposit stock.

Legal status, organisation and control:

The Resolution Fund is an extra-budgetary fund, a legal entity with a registered seat in Budapest. The Fund's governing body is the Board of Directors, comprising the following members: an individual designated by the Minister for National Economy; the Deputy Governors of the MNB in charge of resolutions and the supervision of financial institutions or an individual designated by them from their respective professional areas; and the managing director of the National Deposit Insurance Fund (OBA). As opposed to the practice established by the existing operating model of OBA and Beva (Investor Protection Fund) but in line with international practice, the market participants making contributions to the Fund are not members of the governing body of the Resolution Fund.

The Resolution Fund has no working organisation of its own; the operating tasks are carried out by the OBA’s working organisation under the direction of the OBA’s managing director. The accounts of the Resolution Fund are managed by the MNB; its financial management is audited by the State Audit Office.

Data of the Resolution Fund:

Governing body:                                           Board of Directors

Board of Directors inaugural meeting:           29 July 2014

Disclosures:

No current disclosure.