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Bank Failures in Hungary: Liability, Planning, and Regulatory Requirements

In Hungary, bank failures can have severe consequences for both financial institutions and their stakeholders. The Hungarian National Bank (MNB) plays a crucial role in regulating the banking sector and ensuring stability.

Bank Failures

When a bank fails due to reasons outlined in the Banking Act, the MNB may appoint a supervisory commissioner to oversee its operations. During this period:

  • Board members cannot perform their duties or exercise signatory rights.
  • The liability of board and supervisory board members is regulated by different acts, including the Hungarian Civil Code and the Banking Act.

Liability of Managers and Directors

Executive officers, members of the board, and the supervisory board are liable for damages caused by breaching rules, charter documents, or resolutions. Specific regulations apply to liability under the Banking Act. If a manager or director is an employee of the credit institution, the Labour Code applies.

  • Liability under the Banking Act: Executive officers, members of the board, and the supervisory board are liable for damages caused by breaching rules, charter documents, or resolutions.
  • Labour Code: The Labour Code applies if a manager or director is an employee of the credit institution.

Planning Exercises

Credit institutions must have written policies and procedures for identifying, measuring, managing, and monitoring liquidity risk. They must distinguish between pledged and unencumbered assets available at all times, including during emergency situations.

  • Liquidity Risk Management: Credit institutions must have written policies and procedures for identifying, measuring, managing, and monitoring liquidity risk.
  • Asset Classification: They must distinguish between pledged and unencumbered assets available at all times, including during emergency situations.

Capital Adequacy

Banks must have sufficient own funds to cover risks of activities, meeting the minimum capital requirement defined in EU Regulation (EU) No. 575/2013. The equity capital, solvency margin, reserves, and collections of resources are part of the prudent operation requirements.

  • Minimum Capital Requirement: Banks must have sufficient own funds to cover risks of activities, meeting the minimum capital requirement defined in EU Regulation (EU) No. 575/2013.
  • Prudent Operation Requirements: The equity capital, solvency margin, reserves, and collections of resources are part of the prudent operation requirements.

Additional Requirements

Credit institutions must place 10% of their annual after-tax profits into a general reserve to offset losses.

  • General Reserve: Credit institutions must place 10% of their annual after-tax profits into a general reserve to offset losses.