ECB Rebuffs Hungary’s Plan for Central Bank Mortgage Lending

REUTERS - march 29, 2021 

The European Central Bank said it’s opposed to the idea of Hungary’s central bank providing direct mortgages to retail borrowers for the building of energy-efficient homes.

In a legal opinion on planned changes to Hungary’s central bank law, the ECB said direct lending may violate European Union rules on monetary financing and expose the central bank to “substantial financial risks.”

“The Hungarian authorities are strongly encouraged not to allocate to the National Bank of Hungary the task of providing energy efficiency loans directly to consumers,” the ECB said in an opinion posted on its website.

The proposal follows comments from Governor Gyorgy Matolcsy last year that envisaged a broader role for the central bank in expanding green finances. Rate setters have been looking to quicken the inclusion of environmental sustainability criteria among lending incentives, already announcing some capital breaks for so-called green loans.

While it deemed direct mortgage lending as a step too far a central bank, the ECB endorsed a plan by Hungary’s central bank to add support for environmental sustainability as a secondary goal, beyond a primary target on price stability. 


The ECB’s “legal opinion” recommending that the National Bank of Hungary not to allocate to the National Bank of Hungary the task of providing energy efficiency loans directly to consumers gives an idea of the current boiling climate created by the digital currency projects, even if it does not concern the digital currency but the credit activity. This “legal opinion” is based on an unprecedented reading of Article 128-1 of the Treaty, which is currently being debated, precisely in the context of the reflection on the digital currency. This reading of Article 128-1 is, in our view, inspired by commercial banks that are already very afraid of being circumvented by central banks in the context of the digital currency, which proposes opening up accounts directly with central banks for individuals and businesses. From there to allow central banks to offer loans to them, there is only one step. 

Enclosed the ECB’s legal opinion. The ECB’s legal services state that the direct financing of individuals or businesses by a central bank contravenes Article 128-1 of the EU Treaty. 

In fact, the argument that Article 128-1 would limit the ECB’s powers with regard to monetary creation is far fetched. In fact, Article 128-1 is limited to stating that the ECB (and therefore NCBs) has a monopoly on the issue of banknotes. Article 128-1 does not say that central banks cannot make direct credit. However, in its “legal opinion”, the ECB suggests that anything not explicitly permitted by the Treaty is necessarily prohibited. Thus, by contrast, the NCBs should prohibit themselves – in return for this monopoly on banknotes – from making direct financing. In our view, this reasoning is based more on monetary theory than on law. One could expect the European Court of Justice to follow the ECB’s footsteps in upholding this reasoning. There are already German articles of doctrine circulating on the subject in order to make the article 128-1 say what it does not say...