The effect on payments of the conversion of MNB bills into deposits

László Bodnár (), Miklós Luspay () and Annamária Madarász ()
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László Bodnár: Magyar Nemzeti Bank (Central Bank of Hungary)
Miklós Luspay: Magyar Nemzeti Bank (Central Bank of Hungary)
Annamária Madarász: Magyar Nemzeti Bank (Central Bank of Hungary)

MNB Bulletin (discontinued), 2014, vol. 9, issue 2, 36-44

Abstract: In April 2014, a decision was made at the central bank to convert the two-week MNB bills into deposits as of August 2014 with the objective of “channelling HUF liquidity from the two-week MNB bills to government securities”.1 This also means that this shortterm instrument is removed from the pool of eligible collateral accepted by the MNB, and thus credit institutions will no longer be able to use it for the execution of payment transactions; i.e. as collateral for fulfilling their clients’ payment orders. Since the two-week MNB bill comprises the bulk (nearly 40 per cent) of the securities pledged by banks as collateral, the central bank decision will definitely require some adjustment on the part of credit institutions if they wish to maintain the level of liquidity previously available for them in the payment systems. In our paper, we examine the possible adjustments of banking sector participants in response to the conversion of the MNB bill into deposits in terms of liquidity and, based on historical data, we attempt to analyse the impact on credit institutions resulting from the removal of the MNB bill from the pool of eligible collateral.

Keywords: RTGS; payments systems liquidity; liquidity management; collateral management; security portfolio; monetary policy tools (search for similar items in EconPapers)
JEL-codes: E42 E5 (search for similar items in EconPapers)
Date: 2014
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