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Policy measures and failures on foreign currency household lending in central and eastern Europe


  • A. Bethlendi

    () (AEGON Insurance Company, Szépvölgyi út 49-55, H-1037 Budapest, Hungary)


I found that during booming years national policy makers were strongly constrained to decrease or effectively manage the risks of unhedged foreign currency lending (FCL) to households due to the economic characteristics of Central and Eastern Europe (CEE). Strong FCL growth was mainly driven by private sector consumption and investment. Foreign banking groups easily intermediated international financing into open CEE markets. International measures, which could have limited FCL, were not taken. I found an inconsistency: FCL was primarily a result of macroeconomic imbalances, but macroeconomic policies mostly proved inefficient to downsize it. Administrative measures seemed to be the most effective, however, only for a short period due to the high degree of financial liberalisation. Regulatory measures proved less efficient, while relatively frequently used supervisory actions did not have any notable effects. Financial education, moral suasion, and market development measures (with the exception of long-term, fixed rate local currency (LC) housing finance) were not efficient at all. Out of 12 investigated countries 6 had some success to limit FCL. Others did not have any efficient policy mix. Comparing the experiences of Hungary and other countries I found that the ‘we cannot do anything’ is a worse policy approach than the ‘we will try to do something’ one in spite of its deficiencies. The euro membership could not automatically eliminate FCL as the example of Slovenia shows.

Suggested Citation

  • A. Bethlendi, 2011. "Policy measures and failures on foreign currency household lending in central and eastern Europe," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 61(2), pages 193-223, June.
  • Handle: RePEc:aka:aoecon:v:61:y:2011:i:2:p:193-223
    Note: I am grateful to Katalin Bodnár and two anonymous referees for their useful comments. All remaining errors are mine.

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    References listed on IDEAS

    1. Brzoza-Brzezina, Michał & Chmielewski, Tomasz & Niedźwiedzińska, Joanna, 2007. "Substitution between domestic and foreign currency loans in Central Europe. Do central banks matter?," MPRA Paper 6759, University Library of Munich, Germany.
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    Cited by:

    1. Hegedüs, József & Somogyi, Eszter & Augustyniak, Hanna & Csizmady, Adrienne & Laszek, Jacek & Olszewski, Krzysztof, 2019. "Posztszocialista lakásrendszerek Magyarországon és Lengyelországban
      [Post-socialist housing systems in Hungary and Poland]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 980-1004.
    2. Júlia Király & András Simonovits, 2017. "Mortgages Denominated in Domestic and Foreign Currencies: Simple Models," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(7), pages 1641-1653, July.
    3. repec:cbh:journl:v:14:y:2015:i:3:p:60-87 is not listed on IDEAS
    4. Pál Péter Kolozsi & Ádám Banai & Balázs Vonnák, 2015. "Phasing out household foreign currency loans: schedule and framework," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 14(3), pages 60-87.
    5. Alin Marius AndrieÅŸ & Simona Nistor, 2018. "Systemic Risk and Foreign Currency Positions of Banks: Evidence from Emerging Europe," Eastern European Economics, Taylor & Francis Journals, vol. 56(5), pages 382-421, September.
    6. András Bethlendi, 2015. "Bad product development results in systemic market failure – Foreign currency mortgage loans to Hungarian households," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 14(1), pages 5-30.
    7. repec:cbh:journl:v:14:y:2015:i:1:p:5-30 is not listed on IDEAS

    More about this item


    household borrowing; currency mismatch; international comparison; Central and Eastern Europe; policy measure;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation


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