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Bad product development results in systemic market failure – Foreign currency mortgage loans to Hungarian households

Author

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  • András Bethlendi

    (Magyar Nemzeti Bank)

Abstract

This article focuses on the supply side of household foreign currency mortgage loans in Hungary, on the relevant business policy aspects as well as on product development and management in a wider sense. It presents how the various risk types of this risky, longterm loan product were shifted to consumers by credit institutions. The long-term success of shifting these risks was actually prevented by its systemic aspect. The major long-term business policy mistakes are classified according to ten main features. Foreign currency lending to households in Hungary is a case study presenting that the completely laissez faire, laissez passer approach to household lending from both consumer protection and prudential points of view can lead to a systemic failure; market self-regulation does not work perfectly in the credit markets. It is difficult and time-consuming to subsequently remedy a systemic risk problem. Remedying the past problems and establishing the overall conditions for new fair lending is expected to be completed in 2015.

Suggested Citation

  • 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.
    • Handle: RePEc:mnb:finrev:v:14:y:2015:i:1:p:5-30
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    File URL: http://english.hitelintezetiszemle.hu/letoltes/1-bethlendi-en.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Kornél Kisgergely, 2010. "Carry trade," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 5(2), pages 31-43, June.
    3. Attila Csajbók & András Hudecz & Bálint Tamási, 2010. "Foreign currency borrowing of households in new EU member states," MNB Occasional Papers 2010/87, Magyar Nemzeti Bank (Central Bank of Hungary).
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Pál Péter Kolozsi & Csaba Lentner, 2020. "Consolidation and Legacy of Foreign Currency Household Lending in Central and Eastern Europe: The Case of Hungary," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 14(3), September.
    2. Győző Gyöngyösi & Emil Verner, 2022. "Financial Crisis, Creditor‐Debtor Conflict, and Populism," Journal of Finance, American Finance Association, vol. 77(4), pages 2471-2523, August.

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    More about this item

    Keywords

    household indebtedness; foreign currency lending; credit supply; systemic risk; regulation; market failure;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • 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
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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