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

A. Bethlendi

doi:10.1556/aoecon.61.2011.2.5

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Acta Oeconomica

Volume/Issue:: Volume 61: Issue 2

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

Author:

A. Bethlendi

A. Bethlendi Szépvölgyi út 49-55 H-1037 Budapest Hungary

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Pages:: 193–223

Online Publication Date:: 31 May 2011

Publication Date:: 01 Jun 2011

Article Category:: Journal Article

DOI:: https://doi.org/10.1556/aoecon.61.2011.2.5

Keywords:: household borrowing; currency mismatch; international comparison; Central and Eastern Europe; policy measure; G21; G28

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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.

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Acta Oeconomica Periodical of the Hungarian Academy of Sciences

Print ISSN:: 0001-6373

Online ISSN:: 1588-2659

Associate Editors

Péter Benczúr, Joint Joint Research Center, European Commission
Dóra Benedek, International Monetary Fund
Balázs Égert, OECD
Dániel Prinz, World Bank
Rok Spruk, University of Ljubljana, School of Economics and Business, Slovenia

Editorial Board

Anders Åslund, Georgetown University and Advisory Council of CASE, USA
István Benczes, Corvinus University of Budapest, Hungary
Agnieszka Chłoń-Domińczak, SGH Warsaw School of Economics, Poland
Fabrizio Coricelli, University of Siena, Italy
László Csaba, Corvinus University of Budapest, Hungary and Central European University, Austria
Beáta Farkas, Faculty of Economics and Business Administration, University of Szeged, Hungary
Péter Halmai, Budapest University of Technology and Economics, and National University of Public Service, Hungary
Martin Kahanec, Central European University, Austria
Michael Landesmann, The Vienna Institute for International Economic Studies (WIIW), Austria
Péter Mihályi, Corvinus University of Budapest, Hungary
Debora Revoltella, European Investment Bank

Corvinus University of Budapest
Department of Economics
Fővám tér 8 Budapest, H-1093, Hungary
E-mail: vanyai.judit@krtk.hu

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Acta Oeconomica
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