At the end of 2014, more than 23% of the foreign currency denominated mortgage portfolio in Hungary was overdue; about 20% was classified as non-performing and the tendency is worsening. In this paper, we propose a solution to effectively reduce the credit and systemic risk inherent to this portfolio – the proposed model can be applied to other mortgage portfolios in trouble as well. The main element of our proposal is income-contingent repayment complemented with effective incentives to motivate debtors to repay their debt. We demonstrate that the proposed scheme is attractive for both the debtors and the lenders; therefore, contrary to some recent policy measures, in this case there is no need for direct state intervention to force modifications to the existing legal contracts. In order to evaluate the possible effects, we simulated a realistic population of borrowers with different age, debt, loan-to-value, and income. Then we calculated the expected income paths, the repayments of the borrowers as well as the profit of the lenders on the basis of the non-performing FX mortgage portfolio. The results underpin that the proposed scheme creates significant value added and, most importantly, that it can effectively reduce the vulnerability of the entire economy to future shocks.
A hazai diákhitelrendszer kidolgozása során az volt a cél, hogy a létrejövő új intézmény segítse a későbbiekben kibontakozó felsőoktatási reform megvalósítását. A hazai diákhitelrendszer elméleti alapjait a brit Nicholas Barr professzor fogalmazta meg. Az alábbi cikkben először röviden bemutatjuk a felsőoktatás finanszírozásának barri modelljét, amely markánsan különbözik a jelenlegi hazai gyakorlattól, ám mint távoli jövőkép lebeghet az oktatáspolitikusok szeme előtt. A modellnek két jellemzőjét érdemes kiemelni: a nagyfokú decentralizáltságot és a piaci mechanizmusok hangsúlyosságát. A finanszírozási modellből levezetjük a diákhitelrendszerrel szemben támasztott követelményeket, majd megvizsgáljuk, hogy ezek az elméleti szinten megfogalmazott elvárások mennyire teljesültek a gyakorlati megvalósítás során. A cikk megállapításai a 2002. novemberi helyzetet tükrözik.
We model the consequences of the soft budget constraint in the context of retail borrowers. While János Kornai formulated the term of “soft budget constraint” mainly for organizations (firms, banks, municipalities, NGOs, etc.), we show that it can be applied to individual borrowers as well. We derive the feasibility conditions for private and public debt relief programs in a utilitarian framework and find that lenders have no interest in offering payment reductions if non-performing borrowers are few, have small debts, and are difficult to reach – precisely the characteristics of the poor. In this situation, poor debtors serve better as deterrents, similarly if we put them into a pillory. We calibrate the model parameters to survey data on poor households struggling with overdue debts in small villages in a disadvantaged rural region in Hungary. We find that in normal economic circumstances, private debt relief programs are not feasible. State intervention can be justified by positive externalities and moral considerations.
The severity and frequency of operational loss events show high variability across the globe. In this paper, we first examine the extent to which the quality of country-level governance measured by the Worldwide Governance Indicators explains cross-country variation of operational losses. We use the comprehensive database of SAS OpRisk Global for the period of 2008–2019 covering 132 countries and 8,144 loss events with a total loss amount of almost 490 billion USD. Our findings indicate that the governance indicators lost their explanatory power over the past decades, which contradicts the academic consensus and calls for new explanatory variables. To find these variables, we hypothesize that the changes are driven by some important megatrends such as economic development and technological advancement, globalization, and sustainability. Accordingly, we propose an extended model where the number of mobile subscribers, the export to GDP ratio, and the poverty headcount ratio were significant for the frequency. For severity, only GDP is a significant and robust explanatory variable. Investors, regulators, and analysts should, therefore, concentrate on these factors if they wish to model, manage, or mitigate operational risks.