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Hungary Recapitalization Scheme

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In the midst of the global financial crisis in October 2008, the Magyar Namzeti Bank (MNB), the Hungarian national bank, noticed a selloff of government securities by foreign banks and a large depreciation in the exchange rate of the Hungarian forint (HUF) in FX markets. Hungarian banks experienced liquidity pressure due to margin calls on FX swap contracts, prompting the MNB and Minister of Finance to seek assistance from the International Monetary Fund (IMF), European Central Bank (ECB) and the World Bank. The IMF and ECB approved the Hungarian government's (the State) requests in late 2008 to create a EUR19 billion facility, with HUF 600 billion (EUR2.2 billion) intended to back a bank support program (the Program). The Program would involve the creation of two schemes, one of which, the recapitalization scheme, would be financed by a Capital Base Enhancement Fund (CBEF), aimed at shoring up the capital ratio of large banks operating in Hungary and maintaining financial stability in Hungary. Only one institution, FHB Mortgage Bank plc, participated in the scheme, having drawn down HUF 30 billion in March 2009, which was fully repaid by February 2010. Nonetheless, some analyses of the recapitalization scheme deemed it relatively successful since its operation reassured banks and investors that financial institutions would have a capital buffer in the event of a sudden economic decline or to backstop the ongoing risks in long-term funding. However, due to the low usage of the overall Program, the State created a new liquidity scheme to provide direct on-lending measures to three of its largest domestic financial institutions in March 2009. The recapitalization scheme was repeatedly approved for extension by the European Commission, until it was finally allowed to expire in June 2013.

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  • Buchholtz, Alec, 2021. "Hungary Recapitalization Scheme," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 3(3), pages 152-168, April.
    • Handle: RePEc:ysm:ypfsfc:331010
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    File URL: https://elischolar.library.yale.edu/cgi/viewcontent.cgi?article=1210&context=journal-of-financial-crises
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    References listed on IDEAS

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    1. IGNAT Ion & IFRIM Mihaela, 2011. "International Monetary Fund – Between Hope And Disillusion," Revista Economica, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 55(2), pages 367-371.
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    More about this item

    Keywords

    capital adequacy ratio; capital injection; European Commission; Hungary; IMF; recapitalization; stand-by arrangement; World Bank;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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