The Hungarian Guarantee Scheme (Hungary GFC)

Journal of Financial Crises: Vol. 2 : Iss. 3, 739-756. Available at: https://elischolar.library.yale.edu/journal-of-financial-crises/vol2/iss3/38

Yale Program on Financial Stability Working Paper

18 Pages Posted: 27 Oct 2020

See all articles by Alec Buchholtz

Alec Buchholtz

Yale University - Yale Program on Financial Stability

Date Written: October 10, 2020

Abstract

In the midst of the global financial crisis, in October 2008, the Magyar Nemzeti 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 foreign exchange (FX) markets. Hungarian banks experienced liquidity pressures due to margin calls on FX swap contracts, prompting the MNB and Minister of Finance to seek assistance from the International Monetary Fund (IMF), the European Central Bank (ECB) and the World Bank. The IMF and ECB approved Hungary’s requests in late 2008 to create a €20 billion facility, with €2.3 billion intended to back a bank support package. The program involved the creation of two schemes, one of which, the guarantee scheme, was funded by a Refinancing Guarantee Fund (RGF) and aimed to provide domestic banks with guarantees on newly issued interbank loans and wholesale debt contracts with foreign counterparties. Some analyses deemed the guarantee scheme unsuccessful, since no banks ever participated in the scheme, in large part due to Hungary’s own low sovereign debt rating. This prompted the Hungarian government to use a portion of the bank support program to extend direct on-lending measures under a liquidity scheme to three of its largest domestic financial institutions in March 2009.

Keywords: Hungary, European Union, guarantee scheme, IMF, World Bank, stand-by arrangement

JEL Classification: G01,G28

Suggested Citation

Buchholtz, Alec, The Hungarian Guarantee Scheme (Hungary GFC) (October 10, 2020). Journal of Financial Crises: Vol. 2 : Iss. 3, 739-756. Available at: https://elischolar.library.yale.edu/journal-of-financial-crises/vol2/iss3/38, Yale Program on Financial Stability Working Paper, Available at SSRN: https://ssrn.com/abstract=3718050

Alec Buchholtz (Contact Author)

Yale University - Yale Program on Financial Stability

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