Development and Finance from issue 2009/1

Éva Várhegyi

The Credit Crunch and the Hungarian Banking System

- Abstract -

JEL G-21, O-16

The credit crunch triggered by the bursting of the US real estate bubble in the summer of 2007 barely affected the Hungarian economy at the outset. Due to the underdeveloped financial markets the structured financial products that infected the whole world like an epidemic were not widespread in Hungary, but the surfacing of the risks hidden in those products wreaked havoc everywhere. Although Hungarian banks made no direct losses, the Hungarian economy was not spared the indirect impacts even at this stage. Vulnerability can mostly be attributed to economic policy mistakes made between 2001 and 2006, which led to financial imbalances and to a fall in Hungary’s risk rating. The negative risk classification was made even worse by the investor hysteria and the protectionist and discriminative actions of Western European governments against Eastern European countries, including EU Member States. All this contributed to a looming currency crisis and to the IMF agreement designed to avert it.


Éva Várhegyi, DSc, scientific consultant of Pénzügykutató Zrt. (Financial Research Co.)

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