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Loan creation has not recovered after the crisis owing to a combination of demand and supply factors. Although the banking sector is sufficiently capitalised in the short term, banks are deleveraging by cutting down their dependence on cross-border financing. The ability of the financial sector to supply credit has been further stifled by a high financial levy, a de facto ban on foreign currency lending for mortgages, future uncertainties about parent banks’ funding and undermined creditors’ rights. Up to recently, new measures to restructure household loans did not help borrowers with real repayment difficulties while weakening banks’ solvency. The mid-December 2011 agreement between the government and the banking sector was a welcome step towards fair burden sharing. Bank recapitalisation, if necessary, should be done by raising the level of capital so as not to downsize loan portfolios. In the long term, the demand for credit is hampered by large price-cost margins, which call for stiffer competition. The development of the financial markets has also been adversely affected by the de facto nationalisation of mandatory pension funds, which played a crucial role in the accumulation of long-term savings. The regulation of mandatory and voluntary pension funds requires harmonisation and transparency to increase their cost-efficiency. An effective cooperation between micro and macro-prudential regulation should be ensured in practice and the financial independence of the financial supervisor strengthened. Co-operation between host and home regulatory authorities should be enhanced in a manner that accounts for systemic risks in Hungary. Finally, an effective independence of the central bank has to be guaranteed. This Working Paper relates to the 2012 OECD Economic Survey of Hungary (www.oecd.org/eco/surveys/hungary)

Economics --- Hungary

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Loan creation has not recovered after the crisis owing to a combination of demand and supply factors. Although the banking sector is sufficiently capitalised in the short term, banks are deleveraging by cutting down their dependence on cross-border financing. The ability of the financial sector to supply credit has been further stifled by a high financial levy, a de facto ban on foreign currency lending for mortgages, future uncertainties about parent banks’ funding and undermined creditors’ rights. Up to recently, new measures to restructure household loans did not help borrowers with real repayment difficulties while weakening banks’ solvency. The mid-December 2011 agreement between the government and the banking sector was a welcome step towards fair burden sharing. Bank recapitalisation, if necessary, should be done by raising the level of capital so as not to downsize loan portfolios. In the long term, the demand for credit is hampered by large price-cost margins, which call for stiffer competition. The development of the financial markets has also been adversely affected by the de facto nationalisation of mandatory pension funds, which played a crucial role in the accumulation of long-term savings. The regulation of mandatory and voluntary pension funds requires harmonisation and transparency to increase their cost-efficiency. An effective cooperation between micro and macro-prudential regulation should be ensured in practice and the financial independence of the financial supervisor strengthened. Co-operation between host and home regulatory authorities should be enhanced in a manner that accounts for systemic risks in Hungary. Finally, an effective independence of the central bank has to be guaranteed. This Working Paper relates to the 2012 OECD Economic Survey of Hungary (www.oecd.org/eco/surveys/hungary)

Economics --- Hungary

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The banking sector in the United Kingdom (UK) was deeply affected by the crisis. Bank credit has collapsed reflecting both weak demand and tighter supply. New prudential requirements have improved the resilience of the banking sector and a number of measures were taken to support credit supply. These included conventional and unconventional monetary policies, policies to address credit constraints with Help to Buy and Funding for Lending programmes, and a number of public programmes to improve access to finance united under the roof of the British Business Bank. Further structural reforms are needed to improve competition in the SME credit market and to boost credit provision to SMEs in the medium term. Sustainable financing of the economy and greater financial stability should be achieved by sound regulation, ensuring high capital requirements for systemically important banks, improving banks’ resolvability and fine-tuning the use of countercyclical measures. Data should be collected on a wider set of financial institutions than currently done and macroprudential regulation should be gradually extended beyond the banking sector to prevent the migration of systemic risks. This Working Paper relates to the 2015 OECD Economic Survey of the United Kingdom (www.oecd.org/eco/surveys/economic-survey-united-kingdom.htm)

Economics --- United Kingdom

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Using a combination of propensity score matching and difference-in-difference techniques we investigate the impact of foreign bank ownership on the performance and market power of acquired banks operating in Central and Eastern Europe. This approach allows us to control for selection bias as larger but less profitable banks were more likely to be acquired by foreign investors. We show that during three years after the takeover, banks have become more profitable due to cost minimization and better risk management. They have additionally gained market share, because they passed their lower cost of funds to borrowers in terms of lower lending rates. Previous studies failed to pick up the improvements in performance of takeover banks, because they did not account for the performance of financial institutions before acquisitions.

Bank mergers -- Econometric models. --- Banks and banking, Foreign -- Econometric models. --- Banks and banking. --- Agricultural banks --- Banking --- Banking industry --- Commercial banks --- Depository institutions --- Finance --- Financial institutions --- Money --- Banks and Banking --- Exports and Imports --- Macroeconomics --- International Financial Markets --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Aspects of Economic Integration --- Financial Institutions and Services: Government Policy and Regulation --- International Investment --- Long-term Capital Movements --- Personal Income, Wealth, and Their Distributions --- Financial services law & regulation --- Foreign banks --- Loan loss provisions --- Foreign direct investment --- Financial regulation and supervision --- Balance of payments --- Personal income --- National accounts --- Banks and banking --- Banks and banking, Foreign --- State supervision --- Investments, Foreign --- Income --- Poland, Republic of --- Bank mergers --- Econometric models.

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Dutch banks were put under heavy strains early in the global downturn and have comparatively weak financial buffers to cope with new shocks. Falling house prices have increased the share of households with negative home equity to nearly 35% for home-owning households and 40% for mortgage holders. Even though defaults have so far been limited, mortgage amortisation is low and risks are concentrated among younger borrowers who often do not have sufficient resources to cope with adverse shocks. Banks are very large relative to the size of the domestic economy, have sizeable cross-border exposures and rely significantly on wholesale funding. Resolution procedures should be strengthened to reduce the potential cost for the taxpayer and the regulator’s tools available to reduce risks should be expanded. In particular, banks should set aside sufficient provisions for expected losses and problem loans, which requires some harmonisation of the definition of non-performing loans across banks. Higher capital buffers would bolster financial stability and help ensure access to market funding while lowering its cost. Welcome measures have been taken to encourage household deleveraging, but deeper and broader steps are needed to bolster financial stability and improve consumer protection when the housing market starts to recover durably and over the medium term. The stock of existing mortgages should be gradually converted into amortising mortgages, the cap on the loanto- value ratio reduced significantly below 100% and housing subsidies to homeownership cut more decisively. This Working Paper relates to the 2014 OECD Economic Survey of the Netherlands (www.oecd.org/eco/surveys/economic-survey-netherlands.htm).

Finance and Investment --- Economics --- Netherlands