even more pronounced (Chart 13). Eventual accession to the euro area some years later also meant a regular counterargument. Exchange rate risk would not have been eliminated totally with this while most of the loan portfolio is denominated in CHF.

# **Box 2: The role of institutions responsible for financial stability in Hungary**

There are three different institutions (Magyar Nemzeti Bank, or MNB, the central bank of Hungary), Hungarian Financial Supervisory Authority, Ministry for National Economy), in Hungary which are responsible for the financial stability. The legal relationship of the institutions is determined by the Central Bank Act (Act LVIII of 2001).

The MNB, in cooperation with other competent authorities, shall support and shall contribute to the development and smooth conduct of policies related to the prudential supervision of credit institutions and to the stability of the financial intermediation system: it shall expose business and economic risks to the financial intermediation system on the whole, help to prevent the development of systemic risks, and to reduce or terminate systemic risks that may already exist. The President of the MNB may submit legislative proposals to the Government or proposals for initiating the legislative process, or to any member of the Government for adopting new regulations.

The microprudential supervisory power rests with the Hungarian Financial Supervisory Authority (HFSA), while the regulatory power is at the Ministry for National Economy. Based on this collective responsibility a new regulation taking effect on January 1st, 2010 established the Financial Stability Council (FSC) as consultative forum. Under its mandate high level representatives of the three authorities meet on a quarterly basis to discuss financial stability issues. The Council also has the right to call for formal regulation on a comply-or-explain basis.

Under the Act on HFSA (Act of 2007/CXXXV.) this authority is mandated to collaborate with the central bank in mitigating and managing systemic risk. Since January 1st, 2010, the authority has the right to temporarily (90 days) suspend services, activities or trading at sectoral level in pre-emptive nature whenever any of these activities threat systemic stability.

In conclusion, while the central bank is entitled with financial stability oversight, it has no regulatory power, so to mitigate the identified risk it has to consult the two other authorities (the Ministry of National Economy and the HFSA) in the format of the Financial Stability Council so as to initiate any regulatory measure or supervisory intervention.

**Chart 13. Real GDP growth, net financing capacity, and net credit flow of households**

<!-- Start of picture text --> Per cent Per cent<br>6 6<br>5 5<br>4 4<br>3 3<br>2 2<br>1 1<br>0 0<br>-1 -1<br>-2 -2<br>-3 -3<br>Net financing capacity of households as percentage of GDP Net credit flow to households/GDP Real GDP growth<br>2005Q4 2006Q1 Q2 Q3 Q4 2007Q1 Q2 Q3 Q4 2008Q1 Q2 Q3 Q4<br><!-- End of picture text --> Source: MNB.

Moreover, in the short run, the tightening of foreign currency lending would have resulted in higher yields and a weaker exchange rate, since households would have borne only a smaller part 15