Hungary's foreign-currency household debt and the 2008-09 crisis

By the second half of 2008, Hungarian households had accumulated close to 40% of GDP in debt, roughly two-thirds of it denominated in foreign currency, mostly Swiss francs, taken out because foreign-currency mortgages carried far lower interest rates than forint loans. When the global financial crisis hit in autumn 2008, the forint depreciated sharply, capital flows reversed, and Hungary secured a 25 billion dollar support package from the IMF, the European Union, and the World Bank that October to stem the outflows and defend the currency. The Magyar Nemzeti Bank, with little room to cut rates given currency pressure, built an entirely new toolkit to keep the financial system functioning: it introduced EUR/HUF and CHF/EUR swap tenders to supply foreign-currency liquidity to domestic banks, opened a longer-term collateralized loan facility, and began purchasing government bonds on the secondary market. A BIS Papers contribution from the central bank described these tailor-made swap instruments as a direct response to Hungarian banks' structural foreign-currency funding gap. The foreign-currency mortgage overhang persisted for years afterward, ultimately forcing a mandatory conversion of household loans into forints in 2014-15.