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The Role of Central Banks in Promoting Financial Stability and the Hungarian Experiences

Author(s): Zsigmond Járai, National Bank of Hungary

Date published: Jun 2003

The Marjolin Lecture 2003 was given by Dr. Zsigmond Járai, President of National Bank of Hungary. The title of his lecture was "The Role of Central Banks in Promoting Financial Stability and the Hungarian Experiences". The Governor described the role of the central bank in terms of three pillars:  Macro-prudential analysis, Payments and Settlements Systems oversight, and an active role in financial regulation. In its macro-prudential analysis, the Hungarian central bank  uses a wide range of indicators reflecting macroeconomic variables, the development in the most important financial markets and aggregated micro-prudential indicators respectively.  The Governor described some of the implications of foreign bank ownership in Hungary. The presence of foreign owned financial institutions has a positive impact on competition  and efficiency in particular in corporate banking. From time to time, the coordination of the respective policies of the central bank, the financial supervisory authority and the Government had been difficult. It is difficult to draw a borderline between the competencies of authorities responsible for respectively micro  and macro issues. The choice of exchange rate policy had been the subject of intense discussions between the authorities due to the wide ranging implications for price stability,  competitiveness, employment and capital flows. In his closing remarks, the Governor explained his views on the challenges for the Hungarian financial sector expected from EU membership in 2004. Hungarian financial institutions should prepare themselves for tougher competition and a need for further improvements in their cost efficiency.

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