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Liquidity Shocks in an
Increasingly Interlinked Global
Financial System
Euromoney, Vienna
Márton Nagy
[email protected]
Magyar Nemzeti Bank
Hungarian financial nexus
Long-term foreign investors
Short-term foreign investors
FX funding
Foreigners’s
financial products
Economic sectors
Domestic agents’
financial products
FDI
Banks
FX-swap
Corporates
Deposit(mainly HUF)
Credit(mainly FX)
Household
T-bonds
Government
T-bills
T-bonds
Turbulence in fixes income markets
(problems in government financing)
 Liquidity problem in FX-swap market (problems in banks’ hedging operations)
 Revaluation of banks’ bond portfolio (weakening banks’ income gearing capacity)
Yields of government papers
14
%
%
14
7
7
6
6
May.08
6-month
Source: GDMA.
1-year
3 -year
5-year
Jan.09
8
Dec.08
8
Nov.08
9
Oct.08
9
Sep.08
10
Aug.08
10
Jul.08
11
Jun.08
11
Apr.08
12
Mar.08
12
Feb.08
13
Jan.08
13
Turbulence in the HUF spot market
 Shortening FX-swap maturity (problems in banks’ hedging operations)  Margin
calls (problems in banks’ forint liquidity)
 Higher debt burden of borrowers (lower bank profitability)
Exchange rate and maturity distribution of FX-swap stock
HUF Billion
6,000
HUF/EUR
290
Within one week
Between one week and one month
Between 1 month and 2 months
Between 2 and 3 months
Between 3 months and 1 year
Over one year
HUF/EUR exchange rate (right scale)
Source: MNB.
Jan.09
Nov.08
Sep.08
Jul.08
May.08
Mar.08
150
Jan.08
-1,000
Nov.07
170
Sep.07
0
Jul.07
190
May.07
1,000
Mar.07
210
Jan.07
2,000
Nov.06
230
Sep.06
3,000
Jul.06
250
May.06
4,000
Mar.06
270
Jan.06
5,000
Turbulence in CDS markets
 Higher foreign funding costs  Higher lending rates (lower banks’ profitability,
higher credit risk)
 Shortening foreign funds’ maturity (higher rollover risk)
CDS spreads
basispoint
700
basispoint
700
600
600
500
500
400
400
300
300
200
200
100
100
1 year senior CDS spreads of parent banks of major Hungarian banks (median)
5 year senior CDS spreads of parent banks of major Hungarian banks (median)
5 year senior Hungarian sovereign CDS spreads
Source: Bloomberg.
Jan.09
Dec.08
Nov.08
Oct.08
Sep.08
Aug.08
Jul.08
Jun.08
May.08
Apr.08
Mar.08
Feb.08
Jan.08
Dec.07
Nov.07
Oct.07
Sep.07
Aug.07
Jul.07
Jun.07
May.07
Apr.07
Mar.07
Feb.07
0
Jan.07
0
But firm commitment from owners: enough FX funds and …
Distribution of foreign funds
8 000
HUF Billion
7 000
6 000
5 000
4 000
3 000
2 000
1 000
0
07 Q1
07 Q2
07 Q3
07 Q4
Foreign funds from owners
08 Q1
08 Q2
08 Q3
Foreign funds from non-owners
Notes: calculated on constant exchange rates.
Source: MNB.
08 Q4
… enough FX-swap
Distribution of FX-swaps
2500
HUF Billion
2000
1500
1000
500
Foreign exchange swap stock with group members
Dec.08
Nov.08
Oct.08
Sep.08
Aug.08
Jul.08
Jun.08
May.08
Apr.08
Mar.08
Feb.08
Jan.08
Dec.07
0
Foreign exchange swap stock with non-group members
Note: 6 largest bank's data, calculated on constant exchange rates.
Source: MNB.
Fast reaction of MNB in form of enough HUF liquidity
Central banks’ balance sheets in percentage of GDP
%
30
%
30
10
5
5
0
0
FED
ECB
Source: Central banks, MNB.
Mar.08
Dec.07
BoE
BNP
CNB
MNB
Dec.08
10
Sep.08
15
Jun.08
15
Sep.07
20
Jun.07
20
Mar.07
25
Dec.06
25
And the IMF package: break the vicious circle
1. Bank stabilization
2. Fiscal sustainability
The government’s
contingent liabilities
decrease
Financing of the banking
sector becomes easier as
overall financing need
decreases
IMF credit line &
Further fiscal
consolidation
The stability of the
economy has improved
Source: MNB.
The government faces
lower risk premium
Thanks for your attention!