Document Type

Case Study

Case Series

Broad-based Capital Injections

JEL Codes

G01, G28


In the midst of the global financial crisis in October 2008, the Magyar Namzeti Bank (MNB), the Hungarian national bank, noticed a selloff of government securities by foreign banks and a large depreciation in the exchange rate of the Hungarian forint (HUF) in FX markets. Hungarian banks experienced liquidity pressure due to margin calls on FX swap contracts, prompting the MNB and Minister of Finance to seek assistance from the International Monetary Fund (IMF), European Central Bank (ECB) and the World Bank. The IMF and ECB approved the Hungarian government’s (the State) requests in late 2008 to create a €19 billion facility, with HUF 600 billion (€2.2 billion) intended to back a bank support program (the Program). The Program would involve the creation of two schemes, one of which, the recapitalization scheme, would be financed by a Capital Base Enhancement Fund (CBEF), aimed at shoring up the capital ratio of large banks operating in Hungary and maintaining financial stability in Hungary. Only one institution, FHB Mortgage Bank plc, participated in the scheme, having drawn down HUF 30 billion in March 2009, which was fully repaid by February 2010. Nonetheless, some analyses of the recapitalization scheme deemed it relatively successful since its operation reassured banks and investors that financial institutions would have a capital buffer in the event of a sudden economic decline or to backstop the ongoing risks in long-term funding. However, due to the low usage of the overall Program, the State created a new liquidity scheme to provide direct on-lending measures to three of its largest domestic financial institutions in March 2009. The recapitalization scheme was repeatedly approved for extension by the European Commission, until it was finally allowed to expire in June 2013.

Date Revised