Dübel, Hans-JoachimWalley, Simon2013-03-262013-03-262010-12https://hdl.handle.net/10986/12943The current financial crisis has had a major impact on the financial sectors of the Central and Eastern European (CEE) region. The impact has been exacerbated in many cases by the presence of foreign currency mortgage loans. The risk is both for the borrower, who has to make loan repayments in a currency different from that of the income he or she is generating, and for the banks, who need to fund themselves in a foreign currency. This study seeks to determine whether foreign currency mortgage loans really represent a major risk to all systems where they are present and then to assess what measures have been taken to deal with it. The optimal regulatory response will be appropriate for the macroeconomic context and also the consumer needs and best interests. A complete ban on the foreign currency product class appears appropriate for low-inflation economies, where consumer benefits from the product are low and the risk of speculation and has sent demand higher. Within that subset, fiscal support and other steps to further develop funding markets and improve affordability are likely to be required to help support local currency products. Also, these are the economies most likely to access the Euro in the near future, with limited exchange rate risk. Examples are Poland or the Czech Republic. For higher inflation economies facing choices of de-dollarization on one hand and possible imminent access to Eurozone on the other, foreign currency mortgages are likely to remain a part of the product menu for the near future. The challenge is to design a combined support and regulation strategy that creates a fair risk sharing arrangement between consumers and lenders and limits lender liquidity risks.en-USCC BY 3.0 IGOAMORTIZATIONBALANCE SHEETBANK INTEREST RATEBANK LENDINGBANK LIQUIDITYBANK MARKETBANK REGULATIONBANKING SECTORBANKING SECTOR ASSETSBANKING SYSTEMBANKING SYSTEMSBOND ISSUANCEBOND ISSUEBOND ISSUERSBOND MARKETSBORROWERBORROWING COSTSBRANCH NETWORKBROKERBROKERSCAPITAL BASECAPITAL FLOWSCAPITAL GAINCAPITAL GAINSCAPITAL INFLOWSCAPITAL MARKETCAPITAL REQUIREMENTCAPITAL REQUIREMENTSCAPITALIZATIONCASH FLOWSCDSCENTRAL BANKCENTRAL BANKSCOLLATERALCOLLATERAL REQUIREMENTSCOMMERCIAL BANKCOMMERCIAL BANKSCONSUMER CREDITCONSUMER GOODSCONSUMER LOANSCONSUMER PRICE INDEXCONSUMER PROTECTIONCONTRACTUAL SAVINGCONTRACTUAL SAVINGSCREDIBILITYCREDIBILITY PROBLEMSCREDIT BUREAUCREDIT DEFAULTCREDIT DEFAULT SWAPCREDIT EXPANSIONCREDIT HISTORIESCREDIT MARKETCREDIT MARKETSCREDIT RISKCURRENCY BOARDCURRENT ACCOUNT DEFICITSDEBTDEBT CRISISDEBT LEVELSDEBT OUTSTANDINGDEBT SERVICEDEBT SERVICINGDEBTSDEFAULT RISKDEFAULTSDEMAND-SIDE FACTORSDEPOSITDEPOSITSDEVALUATIONDEVALUATIONSDOLLAR BONDDOLLAR BOND MARKETSDOMESTIC CURRENCYDOMESTIC INTEREST RATESEMERGING MARKETEMERGING MARKETSEUROBONDEXCHANGE RATEEXCHANGE RATESEXTERNAL DEBTFEE INCOMEFINANCIAL CRISISFINANCIAL INSTITUTIONSFINANCIAL MARKETFINANCIAL MARKETSFINANCIAL STRESSFISCAL DEFICITFIXED EXCHANGE RATEFIXED INTERESTFIXED INTEREST RATESFLEXIBLE EXCHANGE RATEFOREIGN BANKFOREIGN BANKSFOREIGN CURRENCYFOREIGN CURRENCY LOANFOREIGN CURRENCY LOANSFOREIGN CURRENCY RISKFOREIGN DEBTFOREIGN EXCHANGEFOREIGN EXCHANGE RISKFOREIGN INDEBTEDNESSFOREIGN LENDERFOREIGN LENDERSFOREIGN MARKETGRACE PERIODSGROSS DOMESTIC PRODUCTHOLDINGSHOME FINANCINGHOST COUNTRYHOUSING FINANCEINCOME GROWTHINFLATIONINFLATION RATEINFLATION RATESINSTITUTIONAL DEVELOPMENTINSTRUMENTINSURANCEINSURANCE PRODUCTSINTEREST RATEINTEREST RATE DATAINTEREST RATE DIFFERENTIALINTEREST RATE DIFFERENTIALSINTEREST RATE PAYMENTSINTEREST RATE POLICIESINTEREST RATE RISKINTEREST RATESINTERNATIONAL FINANCIAL INSTITUTIONINTERNATIONAL FINANCIAL STATISTICSINTERNATIONAL MARKETSINTERNATIONAL SETTLEMENTSINVESTMENT BANKSINVESTMENT VEHICLELACK OF TRANSPARENCYLENDERLENDERSLEVEL OF DEBTLEVEL OF INTEREST RATESLEVEL OF RISKLIQUID MARKETSLIQUIDITYLIQUIDITY CONSTRAINTSLIQUIDITY CRISISLIQUIDITY PROBLEMSLIQUIDITY RISKLIQUIDITY RISKSLOANLOAN BALANCELOAN MARKETLOAN PRODUCTLOAN PRODUCTSLOAN RATESLOAN REPAYMENTLOAN REPAYMENTSLOAN VOLUMESLOANS TO INDIVIDUALSLOCAL BANKLOCAL BANKSLOCAL CURRENCIESLOCAL CURRENCYLOCAL LENDERLOCAL LENDERSMARKET COMPETITIONMARKET DEVELOPMENTMARKET INDICESMARKET INTEREST RATESMARKET LIQUIDITYMARKET PRACTICESMARKET SHAREMARKET SHARESMATURITIESMATURITYMAXIMUM MATURITYMONETARY POLICIESMONETARY POLICYMONEY MARKETMONEY MARKET RATEMORTGAGEMORTGAGE BONDMORTGAGE BONDSMORTGAGE FINANCEMORTGAGE INTERESTMORTGAGE INTEREST RATEMORTGAGE INTEREST RATESMORTGAGE LOANMORTGAGE LOANSMORTGAGE MARKETMORTGAGE MARKETSMORTGAGESNATIONAL BANKNONPERFORMING LOANNPLOUTSTANDING LOANPAYMENT DEFAULTSPERSONAL LOANSPORTFOLIOPORTFOLIO PERFORMANCEPORTFOLIOSPROBABILITY OF DEFAULTREAL EXCHANGE RATESREAL INTERESTREGULATORY FRAMEWORKREPAYMENTREPAYMENT PERIODRESIDENTIAL MORTGAGESRISK FACTORSRISK MANAGEMENTRISK OF DEFAULTRISK PROFILESRISK SHARINGSAFETY NETSAVINGS BANKSAVINGS BANKSSHORT-TERM INTEREST RATESTATE GUARANTEESSWAP MARKETSWAPSTAXTAX BENEFITSTAX DEDUCTIONSTAX INCENTIVESTRANSACTIONTRANSITION COUNTRIESTRANSITION ECONOMIESTRANSITION ECONOMYUNIVERSAL BANKSVARIABLE RATEWorld Bank10.1596/12943