The March 2021 Issue of the Financial and Economic Review Now PublishedPrint
The papers published in the March issue of the Magyar Nemzeti Bank’s scientific journal discuss the impacts of the payment moratorium on profitability, modeling loss estimates of corporate credit risk, internet-based decentralized finance, competition-neutral regulatory issues of digital financial innovation, while the essays are about the auction theory work of the Nobel laureates 2020 in economics and the changing role of compliance function in the digital age.
Áron Drabancz, Gabriella Grosz, Alexandr Palicz and Balázs Varga present the Hungarian experiences with the introduction of the payment moratorium. The main characteristics of clients who took advantage of the moratorium and the effects on their liquidity and bank profitability are examined. Based on their results, the moratorium effectively addressed the shock impacts caused by the coronavirus, mitigated the short-term default risk of debtors and provided excess liquidity to offset the negative effects of the epidemic while causing only moderate bank charges. However, the authors point out that maintaining the moratorium in the long run may increase risks to financial stability.
The study by Gergő Horváth aims to further develop the credit risk loss estimation, which is one of the most important components of the supervisory stress test framework. In addition to determining the short-term probability of default of a corporate clientele that banks lend to, the author also presents a methodology that seeks to comply with the loan loss provisioning requirements of IFRS9. The applied methodology can help more accurately estimate the loan loss provisioning needs of Hungarian financial institutions in stress situations.
Is it possible to manage our finances in a non-traditional way? Yes, DeFi, an online financial system working similarly to Lego, offers this opportunity. The writing by Tamás Katona guides the reader to this revolutionary new field of finance, where instruments similar to Bitcoin are traded. The study can help readers if they were to become acquainted with this area in the future, they might take advantage of it, and at the same time, with the acquired knowledge they will also be able to recognize its setbacks.
János Müller and Ádám Kerényi examine how the revolutionary development of digital financial innovations triggers regulatory actions ensuring that the same regulatory principle of the same activities applies to both traditional banks and FinTech and BigTech financial service providers. Competitiveness requires smooth digital development, however, in the absence of a proper balance, regulatory arbitrage and asymmetry can develop, and ultimately even the functioning of the financial intermediation system or the development of digital financial innovations can be compromised.
Paul Milgrom and Robert Wilson received the 2020 Nobel Memorial Prize in Economics for their research in the field of auction theory and the design of specific auction forms. As a reflection, readers can get an overview of the basics and development of auction theory presented by Péter Biró and Gyula Magyarkuti. They show how wide an impact those thoughts have that arise when examining the mechanism of auctions. They conclude that the message of the 2020 Nobel Prize is a shift in economics towards engineering.
The essay by Gábor József Harkácsi and László Péter Szegfű focuses on the advantages and dangers of digitalisation, artificial intelligence and robotisation, as well as on the challenges facing the compliance function as a result of their impacts and the possible answers to them. In addition to the business and risk model of financial sector participants, digitalisation has also transformed the regulatory environment. The essay aims to give guidance whereby the compliance function can provide effective support in complying with the rules and ensuring fair and ethical behaviour in a changing environment.
In addition to these, the March issue of the Financial and Economic Review contains four book reviews and two conference reports.
We wish you a very pleasant reading.