Bad Product Development Results in Systemic Market Failure – Foreign Currency Mortgage Loans to Hungarian Households

This article focuses on the supply side of household foreign currency mortgage loans in Hungary, on the relevant business policy aspects as well as on product development and management in a wider sense. It presents how the various risk types of this risky, longterm loan product were shifted to consumers by credit institutions. The long-term success of shifting these risks was actually prevented by its systemic aspect. The major long-term business policy mistakes are classified according to ten main features. Foreign currency lending to households in Hungary is a case study presenting that the completely laissez faire, laissez passer approach to household lending from both consumer protection and prudential points of view can lead to a systemic failure; market self-regulation does not work perfectly in the credit markets. It is difficult and time-consuming to subsequently remedy a systemic risk problem. Remedying the past problems and establishing the overall conditions for new fair lending is expected to be completed in 2015