Draghi issued the warning in his capacity as the head of the European Systemic Risk Board (ESRB), Austrian central bank governor Ewald Nowotny said on the sidelines of a meeting of the IMF and World Bank in Washington.
Draghi said unilateral action could cause the decline in lending to accelerate, which would have negative effects on stability and growth.
Hungary’s government has given banks until November 1 to come up with a solutionto the problem of the FX loans, based on consultations with borrowers. If banks fail to produce a solution by the deadline, the government has said it will act unilaterally; this threat was reiterated by Economy Minister Mihály Varga on Saturday in informing Népszabadság that the sitting government is “disappointed” by the financial institutions’ lack of action in formulating a plan and that the government does indeed have an alternate solution prepared.
Inexpensive, Swiss franc-denominated loans were once the most popular retail lending product in Hungary, until the forint weakened, causing repayments to increase and putting many households at risk of default.
— David Landry contributed to this story
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