Generated by artificial insemination in 1987 and enjoying an initial period of dynamic expansion, Hungary's two-tier banking system had lost its capital stock by 1993, and was in an altogether critical condition. Éva Várhegyi's book tells about the events leading up to this crisis, and explores its probable outcome. [...]
The three parts of the volume are based on three specific theses:
1) There is no such thing as "The Bank". The banking sector is fragmented, and we will get very different pictures of its nature, operation, or failure to operate, depending on which of the various "fragments" we examine. Generalization is dangerous.
2) Banking is one of the most innovative of businesses; consequently, with the exception of certain obvious development trends, it is very difficult to pinpoint its "essence".
3) The Hungarian banking sector has never really been thought through: the banks are more like ships adrift on the ocean than torpedoes aimed at a predetermined target. In the words of Tamás Bácskai: We could speak of a banking system if it were a system.
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The fault lines within the banking sector (size, clientele, resources, lending practices, profit margin, ownership structure, etc.) have been discerned by past analysts as well, but their existence has never been demonstrated. Éva Várhegyi is the first to do so, with precise statistical evidence. What emerges is the picture of a segmented banking market, which the author then proceeds to analyze in the first part of the book. I should like to focus on four of the subjects she treats: concentration; the polarization of profit ratios; portfolios; and ownership structure.
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The greatest danger facing the banking sector today, I am convinced, is the stagnation of monetary transactions. If the proportion of bank transactions to the GDP continues to decrease, or if it does not begin to grow, financing will sink to a level where alternative avenues will no longer suffice, and a long-term recession will be unavoidable. I am not saying that the banking sector will expand. I am only saying that if it does not expand, then the movements and redistribution of the banking market, the changes in the banks' relative positions will, in time, become totally irrelevant from the point of view of the economy as a whole.