BANK RECAPITALIZATIONS AND MORAL HAZARD IN HUNGARY AND POLAND

This paper presents the Hungarian and Polish bank recapitalization programs implemented since 1992 and put them in the longer term perspective of the restructuring of financial systems. Their opposite results are linked to diverging schemes of microeconomic constraints and incentives. It is also shown that the risk of moral hazard, which is present in any intervention of this kind, is strongly reinforced in the transition context: this is due to a situation where banks are often captured by large public enterprises, and, more generally, to the strong resistance opposed by many agents to the hardening of the competitive and financial constraints put upon them.