May 3, 2012
The recent financial crisis brought home the point that banks have an important impact on our everyday lives and the greater economy. My research focuses on the role of banks in shaping the economies of the U.S. and countries around the world. Areas of research that I have worked on are: international bank lending, branch-building choices of commercial banks, the economic growth effects of foreign vs. domestic bank lending and finally the anomaly that in some European countries it is much cheaper to get a bank loan if you’re borrowing in a foreign currency. Born and raised in Hungary, I also have a strong interest in the extremely high inflations (hyperinflations) that wrecked the Hungarian economy after both World Wars. Let me describe these research areas in a bit more detail.
International bank lending: The main paper in my PhD dissertation explores how large U.S. banks decide to lend to foreign countries. Did you know that before the financial crisis, one in every five dollars of loans that large U.S. banks made went to borrowers in foreign countries? U.S. banks can lend to foreign borrowers directly from the U.S. across the border, or by building an office in the foreign country. Did you know that banks’ search for lax regulations is an important factor in their decision of where and how to lend?
Bank lending and economic growth: The availability of bank loans is important for the growth of economies worldwide. Did you know that U.S. and European banks can transfer useful financial know-how to developing economies by building branches there, and that this can enhance economic growth? My joint work with Professor Ann Owen shows how domestic vs. foreign bank lending contributes to economic growth.
Branch choices: We often think of banks making profit by choosing their interest rates and fees strategically. This is, however, only part of the story: Did you know that banks also choose the location of their branches strategically to attract as many clients as possible? And that banks with more branches charge higher loan rates? I examine these kinds of questions in my work on Hungarian commercial bank branching.
Foreign currency lending: Did you know that in some European countries, the majority of bank loans are in Swiss franc and U.S. dollars, instead of the domestic currency? These loans are attractive because banks charge much lower rates on foreign currency loans. My research examines: Why is borrowing in the local currency so much more expensive? This is particularly important since local borrowers expose themselves to a lot of risk by borrowing in another country’s currency.
And finally, hyperinflations: After both World Wars, some European countries experienced unprecedented increases in the prices of food items and housing as production, and manufacturing came to a stall. Did you know that in Hungary, for instance, prices at the shops doubled more than once a day in 1946? What are the economic and psychological forces that caused this incredible pace of price inflation? And how did it lead people to the point of desperation where they were willing to trade family values—such as pianos—for a couple of pounds of chicken? These are the questions I am seeking answers to.