The Relationship between Monetary Policy and Financial Stability in the Context of the Recent Global Crisis

• Author: Angela Roman - Alina Camelia Sargu
• Position: Al. I. Cuza' University of Iasi, Romania - 'Al. I. Cuza' University of Iasi, Romania
• Pages: 572-581

European Integration - Realities and Perspectives 2012

572

The Relationship between Monetary Policy and

Financial Stability in the Context of the Recent Global Crisis

Angela Roman

1

, Alina Camelia Sargu

2

Abstract: In recent years, pre-crisis years, the loans granted to household e xperienced an extremely

accelerated dynamic in most new EU member states. Such a development has led to an increase i n the degree

of bank indebtedness of the households and to considerable macroeconomic and financial imbalances. The

current crisis has stopped the rapid growth of the loans granted to households and has led to worsening

financial situation of households and a significant deterioration of the soundness bank indicators. In this

context, the purpose of our paper is a comparative analysis of the main characteristics of the evolution of

bank loans granted to household in the new EU member s tates (Bulgaria, Czech Republic, Estonia, Hungary,

Latvia, Lithuania, Poland and Romania), of the vulnerabilities caused by the fast increase of the bank

indebtedness of the households, and the implications of the current crisis..

Keywords: Credit growth; New EU member countries; loans to households; vulnerabilities; global economic

crisis

1 Introduction

Before the beginning of the current global crisis, most of the new EU member states that we included

in our research (Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania)

have registered a rapid growth of the bank loans, especially of those granted to households. Such

evolution was generally considered a progress in terms of making up for the structural and

convergence gaps; however, on the other hand, this led to the occurrence of considerable

macroeconomic and financial vulnerabilities.

The current global economic crisis had an extremely negative impact on households in most of the

new EU member states. One of the main channels by which the current crisis worsened the economic

and financial status of numerous households is that of the financial markets, due to the limited access

to bank loans and to assets value decrease, especially real estate assets.

Our paper it is structured in five parts: the first part includes introductory remarks on the importance

and relevance of the approached topic; the second part it is dedicated to the literature review; the third

part highlights the characteristics of the financial intermediation process in the new EU member states

considered by our research, especially from the point of view of loans granted to households; the

fourth part of the paper reflects the effects of the rapid growth of the loans granted to households,

whereas the fifth part emphasizes the current crisis effects and the challenges that the decision makers

have to face in this context. The paper ends with several conclusions.

The research methodology used in our research starts with the literature review, in order to point out

the importance of the topic approached by our paper. The analysis conducted in this paper is based on

official statistics from the ECB, other central banks, the IMF, and different reports and researches.

1

“Al. I. Cuza” University of Iasi, Romania, Address: 11 Carol I Blvd, Iasi 700506, Iasi, Romania, Tel.:+40 (232) 201000.

Fax:+40 (232) 201201, Corresponding author: aboariu@uaic.ro.

2

“Al. I. Cuza” University of Iasi, Romania, Address: 11 Carol I Blvd, Iasi 700506, Iasi, Romania, Tel.:+40 (232) 201000.

Fax:+40 (232) 201201, e-mail: s_alina_camelia@yahoo.com.