Dual management has been in place at PSZÁF for five years, since the Medgyessy government sent Károly Szász away (he exposed the Kulcsár scandal). The director general and his two deputies - Csaba Varga, Mihály Erdős and Péter Schiffer, respectively - are responsible for operative management, while supervisory rights are exercised by István Farkas president, who has just resigned and supervisory board members László György Király, László György Asztalos, Gábor Miklós and László Náray. The debates of recent weeks again focus on the reform of the institution's management structure. The bill submitted by the Bajnai government a few days ago reflects government intentions to return to the management model used at the time of Szász, i.e. one president and two deputies leading the body. Consequently, the current management, regarded by Fidesz as a bunch of "rubber stamps", could start packing. Many think László György Király would not be a great loss - as head of APEH (the Hungarian inland revenue office) he earned dubious fame when - at least according to what Fidesz alleges - he had the complete database containing the data of several millions of taxpayers copied onto a floppy disk from the institution's protected IT system. The appointment of another board member, Mr Schiffer, who does not hold specialist academic qualifications, was so important for the Gyurcsány government that they were willing to relax legal regulations.

One of the reasons for the current restructuring is that amidst the present economic crisis, a heated debate is taking place about the future of financial regulators that failed to manage risks in the banking sector. This is not exclusively a Hungarian problem; as we have learned from the National Bank of Hungary, the powers of the Federal Reserve System (the central banking system) of the United States have been strengthened and the EU has recently decided to set up a European Systemic Risk Council, which affects the whole financial system.

However, Hungary has seen a series of attacks against its regulator (see below).  Opinions differ about in whose interest it is to remove István Farkas and the other PSZÁF leaders. There are some in the banking sector who suspect the central bank (MNB) - Governor András Simor, or even Júlia Király, his deputy, who maintains a good relationship with the freshly appointed ministerial commissioner responsible for financial institutions, Erika Marsi - is behind recent events, and not without reason. MNB, following the establishment of the Budget Office and the introduction of the Euro in the future, will scarcely have any tasks left, that is why it could be after financial regulatory powers.

The most recent bill drawn up by the government suggests that the idea of an MNB-PSZÁF merger - if such a scenario has ever existed - has been dismissed, at least for now. Júlia Király herself, in a response to questions by Heti Válasz also refutes guesses taken about her person. As she explains, "there are many different organisational solutions that could be optimal, each country needs to find the one best suited to its domestic circumstances. Therefore, it is not by chance that there have been intensive efforts  in recent months in Hungary to make financial supervision more efficient, to better coordinate regulation and supervision that takes into account the stability of individual institutions and the financial system as a whole. In relation to this, several guesses about possible organisational consequences have been made."

Others think it is still András Simor who is in the cross hairs; it is not by chance that the socialists - with József Tóbiás parliamentary faction leader being the most active - are urging him to leave. Should the regulator be merged into the central bank later on, this could necessitate organisational changes to such an extent that even the governor of MNB could be removed and someone else appointed, still under the current government.

Some say that the government will find a way in a few months to merge PSZÁF into MNB under a deputy governor, possibly Erika Marsi, former director general. The ministerial commissioner, who was appointed for 6 months, however, did not wish to talk to Heti Válasz about whether she would accept such a position. Whichever scenario is to become reality, one thing is clear: the current political leadership wishes to hang on to the supervision of the financial sector - much to the annoyance of a possible Fidesz government - and prevent other scandals similar to the Kulcsár case from being revealed. True, a new government can remove a freshly appointed leader at any time by making changes in organisational structure, thus the fighting could start all over again.

What Viktor Orbán said, speaking in Brussels, was a message home: should the successor of István Farkas happen to be a parachutist of the socialists, he need not count on staying for long.

THE LIST OF ERRORS COMMITTED BY PSZÁF

Accusation: - It did not act in time and with the necessary force against the mushrooming of FX-loans: it could have recommended a freeze on FX-lending or stipulated the conclusion of insurance policies to cover changes in the exchange rate as a requirement. It could have stipulated months ago a higher capital reserve requirement for banks whose CHF or EUR loan portfolio exceeds a certain amount.

Excuse: - The regulator does not have the powers to temporarily ban loan constructions that are deemed dangerous. However, it does stipulate a higher capital reserve requirement, as of July this year, for banks in the case of debtors whose level of debt as a proportion of disposable income exceeds 51%.

Accusation: - The organisation watched the collapse of MÁV Általános Biztosító Egyesület (Hungarian National Railways, General Insurance Association) without taking action; on the contrary, some of its commissioners are alleged to have assisted in bringing about its bankruptcy.

Excuse: - Those responsible at PSZÁF will be held to account.

Accusation: - The supervisory body has not regulated the activities of intermediary lending agents.

Excuse: - PSZÁF deemed the thorough, sector-neutral and standardized regulation of indermediary activities necessary already in 2008, though it only announced in May that it was to initiate the drafting of a comprehensive legal regulation.

Accusation: - In an unprecedented manner, on 7th November 2008, PSZÁF suspended trading in real estate funds for a period of 10 days. In the meantime, a new piece of legislation was pushed through parliament, which made it more difficult to redeem the notes of such investment funds and stipulated a time limit of 90 days instead of the previous three day period for redemption. The central bank and several financial institutions opposed the decision, but Raiffeisen welcomed it - unlike the hundred thousand small investors, who were "stuck with" the funds. In the opinion of those aggrieved by the decision, PSZÁF acted under pressure from a bank.

Excuse: - PSZÁF called attention to shortcomings in the regulation of real estate funds already in September. The reason for suspension was the withdrawal of capital, which took place at a dramatic speed. This spring the regulator won a court case against small investors.

Accusation: - On 4th March, central banks and financial regulators in the region issued a joint statement against the uniform treatment that former socialist countries were being subjected to by market participants. Since PSZÁF was not among the signatories, the Hungarian Forint went through the floor to an all time low against the Euro following the announcement, because international investors arrived at the conclusion that other countries in the region wished to distance themselves from Hungary.

Excuse: - István Farkas says a technical blunder occurred. Director general Csaba Varga was at a meeting at the time when he was to sign the document. However, the dive of the exchange rate commenced before the statement was issued, therefore PSZÁF cannot be held responsible in Farkas' opinion.

Accusation: - Critics say PSZÁF is too lenient with foreign banks and does not protest when parent banks withdraw liquidity from their affiliates. Since fines imposed by PSZÁF are extremely low, banks are much more fearful of the Hungarian Comptetition Authority (Gazdasági Versenyhivatal).

Excuse: - In a circular issued in February, the regulator asked credit institutions not to pay out dividends to their owners, to set aside a general reserve and to continue to deal with the difficulties of additional liquidity and capital involvement amidst the financial crisis. Not all penalties are low, either, as the record fine of HUF 0.5 billion imposed on fund manager György Soros illustrates.

STEP BY STEP

1 May:  
The government appoints for a 6-month period Erika Marsi, president of the International Training Center for Bankers (ITCB, Nemzetközi Bankárképző Központ), former director general of PSZÁF, as ministerial commissioner responsible for the supervision of actions taken to ensure the stability of banks.

15 May:
According to information acquired by Világgazdaság online, the government intends to merge PSZÁF into the central bank.

18 May:
PSZÁF announces that the activities of intermediaries operating on the market would be regulated by a new piece of legislation.

27 May:
In a statement, PSZÁF refuses the idea of the two institutions being merged and starts drawing up its medium-term strategy for the period starting in 2010, which aims at creating an "autonomous, independent, powerful and efficient PSZÁF". With this in mind, an advisory body, the members of which include János Száz (ITCB president) and Éva Várhegyi, research fellow at Pénzügykutató Zrt. (Financial Research Plc.), is established.

3 June:  
PSZÁF and Országos Fogyasztóvédelmi Egyesület (National Association for Consumer Protection) propose that the post of a new ombudsman responsible for finance be created.

8 June:  
A draft bill submitted by justice minister Tibor Draskovics would take from PSZÁF the fees paid in by financial institutions to cover the regulator's operating expenses, thus the amount of about HUF 13 billion could be freely utilised in the budget.

10 June:
PSZÁF announces that if the parliament approves the withdrawal of regulatory fees, it will turn to the president of the republic and the constitutional court of the country, requesting that they annul the decision because such plans endanger the independence of the institution. (Although it is stipulated by law that PSZÁF should also participate in the joint review of draft legislation carried out by public administration, it is not involved in the exercise.)

16 June:
The Committee on Economic Affairs and Information Technology of the Hungarian Parliament approves the proposal of the Ministry of Finance, which would replace the current dual management model with exclusive management by one governor for a six-year period. Government and opposition members in the Committee on Budgetary Affairs reject it, saying it is unprepared and unfounded. In the meantime, the government lays claim not only to regulatory fees but also to fines paid in to PSZÁF.

18 June:
Világgazdaság, a daily economics paper, airs a working document thought to have been prepared by a former leader of PSZÁF, in which the Ministry of Finance criticizes the work of the regulator.

18 June:
President István Farkas hands in his resignation, which prime minister Gordon Bajnai accepts as of 1 July.