Bank-Enterprise Relations in the Transitional Economies: Choosing the Model of Financial System (original) (raw)

Foreign banks and the business environment in transition: a cointegration approach

Post-Communist Economies

The contribution of foreign banks to the development of the financial sectors in emerging markets, and especially the transition economies of Central and Eastern Europe, is well-known. The purpose of this article is to focus on an area of foreign bank influence that has thus far only begun to emerge from the extant literature: the effect of foreign banks on the broader business environment in transition. In addition to improving financial intermediation and broader access to credit, has the presence of foreign financial institutions helped to shape a better business environment in the long-run? Or did foreign banks retard local institutional development and thus worsen the overall business environment? Using cointegration techniques across a sample of 21 diverse transition countries from 1983 to 2015, I find that foreign bank entry had a positive impact across business environment indicators, but with some indicators taking longer to influence than others. The policy implications are that business environments can be improved by facilitating foreign bank entry rather than restricting it.

A stages approach to banking development in transition economies

Journal of Post Keynesian Economics, 2008

Credit shortages are widely thought to explain the output contraction in former Soviet Union (FSU) countries during the 1990s. It is argued here that these shortages were the result of an ahistorical approach to policymaking which ignored the time needed for the establishment and further development of money, banking, and nonbanking financial institutions. Starting from Chick's stages-of-banking-development framework, we examine the experience of the FSU economies in transition from central planning. We then develop a fivephase framework to characterize the process of banking development required for them to reach stage two of Chick's framework, where bank liabilities are accepted as money.

Globalization and the Role of Foreign Banks in Economies in Transition

There is an ongoing debate as to the net benefit of the financial sector in developing countries (DEs). The potential positive contribution to growth via financial intermediation must be weighed against the potential negative impact on macroeconomic stabilization and on moral hazard. Such dangers clearly exist also in economies in transition (TEs) and have indeed materialized in several of them, as well as in some developing economies (DEs). The development of market oriented financial services in TEs may well be more difficult than in DEs. While in the later financial services have to be developed from scratch, in TEs there existed the socialist variety of so called "banks" under the old regime, with completely different mission and operating culture, a tradition that is extremely difficult to alter. An existing domestic banking sector may therefore present an even greater destabilizing danger and hindrance to restructuring. Furthermore, in most DEs one can conceive of informal financial networks, such as family and friends, as substitutes for banks as the main source of financing of small and medium size businesses, the most important engine of growth. Most TEs, on the other hand have rather sophisticated production sectors dominated by large and complex firms that cannot survive, let alone restructure (as most of them need to) without an elaborate and effective banking sector.

Evolution of the Commercial Banking System in

We undertook an institutional analysis of commercial banks in Russia. After the failed experiment with private financial intermediation in the 1990s Russia migrated towards a banking system consisting of three, rather than two, tiers and featuring core institutions controlled by the state directly or indirectly. This evolution is consistent with this country's historical pattern of financial intermediation. It is also in line with recent trends in the real sector of the economy where public ownership has rebound over the past decade. The core state-controlled banks have evolved into hybrid institutions performing two various sets of functions, those of a regular commercial bank and a policy bank. We found a similar evolution in China but not in transition economies of Central Europe. Institutional matrix theory suggests that in non-market economies centralized finance and credit allocation is the dominant institutional form while private banking activity is a complementary one.

Banking reform in transition countries

The Journal of Policy Reform, 1998

Theinstitut ra O banks in trc nsition ecor> m,ern;s in Transition Countries irn-proves fcster vr,ien or parallel private Darikir ig system is al owed o emrn jre Stijn Claessens than it doe. wher-tne government tries -: irnply to reform exis 7ng state-owrd(i banks. Banking reror-m snould stress decentralized institutionrbuilding arnd penadties For weak bank-.

Bank Performance in Transition Economies

SSRN Electronic Journal, 2000

This paper examines the performance of 515 banks in 16 transition economies for the years 1994-99 based on their public financial accounts. We first examine lending behaviour and probability distribution of bank profitability to determine whether these banks exhibit behaviour and performance associated with excessive risk-taking. While we do not find evidence of excessive risk-taking on average where there is significant progress in banking and related enterprise reforms, there may be a minority of poorly capitalised banks that do take excessive risks, particularly where progress in reform is less advanced. The paper then estimates cost and revenue functions based on a model of banks as multi-product firms. The results indicate that banks' performance differs significantly depending on the reform environment, as well as the competitive conditions, in which they operate. Banks with high market shares have higher costs and achieve lower margins on their loan and deposit activities. Where there has been significant progress in banking and related enterprise reforms, banks are making comfortable margins on loans and appear to be offering competitive margins on deposits, though they are still achieving overall negative returns on equity. By contrast, when substantial reforms have not been undertaken, banks have been sustaining high negative returns on loans, largely at the expense of depositors; in effect they have been able to appropriate much of the tax that inflation levies on nominal deposits, and have been using this revenue to prop up their weak loan portfolios. Overall interest margins are declining over time but are substantially higher in low-reform environments. The results indicate that an appropriate policy and regulatory framework may be a necessary condition for significant progress to be made.