Abstract
This chapter provides a brief survey of banking in the transition economics. The discussion focuses on the 1990s, when commercial banks emerged, and the 2000s, the era of foreign bank ownership. The emphasis is on the structure of banking—the emergence of foreign banking—and the role of institutions. It is difficult to distinguish the influence of good institutions from the influence of foreign bank ownership because they emerged at the same time and clearly influenced each other. However, the crisis provides a quasi-experimental context for evaluating the role of ownership and institutions. The authors present some suggestive econometric results that test whether foreign ownership and good institutions enable banking systems to withstand a crisis shock. Specifically, the chapter shows that a well-functioning credit information system can help dampen the impact of financial crisis on the financial sector.
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Notes
- 1.
As already noted, many transition countries were experiencing a credit boom prior to the crisis so the crisis might to have some extent been endogenous to the region. We would still expect countries with better credit institutions to bounce back from the shock more rapidly.
- 2.
This simplification abstracts from the differences among transition countries. Yugoslavia, for example, established somewhat independent commercial banks in the 1950s; Hungary always had a foreign trade bank and savings bank. Similarly, there were differences in the way commercial banks were created. Bulgaria granted every office of the central bank a universal banking license in 1990 while neighbouring Romania created one state-owned commercial bank.
- 3.
Slovenia suffered a serious banking crisis in 2013 and then began to relax ownership restrictions.
- 4.
For example, the banking systems skipped the use of paper checks and were early adopters of electronic payments systems. On the asset side, banks imported credit scoring models from their parents.
- 5.
Foreign entry developed much more slowly in the former Soviet Union (other than the Baltics) where legal and regulatory institutional developments lagged those in Central and Eastern Europe.
- 6.
The sale was controversial because the government agreed to take back bad loans that might be uncovered after the sale.
- 7.
The 12 transition countries in our sample are Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia and the Ukraine.
- 8.
The foreign share of bank assets in each country in 2008 is shown in Table 24.1.
- 9.
The large foreign banks originated the idea of a coordinated approach, which resulted in the Vienna Initiative, in a letter expressing concern for the financial stability of the region sent to the European Commission in November 2008.
- 10.
A variety of interventions were used to curb types of lending or reduce capital inflows. See Dimova et al. (2016).
- 11.
For a description of the World Bank’s methodology regarding data on getting credit see:
- 12.
The questions in each index are found under the aforementioned link.
- 13.
The foreign bank lending shares were calculated by combining the “Bank Ownership Database” (see Claessens and Van Horen (2015) with Bankscope data. The highest consolidation level in Bankscope and the ownership data base were merged by index number or by name. Unmatched banks were dropped if their loans was below 1 % in every year. Ownership of the others was determined from annual reports, press articles and self-descriptions on the homepages.
- 14.
Some of the large differences can be attributed to the scope of the register or bureau. In some countries with low values coverage is restricted to firms.
- 15.
The crisis originated in the USA and was quickly transmitted around the world. See also Behn et al. (2016).
- 16.
The bank asset data are from Bankscope.
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Research assistance from Nate Katz, Isabel Schaad and Daniel Seeto is appreciated.
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Haselmann, R., Wachtel, P., Sobott, J. (2016). Credit Institutions, Ownership and Bank Lending in Transition Economies. In: Beck, T., Casu, B. (eds) The Palgrave Handbook of European Banking. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-52144-6_24
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