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Financial Development in the CIS-7 Countries

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  • Gianni De Nicoló
  • Sami Geadah
  • Dmitriy Rozhkov
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    Abstract

    This paper documents the great divide in the level of financial development between the Commonwealth of Independent States (CIS) 7 countries and the more advanced economies in transition, in particular those of Central and Eastern Europe and Baltic states. It discusses the roots of financial underdevelopment in the CIS-7 countries by examining the differentials in interest rate spreads between the CIS-7 countries and the transition economies that have achieved faster financial development. The roots of the divide are traced to weaknesses in the institutional infrastructure for financial intermediation, which lead to a combination of low depositor trust in the banking system and high credit risk. High credit risk stems mainly from the poor creditor-rights protection and weak auditing and accounting standards. Financial sector reform strategies that fail to give priority to the resolution of weaknesses in the basic financial infrastructure are unlikely to be successful in letting the CIS-7 countries bridge the great divide.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/205.

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    Length: 20
    Date of creation: 01 Oct 2003
    Date of revision:
    Handle: RePEc:imf:imfwpa:03/205

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    Keywords: Transition economies; Financial systems; banking; credit risk; banking system; banking sector; banking systems; deposit insurance; bank intermediation; accounting standards; banking supervision; legal framework; bank assets; risk management; bank consolidation; bank deposits; bank spreads; level playing field; bank regulations; banking structure; bank credit; bank interest margins; bank restructuring; bank interest; banking sectors; bank policy; bank size; bank solvency; banking sector assets; bank competition; bank loan; transition economy; insurance systems; banking sector reform; financial strength; bank entry; depositor protection; bank risk-taking; bank margins; bank runs; bank supervision; financial risk; bank data; bank risk; bank services; capital requirements; macroeconomic stability; bank activities; banking license; bank funding; bank ownership; pension funds; bank privatization; connected lending; bank failures; banking costs;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Erik Berglof & Patrick Bolton, 2002. "The Great Divide and Beyond: Financial Architecture in Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 77-100, Winter.
    2. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2001. "Government Ownership of Banks," Working Paper Series rwp01-016, Harvard University, John F. Kennedy School of Government.
    3. Shih, Michael S. H., 2003. "An investigation into the use of mergers as a solution for the Asian banking sector crisis," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(1), pages 31-49.
    4. Gianni De Nicoló & Patrick Honohan & Alain Ize, 2003. "Dollarization of the Banking System," IMF Working Papers 03/146, International Monetary Fund.
    5. Santomero, Anthony M. & Seater, John J., 2000. "Is there an optimal size for the financial sector?," Journal of Banking & Finance, Elsevier, vol. 24(6), pages 945-965, June.
    6. Huberto M. Ennis & Todd Keister, 2003. "Economic growth, liquidity, and bank runs," Working Paper 03-01, Federal Reserve Bank of Richmond.
    7. Steven Fries & Damien Neven & Paul Seabright, 2002. "Bank performance in transition economies," Working Papers 76, European Bank for Reconstruction and Development, Office of the Chief Economist.
    8. Klapper, Leora & Sarria-Allende, Virginia & Sulla, Victor, 2002. "Small and medium size enterprise financing in Eastern Europe," Policy Research Working Paper Series 2933, The World Bank.
    9. Cerasi, Vittoria & Daltung, Sonja, 2000. "The optimal size of a bank: Costs and benefits of diversification," European Economic Review, Elsevier, vol. 44(9), pages 1701-1726, October.
    10. Demirguc-Kunt, Asli & Huizinga, Harry, 1998. "Determinants of commercial bank interest margins and profitability : some international evidence," Policy Research Working Paper Series 1900, The World Bank.
    11. Simeon Djankov & Peter Murrell, 2002. "Enterprise Restructuring in Transition: A Quantitative Survey," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 739-792, September.
    12. Drakos, Kostas, 2003. "Assessing the success of reform in transition banking 10 years later: an interest margins analysis," Journal of Policy Modeling, Elsevier, vol. 25(3), pages 309-317, April.
    13. Stanley Fischer, 2001. "Ten Years of Transition: Looking Back and Looking Forward," IMF Staff Papers, Palgrave Macmillan, vol. 48(4), pages 1.
    14. Saunders, Anthony & Schumacher, Liliana, 2000. "The determinants of bank interest rate margins: an international study," Journal of International Money and Finance, Elsevier, vol. 19(6), pages 813-832, December.
    15. Demirguc, Asli & Laeven, Luc & Levine, Ross, 2003. "The impact of bank regulations, concentration, and institutions on bank margins," Policy Research Working Paper Series 3030, The World Bank.
    16. Paul Wachtel, 2003. "How much do we really know about growth and finance?," Economic Review, Federal Reserve Bank of Atlanta, issue Q1, pages 33-47.
    17. Gianni De Nicolo, 2000. "Size, charter value and risk in banking: an international perspective," International Finance Discussion Papers 689, Board of Governors of the Federal Reserve System (U.S.).
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    Citations

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    Cited by:
    1. Brown, Martin & Maurer, Maria Rueda & Pak, Tamara & Tynaev, Nurlanbek, 2009. "The impact of banking sector reform in a transition economy: Evidence from Kyrgyzstan," Journal of Banking & Finance, Elsevier, vol. 33(9), pages 1677-1687, September.
    2. Jan J. Rutkowski & Stefano Scarpetta, 2005. "Enhancing Job Opportunities : Eastern Europe and the Former Soviet Union," World Bank Publications, The World Bank, number 7408, October.
    3. Bauer, Christian & Herz, Bernhard & Karb, Volker, 2006. "How likely are macroeconomic crises in the CIS?," Research in International Business and Finance, Elsevier, vol. 20(2), pages 227-238, June.
    4. Mejra Festić & Sebastijan Repina & Alenka Kavkler, 2009. "The overheating of five EU new member states and cyclicality of systemic risk in the banking sector," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 10(3), pages 219-232, May.

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