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Bank competition, institutional strength and financial reforms in Central and Eastern Europe and the EU

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Author Info
Delis, Manthos D
Pagoulatos, George

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Abstract

Abstract Following their EU15 counterparts, the banking systems of Central and Eastern European (CEE) countries underwent extensive reform since the 1990s. In this paper we estimate the degree of bank market power during the periods of financial reform in each European country, and subsequently we analyze the political and institutional sources of bank competition distinguishing between the EU15 and CEE subgroups. A linear pattern in the relationship between bank competition and institutional strength is demonstrated for the EU15 group of countries, while for the CEEs this pattern is non-linear. Therefore, we suggest that relatively underdeveloped banking systems, in less advanced politico-institutional milieus, overall fail to benefit from reforms in their early stages. As a policy implication the results imply that a certain level of institutional maturity, combined with openness to foreign investors, is a precondition for reforms aiming at enhancing competition and efficiency of banking markets.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16494.

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Date of creation: 02 Jul 2009
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Handle: RePEc:pra:mprapa:16494

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Related research
Keywords: Bank competition; Financial reforms; Institutional development; European Union; Central and Eastern European countries;

Find related papers by JEL classification:
C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - General
P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems
P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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  11. Markus Baltzer & Lorenzo Cappiello & Roberto A. De Santis & Simone Manganelli, 2008. "Measuring financial integration in new EU member states," Occasional Paper Series 81, European Central Bank. [Downloadable!]
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  13. Subal kumbhakar & Ana Lozano-Vivas, 2005. "Deregulation and Productivity: The Case of Spanish Banks," Journal of Regulatory Economics, Springer, vol. 27(3), pages 331-351, 01. [Downloadable!] (restricted)
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