Advanced Search
MyIDEAS: Login to save this paper or follow this series

Banking crises in transition economies : fiscal costs and related issues

Contents:

Author Info

  • Tang, Helena
  • Zoli, Edda
  • Klytchnikova, Irina
Registered author(s):

    Abstract

    The authors look at strategies for dealing with banking crises in 12 transition economies -- five from Central and Eastern Europe (CEE): Bulgaria, the Czech Republic, Hungary, Macedonia, and Poland; the three Baltic states: Estonia, Latvia, and Lithuania; and four countries from the Commonwealth of Independent States (CIS): Georgia, Kazakhstan, the Kyrgyz Republic, and Ukraine. Three types of strategies were used to deal with the crises. The CEE countries generally pursued extensive restructuring and recapitalizing of banks; most CIS countries pursued large-scale liquidation; and the Baltic states generally pursued a combination of liquidation and restructuring. The strategy pursued reflected macroeconomic conditions and the level of development in a country's banking sector. There were more new banks in the former Soviet Union (FSU-the CIS and Baltic states), but they tended to be small, undercapitalized, and not deeply engaged in financial intermediation. The CEE countries generally incurred higher fiscal costs than the FSU countries but ended up with sounder, more efficient banking systems, with many of the recapitalized banks being privatized to strategic foreign investors. The CIS countries pursued a less fiscally costly approach but have been left with weak banking systems and low levels of intermediation. The Baltic states appear to have struck a good balance, incurring modest fiscal costs while making their systems sounder and more efficient. The findings suggest the following: a) Operational, financial, and institutional restructuring should be undertaken in parallel. b) Financial restructuring should involve adequate recapitalization to deter moral hazard and repeated recapitalization. c) Operational restructuring should entail privatization to core investors (particularly to reputable foreign banks). d) The enterprise problems underlying banking problems must also be addressed. e) Fiscal costs were reduced when governments dealt only with bad debt inherited from the socialist period; when small banks that held few deposits were allowed to fail, where the social costs of such failure were low; and when only banks that got into trouble because of external shocks were rescued while those suffering from poor management were liquidated. f) The government, not the central bank, should undertake bank restructuring. Central bank refinancing is not transparent and could lead to hyperinflation.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2000/12/15/000094946_00111805313297/Rendered/PDF/multi_page.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2484.

    as in new window
    Length:
    Date of creation: 30 Nov 2000
    Date of revision:
    Handle: RePEc:wbk:wbrwps:2484

    Contact details of provider:
    Postal: 1818 H Street, N.W., Washington, DC 20433
    Phone: (202) 477-1234
    Email:
    Web page: http://www.worldbank.org/
    More information through EDIRC

    Related research

    Keywords: Financial Crisis Management&Restructuring; Banks&Banking Reform; Financial Intermediation; Municipal Financial Management; Fiscal&Monetary Policy;

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Alfred Steinherr & Ali Tukel & Murat Ucer, 2004. "The Turkish Banking Sector, Challenges and Outlook in Transition to EU Membership," Bruges European Economic Policy Briefings, European Economic Studies Department, College of Europe 9, European Economic Studies Department, College of Europe.
    2. World Bank, 2004. "Serbia and Montenegro : An Agenda for Economic Growth and Employment," World Bank Other Operational Studies 14487, The World Bank.
    3. Herrmann, Sabine & Winkler, Adalbert, 2008. "Financial markets and the current account: emerging Europe versus emerging Asia," Discussion Paper Series 1: Economic Studies 2008,05, Deutsche Bundesbank, Research Centre.
    4. Berglöf, Erik & Bolton, Patrick, 2003. "The Great Divide and Beyond - Financial Architecture in Transition," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3476, C.E.P.R. Discussion Papers.
    5. Olaf Unteroberdoerster, 2004. "Banking Reform in the Lower Mekong Countries," IMF Policy Discussion Papers 04/5, International Monetary Fund.
    6. Distinguin, Isabelle & Kouassi, Tchudjane & Tarazi, Amine, 2013. "Interbank deposits and market discipline: Evidence from Central and Eastern Europe," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 544-560.
    7. Gerald A. McDermott, 2004. "The Politics of Institutional Learning and Creation: Bank Crises and Supervision in East Central Europe," William Davidson Institute Working Papers Series wp726, William Davidson Institute at the University of Michigan.
    8. Mohamed Ariff & Luc Can, 2008. "Imf Bank-Restructuring Efficiency Outcomes:Evidence From East Asia," CARF F-Series, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo CARF-F-128, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    9. Mamatzakis, Emmanuel & Staikouras, Christos & Koutsomanoli-Filippaki, Anastasia, 2008. "Bank efficiency in the new European Union member states: Is there convergence?," International Review of Financial Analysis, Elsevier, Elsevier, vol. 17(5), pages 1156-1172, December.
    10. Kudrna, Zdenek, 2007. "Banking reform in China: Driven by international standards and Chinese specifics," MPRA Paper 7320, University Library of Munich, Germany.
    11. Gerald A. McDermott, 2003. "Institutional Change and Firm Creation in East-Central Europe: An Embedded Politics Approach," William Davidson Institute Working Papers Series 2003-590, William Davidson Institute at the University of Michigan.
    12. Koutsomanoli-Filippaki, Anastasia & Margaritis, Dimitris & Staikouras, Christos, 2009. "Efficiency and productivity growth in the banking industry of Central and Eastern Europe," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(3), pages 557-567, March.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:2484. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.