The connection between more multinational banks and less real credit in transition economies
AbstractThe number of multinational banks have increased in transition economies in Central and Eastern Europe, while the amount of real credit has simultaneously decreased. Based on the cases of Poland and Hungary during the first six years of economic transition this paper investigates if there is a link between greater international financial competition and less real credit. I provide a theoretical argument that connects the number of multinational banks to the availability of capital for domestic banks, and hence to their lending capacity. In support of this argument, I employ data from both countries' central banks, central statistical offices, and private institutions, as well as from international institutions, such as IMF and BIS. The evidence suggests that the increases in efficiency which result from greater competition do not outweigh the limitations on the capital base of domestic banks. Consequently, I find that the constraints that international financial competition places on domestic banks to raise their capital leads them to reduce their commercial lending activities in the early stages of financial liberalization. --
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Bibliographic InfoPaper provided by ZEI - Center for European Integration Studies, University of Bonn in its series ZEI Working Papers with number B 08-1999.
Date of creation: 1999
Date of revision:
Find related papers by JEL classification:
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- O52 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Europe
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