Challenges of financial integration in the Central and East European region
Due to a high ratio of foreign ownership, countries in the Central and East European (CEE) region are characterised by particularly high financial integration. Therefore, contagion risks are high in both directions: a problem that develops in the country of a parent bank can easily spread to the countries of its subsidiaries; and likewise, a problem that evolves in the CEE region can spill over to the banking sector of the parent bank. In view of the significance of contagion risks, adequate capital and liquidity allocation within banking groups is crucial; in other words, continuous and safe operations must be ensured at all times for each member of the group. As their prudential and crisis management frameworks are rooted in a fundamentally national context, financial authorities have to deal with several challenges.
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