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Implications of the Transformation of the State-Owned Banking System into System of Foreign-Owned Banks in New Member States for Macroeconomic and Financial Stability

Listed author(s):
  • Egert Juuse

    (Ragnar Nurkse School of Innovation and Governance, Tallinn University of Technology)

  • Rainer Kattel

    (Ragnar Nurkse School of Innovation and Governance, Tallinn University of Technology)

All studied CEECs represent heterogeneous entities with different starting positions in their transition to market economies as well as chosen paths that have constrained or enabled the emergence of macro-economic and financial fragility, associated with the dominance of foreign-owned banks in the transition economies of CEE region. The implications of foreign ownership for macro-economic stability have to be presented and interpreted with caution. When drawing conclusions on the effects of different ownership structure, one has to bear in mind that in the case of CEECs, specific historical context needs to be acknowledged, as several problems and obstacles in achieving the macroeconomic stability with the state-ownership in the banking sector were related to the transition process from socialist production regime to the introduction of market economy institutions. In the 2000s, on the other hand, the activities of foreignowned banks took place in the context of increasing global liquidity and asset prices’ boom that was taking place in the Western world. Hence, ownership as such has not mattered so much for the macro-economic stability in the CEECs, but rather internal developments, that is, transition to market economy with associated challenges in the 1990s that rendered these economies unstable, and external factors, such as international capital flows in the 2000s that incurred imbalances through the activities of the banking sector.

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Paper provided by Financialisation, Economy, Society & Sustainable Development (FESSUD) Project in its series Working papers with number wpaper103.

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Length: 105 pages
Date of creation: 01 Feb 2015
Handle: RePEc:fes:wpaper:wpaper103
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FESSUD Co-ordinator (Malcolm Sawyer) Leeds University Business School Maurice Keyworth Buidling Leeds LS2 9JT

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