Banking reform in transition countries
In reforming the financial sector in transition economies, one important debate is whether governments should try to reform existing state-owned banks (the rehabilitation approach) or whether a new private banking system should be allowed to emerge (a new entry approach). Or should there be a mix of the two approaches, in which the state bank activities are restricted while a parallel private banking system develops? The authors'cross-country comparison of banks'institutional development in 25 transitional economies suggests that progress can be faster under the new entry approach, especiallyrelative to initial conditions. Progress under the rehabilitation approach appears to be inhibited by poor incentives. In most countries, even those with a good banking infrastructure and a large segment of good banks, a two track process has evolved, with differences between weak and strong banks. Weak banks have moved little beyond central planning. Regression estimates suggest that slow progress of weak banks is associated with: cover concentration, government preferential treatment, and limited new banks entry. The causality direction is often unclear. Policies and structural conditions can affect bank quality. The role of banks will remain limited in many transition economies due to weak legal infrastructures, much uncertainty and inside information, and problems associated with highly leveraged financial intermediaries - including fraud, political interference, and implicit guarantees. In the short run, self-finance and intermediation among enterprises and through nonbank financial institutions may prevail.
|Date of creation:||31 Aug 1996|
|Contact details of provider:|| Postal: 1818 H Street, N.W., Washington, DC 20433|
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Demirguc-Kunt, Ash & Levine, Ross, 1996.
"Stock Market Development and Financial Intermediaries: Stylized Facts,"
World Bank Economic Review,
World Bank Group, vol. 10(2), pages 291-321, May.
- Demirguc-Kunt, Asli & Levine, Ross, 1995. "Stock market development and financial intermediaries : stylized facts," Policy Research Working Paper Series 1462, The World Bank.
- Ronald I. McKinnon, 1991. "Financial Control in the Transition from Classical Socialism to a Market Economy," Journal of Economic Perspectives, American Economic Association, vol. 5(4), pages 107-122, Fall.
- Caprio, Gerard Jr. & Summers, Lawrence H., 1993. "Finance and its reform : beyond laissez-faire," Policy Research Working Paper Series 1171, The World Bank.
- Allen, Franklin & Gale, Douglas, 1995. "A welfare comparison of intermediaries and financial markets in Germany and the US," European Economic Review, Elsevier, vol. 39(2), pages 179-209, February.
- Franklin Allen & Douglas Gale, 1994. "A welfare comparison of intermediaries and financial markets in Germany and the U.S," Working Papers 95-3, Federal Reserve Bank of Philadelphia.
- Gerard Caprio, Jr., 1995. "The role of financial intermediaries in transitional economies," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 257-302, June.
- Dimsdale, Nicholas & Prevezer, Martha (ed.), 1994. "Capital Markets and Corporate Governance," OUP Catalogue, Oxford University Press, number 9780198287889. Full references (including those not matched with items on IDEAS)