Better banks for Eastern Europe
Grossly inefficient banking systems are one of the major impediments to a rapid and sustained upswing in Europe's emerging market economies (EMEs for short). Although the transition from plan to market necessitates a large-scale re-allocation of domestic capital and easy access to foreign capital, the EMEs have adopted slow and inefficient approaches to the transformation of their banking systems. The EMEs can create optimal conditions for financial intermediation and a substantial import of capital and skills if they immediately import an efficient banking system and enter into an East-West Banking Union with the EC. A Banking Union goes far beyond the adoption of some relevant EC regulations for local banks; it gives all financial intermediaries licensed in one EC country free access to the EMEs subject to the same rules that apply in the EC internal market. At present, non-performing loans still tie state banks to insolvent state enterprises; the precarious portfolio positions of domestic banks serve as a convenient excuse for not allowing efficient and experienced Western banks to enter the market in the EMEs. To resolve the portfolio problem at one stroke, all loans that state banks had granted to state firms prior to a certain date should be written off; tight ceilings on the amount of new credits each state firm can receive from state banks would prevent a recurrence of the problem. The ceilings should not apply to private banks, which are controlled by self-interested owners. State banks should be recapitalized using government bonds that are indexed to inflation. Since a programme of debt write-off and recapitalization raises the value of state firms and state banks and thus the potential proceeds of privatization, it need not constitute a drain on the state budget. A clean sweep, which eases the privatization of firms and banks, is preferable to a time-consuming and arbitrary case-by-case approach. Even if it is no longer politically possible to fully discard the present gradualist policies, the EMEs should at least upgrade their piecemeal debt-reduction and recapitalization programmes. Thereafter, the residual portfolio problems should no longer pose an obstacle to immediate and free market access for foreign banks within an East-West Banking Union.
|Date of creation:||1992|
|Date of revision:|
|Contact details of provider:|| Postal: Kiellinie 66, D-24105 Kiel|
Phone: +49 431 8814-1
Fax: +49 431 8814528
Web page: http://www.ifw-kiel.de/
More information through EDIRC
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.:
- Calvo, Guillermo A & Coricelli, Fabrizio, 1992. "Stagflationary Effects of Stabilization Programs in Reforming Socialist Countries: Enterprise-Side and Household-Side Factors," World Bank Economic Review, World Bank Group, vol. 6(1), pages 71-90, January.
- Kornai, Janos, 1992.
"The Postsocialist Transition and the State: Reflections in the Light of Hungarian Fiscal Problems,"
American Economic Review,
American Economic Association, vol. 82(2), pages 1-21, May.
- Kornai, J. & Ely, R.T., 1992. "The Postsocialist Transition and the State: Reflections in the Light of Hungarian Fiscal Problems," Harvard Institute of Economic Research Working Papers 1583, Harvard - Institute of Economic Research.
- Begg, David & Portes, Richard, 1992.
"Enterprise Debt and Economic Transformation: Financial Restructuring of the State Sector in Central and Eastern Europe,"
CEPR Discussion Papers
695, C.E.P.R. Discussion Papers.
- David Begg & Richard Portes, 1993. "Enterprise debt and economic transformation (Financial restructuring of the state sector in Central and Eastern Europe)," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 1(1), pages 116-117, 01.
- Carlin, Wendy & Mayer, Colin, 1992. "Restructuring Enterprises in Eastern Europe," CEPR Discussion Papers 700, C.E.P.R. Discussion Papers.
- Boss, Alfred, 1991. "Die Finanzbeziehungen zwischen Bund, Ländern, Sondervermögen des Bundes, Treuhandanstalt und Unternehmen: Vereinbarungen im Staatsvertrag und im Einigungsvertrag und ihre finanziellen Konsequenzen," Kiel Working Papers 467, Kiel Institute for the World Economy (IfW).
- Yuk-Shee Chan & Stuart I. Greenbaum & Anjan V. Thakor, 2004.
"Is Fairly Priced Deposit Insurance Possible?,"
- Guillermo A. Calvo & Jacob A. Frenkel, 1991.
"Obstacles to Transforming Centrally-Planned Economies: The Role of Capital Markets,"
NBER Working Papers
3776, National Bureau of Economic Research, Inc.
- Guillermo Calvo & Jacob A. Frenkel, 1991. "Obstacles to Transforming Centrally-Planned Economies; The Role of Capital Markets," IMF Working Papers 91/66, International Monetary Fund.
- Frydman, Roman & Rapaczynski, Andrzej, 1991. "Evolution and Design in the East European Transition," Working Papers 91-53, C.V. Starr Center for Applied Economics, New York University.
When requesting a correction, please mention this item's handle: RePEc:zbw:ifwkdp:197. 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: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.