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The connection between more multinational banks and less real credit in transition economies

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  • Weller, Christian E.

Abstract

The 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.

Suggested Citation

  • Weller, Christian E., 1999. "The connection between more multinational banks and less real credit in transition economies," ZEI Working Papers B 08-1999, University of Bonn, ZEI - Center for European Integration Studies.
  • Handle: RePEc:zbw:zeiwps:b081999
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    References listed on IDEAS

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    1. Corbett, Jenny & Mayer, Colin, 1991. "Financial Reform in Eastern Europe: Progress with the Wrong Model," Oxford Review of Economic Policy, Oxford University Press, vol. 7(4), pages 57-75, Winter.
    2. 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, January.
    3. Shrieves, Ronald E. & Dahl, Drew, 1992. "The relationship between risk and capital in commercial banks," Journal of Banking & Finance, Elsevier, vol. 16(2), pages 439-457, April.
    4. István Ábel & Pierre L. Siklos & István P. Székely, 1998. "Money and Finance in the Transition to a Market Economy," Books, Edward Elgar Publishing, number 830.
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    Cited by:

    1. Edurkar, Ashok & Chougule, Dr.Dattatrya G., 2016. "Can Foreign Banks Reignite India’s Manufacturing, Domestic & Foreign Trade Growth with Application of Competitive Business Practices Models?," MPRA Paper 73462, University Library of Munich, Germany, revised 01 Sep 2016.
    2. Edurkar, Ashok & Chougule, Dr.Dattatrya G., 2016. "A Study of Financial Services provided by Foreign Financial Institutions (FFIs) Operating in India consistently during the period 2003-04 to 2012-13 with reference to India’s Foreign Trade," MPRA Paper 73553, University Library of Munich, Germany, revised 01 Jul 2016.
    3. Edurkar, Ashok & Chougule, Dr.Dattatrya G., 2016. "Application of Factor and Cluster Analysis for an evaluation of Business Practices Models of Foreign Banks," MPRA Paper 73536, University Library of Munich, Germany, revised 06 Sep 2016.
    4. Edurkar, Ashok & Shaikh, Dr.Atik Asgar, 2016. "Financing India’s Trade under WTO regime and post RBI Road MAP 2005 with reference to Business Practices Models of Foreign Banks," MPRA Paper 73869, University Library of Munich, Germany, revised 20 Sep 2016.
    5. Edurkar, Ashok & Chougule, Dr.Dattatrya G., 2016. "Perspectives of Foreign Trade subjected to financing by Foreign Financial Institutions (FFIs) using business practices models as derived by factor and cluster analysis Post RBI Road Map 2005," MPRA Paper 73453, University Library of Munich, Germany, revised 31 Aug 2016.

    More about this item

    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, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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