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Financial Fragility or What Went Right and What Could Go Wrong in Central European Banking?

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Central Europe towards Monetary Union: Macroeconomic Underpinnings and Financial Reputation

Abstract

Despite the fact that banks in Central Europe are still struggling with bad loan burdens, and that capital controls have slowly been eliminated, the South East Asian and Russian crises have not led to a massive failure of banks in the region. In this paper, we study economic trends and policies that may have helped to insulate CEECs from international financial contagion. Using data available from the IMF, and the BIS for nine Central European economies (Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Republic, and Slovenia), our results indicate that an economic constellation unique to the early transition period rather than deliberate policy decisions have stabilized the CEECs. Specifically, the lack of recent banking crisis can be attributed to a lack of speculative financing, to underdeveloped asset markets, and to more long-term international capital flows. Future problems may arise as banks are beginning to extend credit more to an expanding real sector than in the past, as asset markets become more developed, or as export growth to the EU may decline with European growth slowing down.

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Author information

Authors and Affiliations

  1. University of Bonn, Germany

    Christian E. Weller & Jürgen von Hagen

Authors
  1. Christian E. Weller
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  2. Jürgen von Hagen
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Editor information

Editors and Affiliations

  1. Department of Economics, International Centre for Macroeconomic Modelling, University of Strathclyde, Glasgow, UK

    Ronald MacDonald  & Rod Cross  & 

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Weller, C.E., von Hagen, J. (2000). Financial Fragility or What Went Right and What Could Go Wrong in Central European Banking?. In: MacDonald, R., Cross, R. (eds) Central Europe towards Monetary Union: Macroeconomic Underpinnings and Financial Reputation. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-1385-8_7

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  • DOI: https://doi.org/10.1007/978-1-4615-1385-8_7

  • Publisher Name: Springer, Boston, MA

  • Print ISBN: 978-1-4613-5527-4

  • Online ISBN: 978-1-4615-1385-8

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