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

  • Christian E. Weller
  • Jürgen von Hagen

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.

Keywords

Exchange Rate Monetary Policy Foreign Exchange Central European Banking Default Risk 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer Science+Business Media Dordrecht 2000

Authors and Affiliations

  • Christian E. Weller
    • 1
  • Jürgen von Hagen
    • 1
  1. 1.University of BonnGermany

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