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Capital inflow reversals, banking stability, and prudential regulation in Central and Eastern Europe, Volume 1
Author:Talley, Samuel; Giugale, Marcelo M.; Polastri, Rossana; Country:Albania; Macedonia, former Yugoslav Republic of; Slovenia; Slovak Republic; Poland; Croatia; Czech Republic; Romania; Bulgaria; Hungary;
Date Stored:2000/02/24Document Date:1998/12/31
Document Type:Policy Research Working PaperSubTopics:International Terrorism & Counterterrorism; Payment Systems & Infrastructure; Financial Crisis Management & Restructuring; Economic Theory & Research; Banks & Banking Reform; Settlement of Investment Disputes; Financial Intermediation
Language:EnglishMajor Sector:Finance
Region:Europe and Central AsiaReport Number:WPS2023
Sub Sectors:Other FinanceCollection Title:Policy, Research working paper ; no. WPS 2023
Volume No:1  

Summary: The authors show that capital inflows into the countries of Central and Eastern Europe (CEE)--inflows that are mainly private, debt-driven, and increasingly supplied by banks on a shortening maturity--are especially vulnerable to reversals. They show that the region's banking systems are disproportionately exposed to those reversals, and absorb the lion's share of bank-supplied inflows. They analyze the main links through which external finance turbulence is transmitted to the domestic banking industry, especially during the transition. Mechanisms for prudential regulation are in place in the region--and largely mimic the standards directed by the European Union--but the authors argue that these standards are insufficient for CEE countries. They base their arguments not on actual enforcement (a genuine concern) but on the fact that EU banking directives were designed for more stable economies and for banking systems less vulnerable to reversals in capital inflows. A strong case can be made, for CEE countries to overshoot those directives, at least until the transition is complete.

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