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Financial and Monetary Integration in the New Europe

Financial and Monetary Integration in the New Europe

Convergence Between the EU and Central and Eastern Europe

Edited by David G. Dickinson and Andrew W. Mullineux

Potential new entrants to the European Union from Central and Eastern European countries face many challenges to achieve financial convergence with the existing EU nations. Using detailed case studies from Bulgaria, the Czech Republic, Latvia, Lithuania and Poland and analysis of cross country data from these regions, Financial and Monetary Integration in the New Europe looks at the key issues for applicant countries as they negotiate the terms of their membership in the European Union. Of major concern to these countries is the financial sector and its implications for economic growth and the conduct of macroeconomic policy. The book examines, in particular, monetary and exchange rate policies, banking regulation and financial market efficiency. The overall impact of building a market driven financial system on economic development is also explored.

Chapter 16: Banking sector restructuring and debt consolidation in the Czech Republic

Roman Matousek

Subjects: economics and finance, financial economics and regulation


Roman Matous ek ÿ INTRODUCTION A decade has passed since the Central and Eastern European (CEE) countries began the transition to establishing market-based economies integrated with the rest of the world. The development of a broad-based financial sector has been seen as an integral component of the transition. The approach and progress towards development of a viable financial sector vary among the countries and are dependent on a number of factors: ¥ the countryÕs starting point (particularly its historical experience with market-based economic systems and the degree to which its economy had been centrally planned and controlled); ¥ the macroeconomic setting; ¥ the pace of other reforms Ð institutional and legal environment (commercial and civil law, bankruptcy law, accounting standards and so on); and ¥ political consensus in support of market-based institutions. Banking reforms took place in the Czech Republic at the beginning of 1990, when the so-called Ôtwo-tierÕ banking system was established. The banking sector has undergone a rapid process of liberalization. Interest rate ceilings on credit were removed, barriers to entry on private domestic banks and later also on foreign banks were abolished, allocation of credit was no longer made on the basis of government decisions, and regulation and supervision were strengthened. Nevertheless, even though all essential liberalization steps that are considered essential for improving functional efficiency and competitiveness within the banking sector have been taken, the outcomes are still modest. Past experience in Visegrad countries has shown that the common feature for developing a sound and efficient banking system requires a balance...

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