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2021 | OriginalPaper | Buchkapitel

6. Models of Financial Integration: The Experience of the Baltics and Central Eastern Europe

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Autor: Lúcio Vinhas de Souza

Verlag: Springer International Publishing

Erschienen in: Does EU Membership Facilitate Convergence? The Experience of the EU's Eastern Enlargement - Volume II

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Abstract

Building on Vinhas de Souza (and Vinhas de Souza and Tudela), this chapter briefly describes the historical process of financial liberalization and integration of Baltic and Central European Countries (BCECs) since the 1990s. It investigates the hypotheses that the type of financial integration chosen by the BCECs played an important role in enabling liberalization to deliver welfare-enhancing outcomes.

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The opening up and liberalization of financial services in developing countries would yield, in principle, both static and dynamic gains: static, one-shot efficiency gains from optimally allocating the available resources (i.e., developed, capital abundant nations would export capital to the developing, capital scarce ones; also domestically, deeper, more effective financial systems would facilitate the linkages between domestic savers and investors, reducing information asymmetries and scale problems), and dynamic ones because the growth rate would be shifted upwards by the increased capital stock created by the greater investment (temporarily, later adjusting again to the long-run growth trend).

In the Baltic states, already in 1987, as part of the Gorbachev reforms, the monobank Gosbak (which formed the financial system, together with an emissions bank) had spun-off five specialized banks in all URSS republics (Savings, Agriculture, Social, Industry and Construction and Foreign Trade: a somewhat similar specialization was to be found in most other centrally planned economies, with, at least, a “central bank”, a savings bank and a foreign trade one).

Levine ( 2002), after performing a panel analysis of large number of countries, concludes that either bank or market-based (i.e., via stock markets) financial systems can be growth-enhancing: what actually is relevant is the overall development of financial sector and, specially, the quality and effectiveness of the institutional framework (contract enforcement, investor protection, etc.).

Sometimes almost comically so: as an example, in the early 1990s, Latvia allowed the creation of a bank—appropriately called Olympia Bank—just to finance the Latvian Olympic team.

This figure does not include FDI flows. Namely, “total funds provided to the region grew from around US$200 billion in 2002 to some US$1 trillion in 2008 or 25 percent of regional GDP. About half comprised funding for banks (in particularly their CESEE subsidiaries), mostly in the forms of loans. The other half of the financing took the form of crossborder loans to non-banks”. See IMF ( 2013).

However, even if Swedish banks were dominant, the level of concentration in the three Baltic markets was different: in both Estonia and Latvia, a single bank, Swedebank, was the clear market leader (see Scope Ratings 2019).

Babecký, J., Komárek, L., & Komárková, Z. (2010). Financial Integration at Times of Financial Instability (Working Papers Series 9/2010). Czech National Bank, Prague.

Bakker, B., & Gulde, A. M. (2010). The Credit Boom in the EU New Member States: Bad Luck or Bad Policies? (IMF Working Paper 10/130).

Balyozov, Z. (1999). The Bulgarian Financial Crisis of 1996–1997. Discussion Paper, Bulgarian National Bank, 1999 (DP/7/1999).

Demirgüç-Kunt, A., Horváth, B., & Huizinga, H. (2017). Foreign Banks and International Transmission of Monetary Policy: Evidence from the Syndicated Loan Market (CEPR Discussion Paper No. 11796).

Emter, L., Schmitz, M., & Tirpák, M. (2019). Cross Border Banking in the EU Since the Crisis: What Is Driving the Great Retrenchment? Review of World Economics, 155(2), 287–326

European Political Strategy Center (EPSC). (2015). Further Risk Reduction in the Banking Union-Severing the ‘Doom Loop’. Brussels.

Fleming, A., Chu, L., & Banker, M., 1996. The Baltics – Banking Crises Observed. Policy Research Paper n° 1647, Washington, D.C., USA: The World Bank.

Gallizo, J., Moreno, J., & Salvador, M. (2018). The Baltic Banking System in the Enlarged European Union: The Effect of the Financial Crisis on Efficiency. Baltic Journal of Economics, 18(1), 1–24. CrossRef

IMF. (2013). Financing Future Growth: The Evolving Role of Banking Systems in CESEE. Washington, D.C., USA.

Levine, R. (2002). Bank-Based or Market-Based Financial Systems: Which Is Better? (NBER Working Paper n° 9138).

Moore, D., & Zajc, P. (2000). Implementing Bank Privatisation in Slovenia. MOCT-MOST Economic Policy in Transitional Economics, 10(1), 27–54. CrossRef

Scope Ratings. (2019). How Exposed Are Nordic Banks to the Baltics?, Frankfurt, Germany.

Sebők, M. (2018). Institutional Entrepreneurship and the Mission Creep of the National Bank of Hungary. In C. Bakir & D. Jarvis (Eds.), Institutional Entrepreneurship and Policy Change: Studies in the Political Economy of Public Policy. Houndmills, Basingstoke: Palgrave Macmillan.

Vinhas de Souza, L. (2004). Financial Liberalization and Business Cycles: The Experience of the New EU Member States in The Baltics and Central Eastern Europe. Deutsche Bundesbank, Discussion Papers Series n° 23/04, Frankfurt a.M., Germany.

Vinhas de Souza, L., & Hölscher, J. (2001). Exchange Rates Links and Strategies of New EU Entrants. The Journal of European Integration, 23(1), 1–28. United Kingdom. CrossRef

Vinhas de Souza, L., & Tudela, M. (2012). Euro Area Periphery: Structural Reforms Have Significantly Improved External Imbalances, But Full Resolution May Still Take Years. New York, USA: Moody’s Investors Service. CrossRef

Vinhas de Souza, L., & Tudela, M. (2014). Voltar a Empezar: Crisis and the Renationalization of the Iberian Financial Systems. Comparative Economic Studies, 56(3), 337–350. Palgrave.

Vogel, U., & Winkler, A. (2012). Do Foreign Banks Stabilize Cross-Border Bank Flows and Domestic Lending in Emerging Markets? Evidence from the Global Financial Crisis. Comparative Economic Studies, 54(3), 507–530.

World Bank. (2016). Bank Resolution and Bail-in in the EU: Selected Case Studies Pre and Post BRRD. Washington, DC: World Bank Group. CrossRef

Titel

Models of Financial Integration: The Experience of the Baltics and Central Eastern Europe

Buch

Does EU Membership Facilitate Convergence? The Experience of the EU's Eastern Enlargement - Volume II

Print ISBN: 978-3-030-57701-8

Electronic ISBN: 978-3-030-57702-5

https://doi.org/10.1007/978-3-030-57702-5

DOI

https://doi.org/10.1007/978-3-030-57702-5_6

Autor:

Lúcio Vinhas de Souza

Verlag

Springer International Publishing

Sequenznummer

Kapitelnummer

Chapter 6

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