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Inhaltsverzeichnis

Frontmatter

Introduction

Banks are crucial for the availability of credit in the economy. A well-capitalized and liquid banking system can provide citizens with affordable loans to buy a home or attend university and businesses with credit to invest in state-of-the-art technology or expand their business network. When a bank fails, however, the authorities need to step in and unwind the bank’s assets in an orderly manner to prevent a broader de stabilization of the country’s financial system. Moreover, most countries have a deposit guarantee fund that can be used to reimburse deposits in the failed bank, up to a stipulated limit. Even before the authorities have unwound the troubled bank, banking sector supervisors start investigating the reasons for the bank’s collapse. Often, they come across poor risk management practices within the bank and gaps in the country’s regulatory framework that allowed the large build-up of risks to begin with. In response, supervisors issue stricter guidelines and, depending on their legal competencies, patch up the legal gaps or signal to lawmakers the changes that need to be put in place.

1. The Quest for Financial Stability: Determinants of Regulatory Approach in Banking Supervision

Does Counter-Cyclical Regulation Play a Role?
Abstract
Effective banking supervision is important for ensuring financial sector stability. A country’s choice of banking sector regulatory approach has an impact on banks’ lending decisions and the overall availability of credit in the financial system (Greenwald and Stiglitz 2003: 5–8). Market-based regulation was prevalent in the decades leading up to the 2008 global financial crisis. This approach is based on the assumption that if sufficient information is available on the marketplace, market discipline will force financial actors to behave responsibly, and will thus promote financial stability (Barth et al. 2006; Wymeersch 2009; de Haan et al. 2012). However, reliance on market regulation allowed excessive risk-taking in the financial sector and destabilized the global financial system. Recently, scholars and policy-makers have considered the potential of implementing counter-cyclical regulatory measures to make the financial sector more resilient (Griffith-Jones et al. 2009; Independent Commission on Banking 2011). Proponents of counter-cyclical regulation argue that bank supervisors need to take pro-active measures when they observe vulnerabilities in the banking system, especially to cool off credit booms (Grabel 2007; Goodhart and Persaud 2008).
Aneta Spendzharova

2. Economic Reform Path and Bank Privatization

Chapter 2 examines the economic reform path and bank privatization variables in my analysis. I reconstruct the path of banking sector reform in the four cases since the early 1990s. In particular, I discuss the timing of banking sector privatization and the extent to which foreign banks were allowed to enter the domestic market. We will return to these independent variables in Chapter 4, which analyzes the most important determinants of banking sector regulatory approach during the period of rapid credit growth in the region, 2000–2008.

3. Institutional Design of Banking Supervision in Central and Eastern Europe and Party Politics

Abstract
Chapter 1 presented two contrasting approaches to banking sector supervision. First, market-based regulation was prevalent in the decades leading up to the 2008 global financial crisis. This approach is based on the assumption that if sufficient information is available on the marketplace, market discipline will force financial actors to behave responsibly, and will thus promote financial stability (Barth et al. 2006; Wymeersch 2009; de Haan et al. 2012). Second, according to the risk- averse counter-cyclical regulation approach that gained more traction after the global financial crisis, bank supervisors need to take proactive measures when they observe vulnerabilities in the banking system (Grabel 2007; Goodhart and Persaud 2008; Griffith-Jones et al. 2009).
Aneta Spendzharova

4. Banking Supervision Approaches during Credit Booms

During the period 2000–2007, Central and Eastern Europe was among the fastest growing regions in Europe (Lamine 2008; Bohle 2013; Myant et al 2013). The economic boom was most visible in the states that were well on track to join the EU such as Estonia, Hungary, and Slovenia. As their banking systems channeled foreign capital into the economy, more resources became available for consumer and business loans. Driven by high demand for new housing and office space, prices in the real-estate sector grew exponentially. Chapter 4 examines the variation in regulatory approaches adopted by banking sector supervisors in the four cases during this period of rapid credit growth. Drawing on an explaining-outcome process tracing approach (Beach and Pedersen 2013), I probe which of the four independent variables presented in Chapters 2 and 3 account for the observed regulatory approach in each case.

5. At the EU Negotiating Table: What Role for National Bank Supervisors after EU Accession?

Abstract
Chapter 5 takes a broader perspective and investigates the implications of the supervisory approaches developed in the four countries over the past 15 years for redesigning the European regulatory framework in the period 2009–2013, following the global financial crisis. The regulatory reforms in Central and Eastern Europe after 1989 harmonized national legislation and practices with those of the EU. During the pre-accession period, governments did not have the option to negotiate on what terms they would adopt the EU’s body of law, the acquis communautaire, and EU legislation was mostly copied into national law (Jacoby 2004; Vachudova 2005; Grabbe 2006). In banking, all Central and Eastern European candidates for EU membership adopted the single market and financial governance provisions in the EU’s acquis.
Aneta Spendzharova

Conclusion

This book has investigated the choice of regulatory approach by banking sector supervisors in Central and Eastern Europe. Even though countries in the region received largely the same policy advice from international actors such as the IMF, the BCBS, and the EU, we observe variation in the regulatory approaches implemented during the credit booms in the early and mid-2000s. I sought to understand the domestic variables that influenced the choice of regulatory approach based on a most similar systems comparative case-study design. Bulgaria, Estonia, Hungary, and Slovenia are most similar systems with respect to their structural position in the global economy. As recent members of the EU, all four countries have been influenced by the common European regulatory framework in banking and finance. Yet the four cases offer variation in their banking supervision approaches over time as well as in important domestic variables such as economic reform path, bank privatization and level of foreign ownership, institutional structure of banking supervision, and party politics.

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