Top Players in Central and Eastern Europe: Does their Widespread Presence Enhance Bank Efficiency?

The two decades surrounding the turn of the 20th/21st centuries have witnessed unprecedented changes in the global financial landscape. One region particularly affected by change is Central and Eastern Europe (CEE), where the transition from centrally-planned to market economies resulted in the opening up of national financial systems to foreign investors. Financial institutions from developed countries, mainly in Western Europe, gradually established their presence in CEE through greenfield investments and the acquisitions of domestic firms, mainly through their participation in the privatization of state-owned companies. As a consequence of this, the share of foreign capital in the banking sector exceeds 90 percent in some CEE countries today. Such a high level of involvement has for some time caused controversy about possible positive and negative outcomes; while the undeniable benefits of this inflow of foreign capital, together with experience and know-how, have resulted in the rapid development of banking services, concerns have also been raised as to the potentially destabilizing role of foreign investors, especially in a time of crisis.