http://worldcat.org/entity/work/id/199207064

Analyzing financial sectors in transition with special reference to the former Soviet Union

One result of ignoring the true messiness of the transition from a command to a market economy is that governments are sometimes offered flawed policy recommendations and conclusions that are at odds with reality. Here is a framework for reflecting on certain features of bank behavior during the transition from a command to a market economy-and on public policy interventions for the sector often advocated by the International Monetary Fund, the World Bank, and other donor agencies. The economic transition from a command to a market economy is a complex, messy process, during which the incentives of economic agents may be significantly different from incentives familiar to Western economies. As a result, attempts to transplant Western institutional and regulatory norms of good practice into transition economies may produce disappointing, even counterproductive, results. Roe, Siegelbaum, and King show some specific characteristics of transition economies that are likely to have an impact on bank behavior and safety. They argue that these characteristics do not inevitably fade away as the transition proceeds; indeed, they may endure for an extended period. This being so, Roe, Siegelbaum, and King propose a simple analytical framework designed to shed light on the characteristics of the banking sector during the transition. This framework relies on familiar theories of asymmetric information and the potential advantages banks have in mitigating both the adverse risk and moral hazard associated with imperfect information. This framework suggests that the safety of an individual bank (and by extension the system) depends on three factors that evolve significantly during the transition: The bank's own internal information and information processing capabilities. The sophistication of the banking products it tries to offer. * The external operating environment the bank faces (an environment that is affected by almost all aspects of transition reform). Among their many conclusions: * Bank safety is an elusive concept in transition economies, one not easily managed. * A transitional banking system may be quite safe even though regulatory reform may have progressed only minimally. Their analysis helps to account for several paradoxes observed in transition banking systems, including the relatively long-term survival of banks which by any objective standard are insolvent. This paper is a product of Ukraine/Belarus Country Unit, Europe and Central Asia Region. The authors may be contacted at [email protected] or [email protected].

Open All Close All