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10 - Challenges to banking sector stability in selected new Member States

Published online by Cambridge University Press:  22 September 2009

Michael Artis
Affiliation:
European University Institute, Florence
Anindya Banerjee
Affiliation:
European University Institute, Florence
Massimiliano Marcellino
Affiliation:
Università Commerciale Luigi Bocconi, Milan
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Summary

Introduction

Following their accession to the European Union (EU) in May 2004, the eight Central and Eastern European countries (CEEC) of the first wave, having been judged to have converged sufficiently with the fifteen existing members of the Union with regard to the political and economic criteria established in Copenhagen, are continuing to undergo structural and institutional change. Moreover, they are committed to entering a process leading to the adoption of the common currency, the euro. The EU has set a target date of 2007 for the accession of two additional countries in the region, Bulgaria and Romania, which are in the process of closing the final negotiations on chapters of the acquis communautaire that will define the path by which they too will harmonise their institutions. All of these countries have already made dramatic strides in improving the stability and efficiency of their banking sectors as well as in eliminating restrictions on capital flows. However, these processes are not complete and further progress along these lines, including such phenomena as increased competition in the banking sector and more substantial flows of short-term capital, in and of itself has the potential to increase the risks of instability in the banking sectors of the individual new Member States. Moreover, there may well be developments in macroeconomic trends, exchange rates and direction and composition of financial flows due to accession to the EU and preparation for eventual accession to the Euro area that could exacerbate these risks.

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Chapter
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Publisher: Cambridge University Press
Print publication year: 2006

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References

Brouwer, H., Haas, R. and Kiviet, B. 2002. Banking Sector Development and Financial Stability in the Run-Up to EU Accession. The Hague: Bank of the Netherlands.
Cottarelli, C., Dell'Ariccia, G. and Vladkova-Hollar, I. 2003. ‘Early Birds, Late Risers, and Sleeping Beauties: Bank Credit Growth to the Private Sector in Central and Eastern Europe and the Balkans’. International Monetary Fund Working Paper, No. 03/213.
Daianu, D. and Ionici, O. 2003. Achievements and Challenges for Banking Sector Development in EU Acceding Countries: Southeast Europe and Baltic Countries. Bucharest: OECD Forum on Trade in Services in South Eastern Europe.
European Central Bank. 2003a. EU Banking Sector Stability. Frankfurt: European Central Bank.
European Central Bank 2003b. Structural Analysis of the EU Banking Sector. Frankfurt: European Central Bank.
Iakova, D. and Wagner, N. 2002. ‘Financial Sector Evolution: Challenges in Supporting Macroeconomic Stability and Sustainable Growth’. In Feldman, R. and Watson, M., Into the EU: Policy Frameworks in Central Europe. Washington DC: International Monetary Fund.
International Monetary Fund. 2001a. ‘Republic of Poland: Financial System Stability Assessment’. International Monetary Fund Country Report, No. 01/67.
International Monetary Fund, 2001b. ‘Czech Republic: Financial System Stability Assessment’. International Monetary Fund Country Report, No. 01/113.
International Monetary Fund, 2003. ‘Romania: Financial System Stability Assessment’. International Monetary Fund Country Report, No. 03/389.

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