Jean Monnet Multilateral Research Group

CEE Banking sector stability after the reform of the European financial supervision

Research Seminar: Deposit withdrawals from distressed banks. What can we learn from the 2008/2009 crisis?

• Presents Professor Martin BROWN, Ph.D. - University of St. Gallen, Switzerland

• Monday, March 31, 2014, 4:00 PM

• Place: Doctoral School of Economics and Business Administration, Alexandru Ioan Cuza University of Iasi
  Address: 14th Lapusneanu Street, 5th Floor, Room 502, IASI 700057 - Romania

About

Project title: CEE Banking sector stability after the reform of the European financial supervision

The European Union is more reliant on bank credits and bank intermediation of savings, than the United States and rest of the world. Consequently, banking system stability plays a crucial role for sustained recovery in Europe after the financial crises. The risk of financial instability is driven by the economic and financial cycles over time, as well as by the degree of interconnectedness of financial institutions and markets.
The banking system in the CEECs is characterized by a significant presence of foreign banks. Western European investors were attracted by prospects of rapid growth in local markets lacking initial capital, guaranteeing high returns. European banks have been increasingly active in these markets, notably Swedish banks in the Baltic States and Austrian banks in Central Europe. This situation leaves the banking system open to (1) direct financial exposure between European creditor countries and CEECs and (2) regional contagion via spill-over effects and creditor channel. Finally, exchange rate movements are an important determinant of the financial stability in the CEECs. The vulnerability of the banking system is not related only to the CEECs but to the systemically important banks as well.
During the recent financial crisis, the banking sectors in CEECs were sensitive to systemic external shocks. Parallelly, the CEE banks affect western European bank systems. However, the policy of the ECB focuses on the development in the euro area only. The banks outside the euro area do not have a direct access to refinancing possibilities in the euro area including the ECB as a lender of last resort.
The main result is wide discussions and specific recommendations to banking management, investors and professional public for better understanding of new financial architecture in the Europe. The research group seeks entry for contributions to theoretical economics from the perspective of changing paradigm of global financial governance and political economy.