Banking in Transition Countries

34 Pages Posted: 29 Mar 2014

See all articles by John Bonin

John Bonin

Wesleyan University - Economics Department

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Paul Wachtel

New York University - Stern School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: March 18, 2014


Modern banking institutions were virtually non-existent in the planned economies of central Europe and the former Soviet Union. In the early transition period, banking sectors began to develop during several years of macroeconomic decline and turbulence accompanied by repeated bank crises. However, governments in many transition countries learned from these tumultuous experiences and eventually dealt successfully with the accumulated bad loans and lack of strong bank regulation. In addition, rapid progress in bank privatization and consolidation took place in the late 1990s and early 2000s, usually with the participation of foreign banks. By the mid 2000s the banking sectors in many transition countries were dominated by foreign owners and were able to provide a wide range of services. Credit growth resumed, sometimes too rapidly, particularly in the form of lending to households. The global financial crisis put transition banking to test. Countries that had expanded credit rapidly were vulnerable to the macroeconomic shock and there was considerable concern that foreign owners would reduce their funding to transition country subsidiaries. However, the banking sectors turned out to be resilient, a strong indication of the rapid progress in institutional development and regulatory capabilities in the transition countries.

Keywords: transition banking, bank privatization, foreign banks, bank regulation, credit growth

JEL Classification: G21, P27, O57

Suggested Citation

Bonin, John P. and Hasan, Iftekhar and Wachtel, Paul, Banking in Transition Countries (March 18, 2014). BOFIT Discussion Paper No. 8/2014, Available at SSRN: or

John P. Bonin

Wesleyan University - Economics Department ( email )

Middletown, CT 06459
United States
203-685-2000 (Phone)

Iftekhar Hasan (Contact Author)

Fordham University ( email )

NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006

Paul Wachtel

New York University - Stern School of Business ( email )

44 West 4th St.
New York, NY 10012
United States
212-998-4030 (Phone)
212-995-4218 (Fax)


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