The Politics of Institutional Learning and Creation: Bank Crises and Supervision in East Central Europe

Abstract

This article examines the political conditions shaping the creation of new institutional capabilities. It analyzes bank sector reforms in the 1990s in three leading postcommunist democracies - Hungary, Poland, and the Czech Republic. It shows how different political approaches to economic transformation can facilitate or hinder the ability of relevant public and private actors to experiment and learn their new roles. With its emphasis on insulating power and rapidly implementing self-enforcing economic incentives, the depoliticization approach creates few changes in bank behavior and, indeed impedes investment in new capabilities at the bank and supervisory levels. The deliberative restructuring approach fostered innovative, costeffective monitoring structures for recapitalization, a strong supervisory system, and a stable, expanding banking sector.

Keywords: Institutional change, transition economies, bank crises, bank supervision, learning

JEL Classification: G28, F02, P26, P48, K23