Research On Financial Risks In The Opening Process Of Banking Industry In Central And Eastern European Countries

Since the mid-1990s, the Central and Eastern European countries began to reduce the access threshold for foreign banks, trying to improve the efficiency of the domestic banks. While the foreign banks entering into CEE countries, the banking of CEE countries have to face new risks. The risks such as diversification risks, capital adequancy risks, bank interbank lending risks and corporate financing risks are discussed in this artile from the point of micro-view. In addition, since the supervision systems are quite different among CEE countries, the supervision systems are also discussed in the article.The study found that, first, in CEE countries, the banks carry out diversified business, which want to raise the profitability of the banks. The diversified business will crowd out traditional income of the banks, which lead to underestimate the traditional risks and increase the risks of banks. In addition, the banks carrying out diversified business appropriately can effectively reduce bank risk. The excessive diversified business will increase the risks of banks and ultimatedly lead to instability of the banks. Second, in CEE countries, the capital of banking presents counter-cyclical phenomenon, interbank lending and diversified business can not be effective to recapitalize the banks. So the banks should face the risks of interbank lening and diversification risks.Third, in CEE countries, the banking sector has its unique interbank lending behavior. The efficiency of the banks that focus on lending is not high. The funds that banks borrow are used to make up for their liquidity. The tighten monetary policy will increase interbank lending risks. As foreign banks enter into CEE countires, the inter-bank lendings are weakened, and the banks’liquidity assets holdings also decreased, thus increasing the liquidity risks in the banking sector as a whole Fourth, from the point of view of the bank loans, foreign currency loans,-excessive household credit growth, excessive reliance on indirect financing, and foreign banks’"cherry-picking" behaviors will increase the risks of banking sectors in CEE countries. From corporate financing perspective, the loan application procedures and accelerated cycle of small business financing constraints, as well as foreign banks domestically funded enterprises loan discrimination will also increase the risk of enterprises operating in the CEE countires.The structure of the paper is as follow: The beginning of the paper is the introduction. This sector introduces the main problem to be solved, the research framework of the paper.Chapter I is the literature review. This part firstly describes the spillover effects of the banking sector and financial stability, the opening of the banking sector and financial risk, the opening of the banking sector and financial crisis, as well as banking supervision in CEE countries. In the part of opening of banking system and financial risks, some risks such as interbank lending and liquidity risks, diversification risks, bank capital risks are described.Chapter Ⅱ describes the banking reform of CEE countries. This part introduce that:in the early1990s, banking system was planned economy, in the middle of1990s, the banking reform in CEE countries, as well as banking reform and development under the impact of the global financial crisis.Chapter Ⅲ describes risks of diversification. This chapter first analyzes the the diversified business of the CEE countries. By establishing a model, the factors that affect the diversified business can be found.In this chapter, excessive diversified business will have bank underestimate the traditional risk and lead bank to unstable.Chapter Ⅳ describes the capital adequancy risks of CEE countries. A model explaining the rise of the capital adequacy requirements might raise the risks of the banking system. Then, an empirical analysis finds that the interbank liquidity risk and diversify risk have no relation with capital of banks.Chapter Ⅴ analyses the interbank market risk of CEE banking system. This chapter first describes the reason for the formation of the Eastern European countries in the interbank lending relationship.By establishing a simple theoretical model, interbank lending practices can be found unstable, and easy to raise risk. Then, two aspects of the behavior of the interbank lending risks are analysed.Chapter Ⅵ analyses the behaviors of bank lending and corporate financing problem in CEE countries. First, the description of unique bank lending system and and the analysis of the potential banking lending risks in the CEE countries are analysed. Then, the status of corporate financing in CEE countries and potential risks of these financing are analysed.Chapter Ⅶ is to analyse Banking Supervision of the CEE countries. First the regulatory systems are described. And then problems such as policy arbitrage, market supervision and supervision mode are analysed.Chapter Ⅷ summarizes the whole paper. Firstly, the chapter summarizes the different risks of banking in CEE countries and then show the relevant policy recommendations. Secondly, some advices to Chinese banking system based on the analyses of risks of CEE banking sectors.