A Study On The Impact Of International Capital Inflow On Bank Stability In Transitional Countries

In the past20years, banking sectors in central and eastern Europe (CEE) and commonwealth of independent states (CIS) countries have undergone significant changes. International capital inflows in these countries provide a big boost for banking reforms, but they also bring a lot of potential risks to financial markets and banks in these countries. This article uses the combination of theory and empirical research methods, respectively investigates the impact of international capital inflows on banking stability in CEE and CIS countries.Firstly, this article has a literature review on the impact of international capital inflows on banking stability. And then it makes a comparison and analysis of the present situation of banking reforms and international capital inflows in CEE and CIS countries. On this basis, it carries on a theoretical analysis of the impact of international capital inflows on banking stability. In empirical research part, this paper concerns six countries in CEE and four countries in CIS as the research objects. It uses z-score method to measure the level of banking stability. By comparing and making an analysis on the empirical result, this paper summarizes the cause of the different effects of international capital inflows on banking stability between these two kinds of countries. The main conclusions of this paper are as follows:(1) Because the way and specific implementations of reform are different, the effects of reform in CEE and CIS are different. The openness of finance and banking in CEE is significantly higher than it in CIS.(2) Foreign direct investments have positive effects on banking stability. Short-term capital inflows due to its high volatility have a great negative impact on banking stability.(3) Because of the different degrees of financial openness and banking reform, the more impacts of international capital inflows on banking stability in CEE are negative, and the more impacts of international capital inflows on banking stability in CIS are positive.Finally, this paper puts forward relevant policy recommendations on how to reasonably take advantage of international capital inflows and how to maintain the stability of the financial and banking sector. And it gives several suggestions on China which is also in a critical period of economic reform.