For the Market or ‘For Our Friends’? The Politics of Banking Sector Legal Reform in the Post-Communist Region After 1989

Abstract

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Regulatory cascading: Limitations of policy design in European banking structural reforms

“…Of particular relevance for my analysis are shortcomings of policy design, which may lead to governance failure. On the one hand, scholars have pointed out that regulatory capture is a governance pathology at the extreme end of the private governance mode, lacking systematic public oversight (Baker, 2010;Grossman & Woll, 2014;Pagliari & Young, 2014;Porter, 2012;Spendzharova, 2008;Young, 2012). On the other hand, during the period of rapid financial globalisation, scholars examined the pitfalls of cumbersome legislation which lags behind current market practices and conditions (Barth, Caprio, & Levine, 2006).…”

Regulating Banks in Central and Eastern Europe

“…In other transition countries, including most of the former Soviet Union as well as Bulgaria and Romania, the Central Bank provided additional loans to commercial banks under pressure from the ruling government. The repeated bailouts of both banks and state-owned enterprises weakened the banks and led to the accumulation of non-performing loans (Johnson 2000;Barnes 2003;Nenovsky et al 2003;Spendzharova 2008).…”

“…The authors single out a second group of transition countries, including Bulgaria, Romania, and Slovakia, where reform was only partial (Berglöf and Bolton 2002; see also Hellman 1998). In the mid-1990s, the largest banks in these countries were still state-owned, the regulatory environment was very weak, and Central Banks were subject to political pressure from the ruling governments (Ganev 2007;McDermott 2007;Spendzharova 2008;Vachudova 2009). Following the outline of common trends in banking sector reform across the region, we now turn to a more detailed examination of banking sector transformation and privatization in the four cases.…”

“…It has substantially increased the availability of credit in the Bulgarian banking system (Personal interview, Roumen Simeonov 2012). Before privatization, the domestic banks made a series of poor decisions on credit allocation, culminating in a major banking crisis in 1997-1998 (Nenovsky et al 2003;Ganev 2007;Spendzharova 2008). The foreign-owned banks had more experience and a better reputation than their Bulgarian counterparts.…”

“…The BNB was stricter in enforcing compliance with the regulatory framework after the 1997-1998 domestic banking crisis, which was partly induced by the Asian financial crisis but also by domestic mismanagement and crony capitalism (Ganev 2007;Spendzharova 2008;Vachudova 2009). In 2004, the Central Bank adopted stricter rules for classifying assets and determining banks' capital adequacy.…”