Experience and Perspectives of Financial Sector Development in Central and Eastern Europe

Abstract

Financial sector development in Central and Eastern Europe has proved to be a very dramatic process characterized by some well trumpeted success stories but even more so by many unexpected collapses of seemingly decent institutions and some systemic meltdown as well. The overall record of transition in the area of financial sector development is much less impressive than achievements in macroeconomic stabilization, economic liberalization and privatization of formerly state owned enterprises. There are several reasons for this. Among others I would highlight the specific complexities of the financial business and the intense political as well as emotional sensitiveness attached to any major move in this area. Influential stakeholders such as politicians, government officials, business and media people tend to overestimate the real value of particular institutions and at the same time overemphasize their importance to the national economy. In the absence of strong external and internal governance structures managers and at times also owners of banks, brokerages and insurance companies abuse this situation to increase their own influence and perceived importance. The story and history of financial sector development in most countries of Central and Eastern Europe in the first decade of transition, therefore, has been an uphill struggle to restore reliable channels and prudent practices of financial intermediation - to create a new culture of trust and confidence against all odds of a dire legacy sometimes characterized by crime and corruption, cronyism and collusion.