Central And Eastern Europe Banking Crisis: Determinants And The Formation Mechanism

As a form of financial crisis, banking crisis will bring significant derangement to the entire financial system and the real economy. Especially for the most emerging market countries, whose banking system is the pillar of the financial system, banking crisis constitutes the main form of financial crises. Therefore, the academia and the world's financial regulatory authorities have made unremitting exploration on how to maintain the stability of the banking industry and prevent the occurrence of banking crises. As countries in transition, the Central and Eastern European countries'banking sector reform and stability has always attracted people's attention.Before the financial crisis triggered by the U.S. subprime mortgage crisis, the banking industry has got eye-catching performance in the Central and Eastern European countries. The banking stability and s operating results has improved remarkably, the evaluation of banking sector reform was very high. However, banking system in Eastern and Central European countries was hit heavily by the financial crisis. In a short period of time, bad loans rate increases sharply, the banking system faces great operational difficulties and the twin crises (banking crisis and monetary crisis) emerge. This phenomenon makes us have to focus on the the causes of the banking crisis and its internal mechanisms. By the analysis of the banking crisis in Central and Eastern European countries(mainly the more radical transformation and has joined the EU in the former socialist countries in Eastern Europe), this paper attempts to study the transition countries'financial reforms and crisis prevention mechanism, and then give some advice to our country's financial reform, especially the banking system's reform.Based on precious theoretical and empirical studies in the field, this paper develops an analytical framework for the determinants and emerging mechanism of banking crisis in Central and Eastern European countries. This paper is organized as follows. Chapter 1 is the literature review. Chapter 2 summarizes the facts and features of the banking crises to be studied. Chapter 3 analyses the determinants of the banking crisis. Chapter 4 studies the emerging mechanisms of the determinants and how the banking crisis occurs. Chapter 5 concludes. The main finding of this paper is that the determinants are the deterioration of the macroeconomic system, the banking system's own risk accumulation and external shocks. The accumulation and mechanism of these factors is inseparable with the economic and the banking sector'reliance on other EU member states. However, the suggestion for the Central and Eastern European countries is to join the Euro Zone as soon as possible.