Central And Eastern European Countries Financial Liberalization Of The Banking System Impact Studies

The Central and Eastern European countries have experienced social and economic transition for more than twenty years, the market economy system has been founded and the financial banking market has opened step by step in these countries. The financial openness brings new energy for the financial banking system of CEE countries; on the other hand, it also contains some unstable factors. This essay fully analyzes the impacts of financial openness has on the banking industry in CEE countries.This study contains two main parts. The first part studies the micro-effects of financial openness on banking industry by indicating that foreign banks can help domestic banks improve efficiency through competitive effect, spillover effect and environmental effect, and by setting an econometric model which uses panel data of 101 banks from 1999 to 2008. The second part studies the macro-effects of financial openness by pointing out that the unstable factors from previous planned economy and foreign economies may infect the existing banking system, and by setting a logit model which uses data from 1990 to 2007.The empirical results show that the financial openness in CEE countries has positive effects on the micro-efficiency of banking industry; in contrast, it has negative effects on the macro-stability of banking system. At last, this essay makes proposals of dealing with the relationship among openness, stability and development of financial banking, which also shed some light on China.