The Role of Financial Institutions in the Transition to a Market Economy
IMF Working Papers, October 1, 1993
Source details
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- The Role of Financial Institutions in the Transition to a Market Economy
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Bibliographic details
- Authors: Michael G. Spencer, H. J. Blommestein
- Published: October 1, 1993
- Series: IMF Working Papers
Summary of main findings
- Financial institutions intermediate between savers and investors and contribute to corporate governance.
- Equity and bond markets in the former centrally planned economies are not yet in a position adequately to provide these services.
- It is not yet clear that investment funds will provide the necessary financing and corporate management.
- Therefore the first priority for financial sector reforms must be to establish a healthy commercial banking sector.
- Banks are the most promising source of financing, provide payment services which are crucial to both the real and financial sectors, and, by monitoring the use of loaned funds, will be the primary source of corporate governance during the transformation to a market economy.
Policy implications and recommendations
- Prioritize establishment of a healthy commercial banking sector as the central reform objective in transition economies.
- Strengthen banks’ capacity to provide financing and payment services essential for both real and financial sectors.
- Enhance banks’ monitoring and governance roles to substitute for underdeveloped equity and bond markets and uncertain investment fund development.
Subject coverage and keywords
- Subject: Banking; Commercial banks; Financial institutions; Financial markets; Privatization; Securities; Securities markets; Stock markets; Stocks
- Keywords: banking system; capital base; capital structure; Central and Eastern Europe; central bank; commercial bank; Commercial banks; Eastern Europe; investment funds; public offering; risk capital; savings bank; secondary market; Securities; Securities markets; state enterprise; Stock markets; Stocks; WP