## Bank Insolvency and Stabilization in Eastern Europe

_IMF Working Papers, January 1, 1992_

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## Bibliographic details
- Published: January 1, 1992
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451927146.001

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### Overview and central findings
- The profound structural reform underway in Eastern Europe has revealed the weakness of the banking sector.
- Weaknesses in the banking sector threaten macroeconomic stability and other reforms.
- A model is developed that:
  - Clarifies the role of banking in an emerging market economy.
  - Illustrates the danger that disturbances inherent to emerging markets may be magnified and prolonged by a banking collapse.
- Core implication: priority must be given to mobilizing fiscal resources to cover the costs of restructuring the banking sector.

### Analysis and model insights
- The model links banking sector health to broader emerging market dynamics and shows amplification and persistence of disturbances when banks fail.
- Emphasis on banking as a transmission and amplification mechanism for economic shocks in transitional economies.
- Highlights interactions among bank solvency, credit provision, enterprise reform, and macroeconomic outcomes.

### Policy recommendations
- Mobilize fiscal resources to cover the costs of restructuring the banking sector.
- Prioritize banking sector stabilization to safeguard macroeconomic stability and sustain structural reforms.

### Subjects and keywords (as listed)
- Subjects: Bank credit, Bank solvency, Banking, Commercial banks, Consumption, Currencies, Financial institutions, Financial sector policy and analysis, Loans, Money, National accounts
- Keywords: bank contract, bank portfolio, Bank solvency, banking system, capital stock, cash flow, Commercial banks, Consumption, consumption good, Currencies, Eastern Europe, enterprise reform, heterogenous firm, index-linked liability, Loans, market clearing price, money supply, nominal rate, payment ability, price level, socialist economy, WP

*International Monetary Fund — Bank Insolvency and Stabilization in Eastern Europe, IMF Working Papers 1992, 009 (1992).*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/bank-insolvency-and-stabilization-in-eastern-europe-1822_