Financial Sector Reform and Banking Crises in the Baltic Countries

IMF Working Papers, December 1, 1996

Source details

Canonical URL: Financial Sector Reform and Banking Crises in the Baltic Countries

Financial sector reform in the Baltic countries is reviewed in light of the banking crises that emerged during the reform period.
The paper argues that the crises had their roots in the structural deficiencies specific to planned economies and the financial environment that developed before and after these countries regained their independence, thus rendering them largely inevitable.
Because of the low level of financial intermediation, even the failure of large banks had limited systemic effects and a minor negative impact on output and incomes.
The crises slowed down the financial reform process, but brought about a desired consolidation of the banking sector.

Structural deficiencies specific to planned economies contributed to the banking crises.
The financial environment that developed before and after independence amplified vulnerabilities.
Low level of financial intermediation limited systemic spillovers despite large-bank failures.

Limited systemic effects from bank failures due to low financial intermediation.
Minor negative impact on output and incomes.
Slowing of the financial reform process during the crises.
Resulting consolidation of the banking sector viewed as desirable.

Subjects: Bank credit, Banking, Banking crises, Commercial banks, Credit, Financial crises, Financial institutions, Foreign banks, Loans, Money
Keywords: Baltics, Banking crises, banking crisis, capital base, central bank, Commercial banks, Credit, Foreign banks, foreign exchange, interbank market, liquidity problem, Loans, market economy, money multiplier, savings bank, state enterprise, treasury bill, WP