Bank competition, institutional strength and financial reforms in Central and Eastern Europe and the EU

Manthos D. Delis () and George Pagoulatos

MPRA Paper from University Library of Munich, Germany

Abstract: Abstract Following their EU15 counterparts, the banking systems of Central and Eastern European (CEE) countries underwent extensive reform since the 1990s. In this paper we estimate the degree of bank market power during the periods of financial reform in each European country, and subsequently we analyze the political and institutional sources of bank competition distinguishing between the EU15 and CEE subgroups. A linear pattern in the relationship between bank competition and institutional strength is demonstrated for the EU15 group of countries, while for the CEEs this pattern is non-linear. Therefore, we suggest that relatively underdeveloped banking systems, in less advanced politico-institutional milieus, overall fail to benefit from reforms in their early stages. As a policy implication the results imply that a certain level of institutional maturity, combined with openness to foreign investors, is a precondition for reforms aiming at enhancing competition and efficiency of banking markets.

Keywords: Bank competition; Financial reforms; Institutional development; European Union; Central and Eastern European countries (search for similar items in EconPapers)
JEL-codes: C10 P51 P34 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-com and nep-tra
Date: 2009-07-02
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:16494

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