Policies Aa a Result of Global Credit Boom in SEE Countries

Perisa Ivanovic (), Zoran Grubisic () and Nikola Fabris
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Perisa Ivanovic: Belgrade Banking Academy
Zoran Grubisic: Belgrade Banking Academy
Nikola Fabris: University of Belgrade, Faculty of economics

Chapter 22 in Contemporary Issues in the Integration Processes of Western Balkan Countries in the European Union, 2011, pp 355-374 from Institute of Economic Sciences

Abstract: This paper aims to address key issues in maintaining financial stability in the SEE economies and define the role of macroprudential policy in the overall policy framework. The massive inflow of foreign capital that made the boom years possible is now the source of a very large problem for the region because this region is highly indebted externally. A large proportion of the debt, taken out by both households and businesses, is denominated in foreign currency. The danger of foreign currency loans, however, is that they are exposed to the fluctuations of exchange rates. In the paper authors analysing causes and lessons from the recent crisis finding that SEE economies shared broadly the same development model and problems by benefiting primarly from large capital flows. Then,it is found that the ability of each economy to absorb shocks is obviously different. The causes can be similar or same but measures have to be very specific considering macroeconomic situation, real sector structure and development of financial institutions, infrastructure and markets. Second, authors try to find the best definition of systemic financial risk and financial (in)stability in order to consider key aspects of macroprudential policymaking in SEE. For all SEE economies recommendation in the paper is immediate adoption of Basel III standards with the argument to give macroprudential policy mandate to explicit authority to conduct efficient and timely decision making. Third, finale conclusion in this paper is that SEE economies must develop integrated macroprudential policy framwork respecting its own characteristics and keeping in mind that confidence and resilience of financial system are the best indicators of financial (in)stability and rampart to all sistemic risks.

Keywords: Financial stability; macroprudential policy; banks; financial system; crisis (search for similar items in EconPapers)
Date: 2011
ISBN: 978-961-93203-0-3
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