CENTRAL AND EASTERN EUROPE BANKS’ RISKS, ROMANIA’S CASE

Valentin Scarlat
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Valentin Scarlat: Ecological University of Bucharest

No 11, Working papers from Ecological University of Bucharest, Department of Economics

Abstract: Risks have a considerable impact on a bank’s market value or a financial institution, both an intrinsic effect (as direct losses supported, usually) and an induced effect at the level of the customers, personnel, partners and economy, as well. Trying to consolidate the banking system, European Union intensified the capital requirements for the credit institutions. Thus the banks had to comply with the new established levels. The most recent stress tests shows the banks have a capital deficit amounting to 106 billion Euros. The big European banking groups have had to increase up to 9% their rate of I rank capital. However, the banks’ recapitalization implies a huge effort in order to attract resources and unfortunately the options are less and less. The funds may come from shareholders or private investors, but this end is harder and harder to be achieved, because this "deal" becomes extremely risky and harmful. Also, the E. U.’s state members may intervene for the banks’ recapitalization, but in this scenario the credit institutions could be constrained to strictly focus on their national economies. In the last resort it could be appealed the emergency fund of the European Union, but its increase is still a project. Taking into account these options the most of the banks could stay „at the hand” of their governments and could be framed to focus on their origin countries leaving the subsidiaries alone. It is expecting, in this context, the banks from Central and Eastern Europe (especially those from Hungary, Romania and Bulgaria) to operate the most rapid change in their business models, because they are in a higher degree dependent on the financing from their group mothers.

Keywords: banking risks; capital adequacy; performance criteria; globalization (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Pages: 7 pages
Date: 2013-04
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