Banking Sector Development and Financial Stability in the Run Up to EU Accession

The countries in Central and Eastern Europe (CEE) that arenegotiating their entry into the European Union have seen their financial landscape change dramatically over the past decade. With the breakdown of the system of central planning, the need for an effective and efficient system of financial intermediation became apparent. Since banks were already present during the communist era, the transition countries took their monobanks as the starting point for creating bank-based financial systems. Although these systems in the EU accession countries are currently not yet on par with their western peers, remarkable progress has been made. In many countries almost all of the large state banks have by now been privatised. Foreign strategic investors, mostly Western European and American banks, have been among the most important buyers. Preceding or simultaneous with this privatisation process, governments have – to various degrees – started to deal with the problem of bad loans. Progress has also been made with regard to supervision and regulation, in part stimulated by the requirements of EU accession. All these restructuring efforts with regard to the banking system and its regulatory environment may have contribute