Towards Market-Oriented Banking in the Economies in Transition

Abstract

Privatization of the banking sector is usually viewed as the way to create market oriented banking sectors in formerly planned or transition economies. However, bank privatization is only part of the requisite story. Market-oriented banking requires the disengagement of the state from direct governance of banks (whether they are state-owned or privatized) and the simultaneous development by the state of an effective regulatory framework for the banking sector. At one and the same time, the governments should be getting out of the banking business and getting into the regulatory/ supervisory business. It is no wonder that managing these two seemingly contradictory tasks is often so difficult.

JEL Classification: G21, G28, O16, P34