A Theoretical Analysis of Bank Reforms in Transition Economies

Abstract

This article has two objectives:

Analyzes the impact of the introduction of tight solvency regulation for banks in transition economies. We show that, when the problems of soft budget constraints are severe, the introduction of these solvency regulations might paradoxically lead to a decrease of credit rationing.

Studies the consequences of bank privatization, according to whether the bank is sold to outsiders or insiders. We show that, when the excess liquidities of banks are not large, the privatization mode affects ex-ante credit rationing (funding of new investments) and interim credit-rationing (restructuring of existing loans) in the same fashion.