In view of the still underdeveloped capital market in Central and Eastern Europe, modernizing enterprises particularly depends on a functioning banking sector. Due to the interdependence enterprises and banks the insolvency of individual enterprises set off chain reactions which resulted in the collapse of banks and shook the banking systems in some countries. Commercial banks were particularly susceptible to these developments since the ratio between their own fluids and enough experience in reorganizing enterprises nor business perspectives for the enterprises depending on them. In the past years the individual states have made different degrees of progress in reorganizing their commercial banks. Two policy patterns become manifest: Estonia very consistently closed insolvent banks and opened markets for foreign banks and newly developing private banks. Thus the Estonia state considerably reduced its own share in the banks. Latvia also tried to increase its banks orientation towards profitability by opening the market and reducing state shares. The other countries, by contrast, primarily improved capital endowment of the existing banks. Between 1992 and 1995 Polish, Hungarian and Slovene governments realized extensive recapitalisation. While Poland increased the registered capital of important commercial banks, the Slovene and the Hungarian governments also bought nonperforming loans from the banks for state bonds. Hungary then increased the registered capital of the big state-owned banks. In 1994. and 1995. respectively partial recapitalisation took place in Bulgaria and the Czech Republic. Neither Latvia nor Bulgaria nor Lithuania have until now succeeded in stabilizing their banking systems. In the Czech Republic which similar to Estonia opened the market, leading to the emergence of about 60 banks, the central bank has hitherto intervened in 12 banks facing liquidity problems or insolvency. In the Slovak Republic a far-reaching consolidation of banks is also still due. The governments in Bulgaria and Lithuania presently intend to increase the banks capital by state bonds, while the Latvian central bank refrained from direct intervention after the collapse of Banks Baltija and only intensified control of the banks activities.
Models of restructuring banking systems in economies in transition