Bank Regulation in the Economies in Transition

Abstract

Given that banking in economies of transition fluctuate heavily, we explore the effect of regulatory norms on performance of banking industry. In particular, we examine the effect of Reserve Requirements, Activity Restrictions, and Capital Stringencies on the overall industry profitability and stability of the financial institutions. We utilize the Generalized Methods of Moments methodology to the panel data regressions over 17 different transitional economies during, and after the crisis period of 2008 through to 2019. Our results show that the Reserve Requirements regulatory norm is the only significant factor that improves the profitability and diminishes the risk of financial instability. The findings are confirmed with our tests over the regional sub-samples. This research sheds the light on the necessities of political and economic reforms in banking for these markets in transition.