Implications of the financial crisis on the soundness of the banking system in the Republic of Moldova

Abstract

The extent of recent financial crisis implications on economies differs from country to country. The effects of the crisis events in developed countries differ from the ef fects in developing countries. The banking systems are now more vulnerable to shocks and to contagion than ever before due to the globalization of banking ac tivity. In recent years, the Moldovan banking system has demonstrated a high degree of resilience to the global financial crisis. The local banking system has a low degree of connectivity to the European and world banking systems due to a very limited presence of international banks in the market. This has meant that there has been no direct contagion during the last financial crises. The effects of the crises in Moldova were felt indirectly by the banks, through the channel of remittances and foreign trade , which have diminished substantially as a result of the economic decline in Europe, particularly in 2009. This article aims to verify whether a systemic crisis was recorded within the domestic banking sector during recent years and to establish the conditions which could be classified as a full-fledged crisis episode in the case of the Republic of Moldova. In addition, the implications of the recent financial crisis on the soundness of Moldova’s banking system are identified.