Study on the effects of the global crisis on the financial sector in candidate and potential candidate countries

Description:

The main objective of the study is to increase the understanding of how the international economic and financial crisis affects the financial sectors of the EU candidate and potential candidate countries (CPCCs). CASE covers Turkey, Macedonia and Serbia.

First, the study will take stock of the structure and situation of the financial sector with a primary focus on the banking sector. This cross-country assessment will review common financial sector trends in the region (financial deepening, consolidation, foreign and private ownership, etc ). It will examine financial sector and stability vulnerabilities and challenges on the basis of a large range of standard financial and prudential indicators of asset quality, capital adequacy and profitability etc. The study would also examine the risks related to the widespread use of a foreign currency both on the asset and liability side of banking sector balance sheets, and to the foreign indebtedness of the banking sector. The study would provide a comparison of financial stability indicators with New Member States in Central and Eastern Europe. 
Second, in the context of the current economic and financial crisis the study will develop an analytical framework for assessing the main possible channels of crisis transmission to the financial sectors of the CPCCs, in particular by providing insights into the dynamics between real sector developments and adjustments and financial sector performance (feed-back loops). This framework should enable Commission services to improve and enhance its regular monitoring of the impact of the crisis on the domestic financial sectors. Thus, the framework should provide a relatively simple, non-technical and user-friendly toolkit for an enhanced monitoring.
Third, the study would assess policy responses by domestic authorities to address risks and vulnerabilities of the financial sector and to strengthen its resilience. The study wouldevaluate their effectiveness and would draw tentative medium-term policy conclusions.

Details on the coverage of the study:

• Introduction
• Financial sectors in CPCCs: key structural features
• Financial developments and macro-financial linkages in the run-up to the crisis
• Financial developments and macro-financial linkages during the crisis
• Framework for enhanced monitoring
• Application of the proposed monitoring framework to three country cases

Sponsor:

DG ECFIN - European Commission