We examine the interactions of bank lending dynamics, ownership structures, and crisis phenomena in the banking systems of Central and Eastern European (CEE) countries. Using a panel dataset of more than 400 banks for the period from 1994–2010, we show that the impact of ownership structure on a bank’s lending activities in CEE countries was conditional upon the type of crisis, namely, whether it was a host, home, global, or simultaneous crisis. In contrast, our evidence indicates that bank-specific characteristics, such as deposit growth and profitability ratios, are significant determinants of credit growth during both normal economic times and crisis periods, regardless of the crisis type. Moreover, we provide indirect evidence of the benefits of banking sector diversification dependent upon the criterion of parent banks’ country of origin

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The Central European banking industry is dominated by foreign-owned banks. During the recent crisis, for the first time since the transition, foreign parent companies were frequently in worse financial conditions than their subsidiaries. This situation created a unique opportunity to study new aspects of depositor discipline. In this article, we investigate whether depositors flexibly accommodated to the changing sources of risk. We also analyse the informational foundations of depositors' decisions. Using a comprehensive data set, we find that the recent crisis did not change the sensitivity of deposit growth rates to accounting risk measures. We establish that depositors' actions were much more strongly influenced by press rumours concerning parent companies than by fundamentals, and that the impact of rumours on deposit growth rates was highly economically significant. Additionally, we document that public aid announcements were interpreted by depositors primarily as a confirmation of a parent company's financial distress. Our results have important policy implications, as depositor discipline is usually the only viable and universal source of market discipline for banks in emerging economies. JEL classification: G21, G28

The Central European banking industry is dominated by foreign-owned banks. During the recent crisis, for the first time since the transition, foreign parent companies were frequently in worse financial conditions than their subsidiaries. This situation created a unique opportunity to study new aspects of depositor discipline. In this article, we investigate whether depositors flexibly accommodated to the changing sources of risk. We also analyse the informational foundations of depositors' decisions. Using a comprehensive data set, we find that the recent crisis did not change the sensitivity of deposit growth rates to accounting risk measures. We establish that depositors' actions were much more strongly influenced by press rumours concerning parent companies than by fundamentals, and that the impact of rumours on deposit growth rates was highly economically significant. Additionally, we document that public aid announcements were interpreted by depositors primarily as a confirmation of a parent company's financial distress. Our results have important policy implications, as depositor discipline is usually the only viable and universal source of market discipline for banks in emerging economies. JEL classification: G21, G28

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