Stability of CEE Banks in the Crisis Years. Capital Adequacy and Too-Big-to-Fail Parent Banks in CEE

Abstract

1 SummaryThe paper analyses the factors of capital adequacy in the banking FDI of Central and East European countries by relying on the Bankscope database. The main hypothesis is that parent ownership mitigated the impacts of the financial crisis on commercial banks, as parent banks capitalized those affiliates which turned red in household and corporate lending. This type of cross-market rebalancing is tested by a regression analysis. Several different factors were identified such as the too-big-to-fail phenomenon of parent banks, the FX rate volatility, the changing monetary environment represented by a 3-month market rate, the fiscal shock caused by sector-specific taxes and the risk of debtor failures represented by proxy of non-performing ratios.Journal of Economic Literature (JEL) codes: F31, F37, G17, G21, G33